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Sysco (SYY) Dips More Than Broader Markets: What You Should Know

In the latest trading session, Sysco (SYY) closed at $77.38, marking a -1.36% move from the previous day. Sysco (SYY) closed the most recent trading day at $77.38, moving -1.36% from the previous trading session. This change lagged the S&P 500's 0.84% loss on the day. Elsewhere, the Dow lost 0.36%, while the tech-heavy Nasdaq lost 0.18%.Coming into today, shares of the food distributor had lost 8.83% in the past month. In that same time, the Consumer Staples sector lost 7.2%, while the S&P 500 lost 10.24%.Investors will be hoping for strength from Sysco as it approaches its next earnings release. In that report, analysts expect Sysco to post earnings of $0.99 per share. This would mark year-over-year growth of 19.28%. Our most recent consensus estimate is calling for quarterly revenue of $18.61 billion, up 13.06% from the year-ago period.Looking at the full year, our Zacks Consensus Estimates suggest analysts are expecting earnings of $4.20 per share and revenue of $75.6 billion. These totals would mark changes of +29.23% and +10.15%, respectively, from last year.Investors might also notice recent changes to analyst estimates for Sysco. 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.Our research shows that these estimate changes are directly correlated with near-term stock prices. 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 has moved 0.08% lower. Sysco is currently sporting a Zacks Rank of #3 (Hold).In terms of valuation, Sysco is currently trading at a Forward P/E ratio of 18.66. This valuation marks a premium compared to its industry's average Forward P/E of 17.97.Meanwhile, SYY's PEG ratio is currently 2.07. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. Food - Miscellaneous stocks are, on average, holding a PEG ratio of 2.66 based on yesterday's closing prices.The Food - Miscellaneous industry is part of the Consumer Staples sector. This group has a Zacks Industry Rank of 167, putting it in the bottom 34% of all 250+ industries.The Zacks Industry Rank includes is listed in order from best to worst in terms of the average Zacks Rank of the individual companies within each of these sectors. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.Make sure to utilize Zacks.com to follow all of these stock-moving metrics, and more, in the coming trading sessions. 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 Sysco Corporation (SYY): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksSep 22nd, 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

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

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 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

Key Events This Week: All Eyes On Payrolls

Key Events This Week: All Eyes On Payrolls It was another rollercoaster week - the 11th drop in the past 13 - which however ended with a monster rally in bonds and stocks as markets priced in the coming Fed rate cuts, and although it'll likely be on the quieter side in markets today, we won't be able to escape the near-term recession risks for very long. As we noted last week, the Atlanta Fed Q2 tracker is now at -2.08% after slumping into negative territory at the end of last week, and if this is close to the mark that would mean two negative quarters and a technical recession. The official definition is owned by the NBER and they will likely need more evidence (and a political green light or three) before they would declare it as they look at a broader range of indicators than just headline growth. However we'll likely know we're in it before it's declared so it'll be crucial to work out if this is the start to a descent into bigger problems or if that's still some months away. Note, as Deutsche Bank's Jim Reid notes, it continues to be "when not if". A big swing factor here could be employment and this week is jam packed with US labor data. Payrolls (Friday) will be the headliner but JOLTS (Wednesday), ADP and claims (Thursday) will also be very important. As Jim Reid notes, labor markets remain strong around the world and although this is a generally a lagging indicator, some kind of turn should occur before we can declare what is absolutely the inevitable dive into recession (there is an outside chance of a negative print as soon as this Friday). For what it's worth, DB economists expect payrolls to slow (+225k forecast vs. +390k previously) but with unemployment falling a tenth to 3.5%. In many ways JOLTS (Wednesday) is the preferred employment measure although it has the disadvantage of being even more delayed as it is a month behind so we'll only get May's data this week. In the report, job openings have remained roughly 4.5mn above where they were prior to the pandemic so unless this dips there will still be a lot of demand for labor and the tightness will continue, leaving the Fed with a huge dilemma as growth slows. June's US services ISM on Wednesday will be watched for the headline growth implications and also the employment component which has been 'only' hovering around 50 in recent months. It's worth noting, as DB's Reid does, that the increased growth pessimism towards the end of last week stabilized equities as a big rally in bonds and a more dovish repricing of the Fed kicked in. 10yr Treasuries rallied -25.0bps last week (-13.3bps Friday), their largest weekly decline since March 2020, and although the S&P 500 finished -2.21% lower, it did rally +1.06% on Friday on lower yields as Fed expectations kicked in. Back to the week ahead and we'll see how central banks were thinking about this weak growth vs labor tightness dilemma in the minutes from the Fed's (Wednesday) and ECB's (Thursday) June meetings but this will be slightly dated in light of how rapidly the macro is evolving. Elsewhere, trade and industrial data will be due from key economies globally. May trade data will be out for the US (Thursday), Germany (today), Japan and France (Friday). For the US, May factory orders will be released tomorrow, followed by June's ISM services index on Wednesday. In Europe, the Eurozone's PPI for May is due today, followed by May industrial production for Germany (Thursday) and France, June PMIs for Italy (Tuesday), and Germany's May factory orders (Wednesday). In Asia, the highlight will perhaps be the Caixin services and composite PMIs for China and the RBA meeting taking place tomorrow. Our economists expect the central bank to hike by +50bp. Courtesy of DB, here is the full week ahead calendar day-by-day Monday July 4 Data: Japan June monetary base, Germany May trade balance, Eurozone May PPI, Canada June PMI Central banks: ECB's Nagel and Guindos speak, BoC's Business Outlook Tuesday July 5 Data: US May factory orders, China June services and composite Caixin PMIs, Japan May labour cash earnings, France May industrial and manufacturing production, Italy June services and composite PMI, deficit to GDP Q1, UK June new car registrations, official reserves changes, Canada May building permits Central banks: BoE's financial stability report, BoE's Tenreyro speaks. RBA meeting. Wednesday July 6 Data: US June ISM services index, May JOLTS report, China June foreign reserves, Germany May factory orders, June construction PMI, UK June construction PMI, Eurozone May retail sales Central banks: FOMC June meeting minutes, ECB's Rehn speaks, BoE's Pill and Cunliffe speak Thursday July 7 Data: US May trade balance, June ADP employment change, initial jobless claims, Japan May leading and coincident index, Germany May industrial production, Canada May international merchandise trade Central banks: ECB's account of June meeting, Fed's Waller and Bullard speak, BoE's decision maker survey, BoE's Mann speaks, ECB's Lane, Stournaras, Centeno and Herodotou speak Friday July 8 Data: US June nonfarm payrolls report, unemployment rate, participation rate, average hourly earnings, May wholesale trade sales, consumer credit, Japan June Economy Watcher survey, bank lending, bankruptcies, May household spending, trade balance, France May trade balance, Italy May industrial production, Canada June net change in employment, unemployment rate, hourly wage rate, participation rate Central banks: Fed's Williams speaks, ECB's Lagarde and Villeroy speak * * * Finally, looking at the US, Goldman notes that the key economic data releases this week are the JOLTS job openings and ISM services reports on Wednesday, and the employment situation report on Friday. The minutes from the June FOMC meeting will be released on Wednesday and there are several speaking engagements from Fed officials, including Governor Waller and presidents Williams and Bullard. Monday, July 4 There are no major economic data releases scheduled. Tuesday, July 5 10:00 AM Factory orders, May (GS +0.6%, consensus +0.5%, last +0.3%); Durable goods orders, May final (last +0.7%); Durable goods orders ex-transportation, May final (last +0.7%); Core capital goods orders, May final (last +0.5%); Core capital goods shipments, May final (last +0.8%): We estimate that factory orders increased 0.6% in May following a 0.3% increase in April. Durable goods orders increased 0.7% in the May advance report, and core capital goods orders increased 0.5%. Wednesday, July 6 09:00 AM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will make remarks at a virtual event on bank culture hosted by the New York Fed. On June 28, President Williams said, “In terms of our next meeting, I think 50 to 75 [basis points] is clearly going to be the debate. He added, “We’re far from where we need to be [regarding the federal funds rate]. My own baseline projection is we do need to get into somewhat restrictive territory next year given the high inflation...” He also indicated his growth forecast falls on the lower range among Fed officials: “I am expecting growth to slow this year, quite a bit, relative to what we had last year, and actually to slow to probably 1% to 1.5% GDP growth.” 09:45 AM S&P Global US services PMI, June final (consensus 51.6, last 51.6) 10:00 AM ISM services index, June (GS 54.4, consensus 54.0, last 55.9): We estimate that the ISM services index declined 1.5pt to 54.4 in June. Our forecast reflects sequential weakness in construction and real estate activity and the decline in our services tracker (-2.6pt to 53.9). 10:00 AM JOLTS job openings, May (consensus 11,000k, last 11,400k) 02:00 PM FOMC meeting minutes, June 14-15 meeting: The FOMC increased the federal funds rate target range by 75bp to 1.5%-1.75% at its June meeting. The median dot in the Summary of Economic Projections (SEP) showed a funds rate midpoint of 3.375% at end-2022. The statement dropped the expectation of a strong labor market, instead emphasizing that the Committee is “strongly committed” to returning inflation to target. The SEP showed a 0.5pp increase in the unemployment rate by end-2024 and below-potential GDP growth in 2022 and 2023. On June 22, Chair Powell reiterated that the Fed will make “continued expeditious progress toward higher rates,” and noted “financial conditions have already priced in additional rate increases, but we need to go ahead and have them.” Chair Powell also noted that the Fed would not engage in active sales of mortgage-backed securities anytime soon. He emphasized that while the FOMC is “not trying to provoke and do not think we will need to provoke a recession,” it remained “absolutely essential” for the Fed to restore price stability, and noted that it would be “very challenging” for the Fed to achieve a soft landing. Thursday, July 7 08:30 AM Trade Balance, May (GS -$84.7bn, consensus -$84.9bn, last -$87.1bn): We estimate that the trade deficit decreased by $2.4bn to -$84.7bn in May, reflecting an increase in exports in the advanced goods report. 08:30 AM Initial jobless claims, week ended July 2 (GS 225k, consensus 230k, last 231k); Continuing jobless claims, week ended June 25 (consensus 1,330k, last 1,328k); We estimate initial jobless claims ticked down to 225k in the week ended July 2:  01:00 PM Fed Governor Waller (FOMC voter) speaks: Fed Governor Christopher Waller will participate in an interview during a virtual National Association for Business Economics (NABE) event. A moderated Q&A is expected. On June 18, Governor Waller said, “This week, the FOMC took another significant step toward achieving our inflation objective by raising the Federal Funds rate target by 75 basis points. In my view, and I speak only for myself, if the data comes in as I expect I will support a similar-sized move at our July meeting.” He added, “The Fed is ‘all in’ on re-establishing price stability.” 01:00 PM St. Louis Fed President Bullard (FOMC voter) speaks: St. Louis Fed President James Bullard will discuss the economic outlook and monetary policy at an event hosted by the Little Rock Regional Chamber. A Q&A with media and audience is expected. When discussing the US economy on June 24, President Bullard said, “I actually think we will be fine. It is a little early to have this debate about recession probabilities in the US” and reiterated his call for “front-loading” rate hikes. He noted, “this is in the early stages of the US recovery – or US expansion, we are beyond recovery. It would be unusual to go back into recession at this stage. Interest-rate increases will slow down the economy, but will probably slow down to more of a trend pace of growth as opposed to going below trend. I don’t think this is a huge slowing. I think it is a moderate slowing in the economy.” On June 28, he published an essay on lessons from the 1974 and 1983 US policy responses to inflation. Friday, July 8 08:30 AM Nonfarm payroll employment, June (GS +250k, consensus +273k, last +390k); Private payroll employment, June (GS +200k, consensus +240k, last +333k); Average hourly earnings (mom), June (GS +0.3%, consensus +0.3%, last +0.3%); Average hourly earnings (yoy), June (GS +5.0%, consensus +5.0%, last +5.2%); Unemployment rate, June (GS 3.6%, consensus 3.6%, last 3.6%): We estimate nonfarm payrolls rose by 250k in June (mom sa), a slowdown from the +390k pace in May. Job growth tends to be strong in June when the labor market is tight as firms aggressively hire youth summer workers. However, the June seasonal factors have evolved significantly more restrictive—perhaps overfitting to the reopening-related job surges in June 2020 and June 2021—and represent a headwind of roughly 200k in our view. Additionally, Big Data employment indicators were generally weaker in the month, consistent with a possible drag from tighter financial conditions and modestly higher layoffs in the retail and tech sectors. We estimate an unchanged unemployment rate at 3.6%, reflecting a solid rise in household employment offset by a 0.1pp rise in labor force participation to 62.4%. We estimate a 0.3% rise in average hourly earnings (mom sa) that lowers the year-on-year rate by two tenths to 5.0%. The arrival of the youth labor force may have eased some of the upward pressure on wages, but we see scope for supervisory earnings to rebound after two weak months (we assume neutral calendar effects). 10:00 AM Wholesale inventories, May final (consensus +2.0%, last +2.0%) 11:00 AM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will make remarks at an event hosted by the University of Puerto Rico. A Q&A with media and audience is expected. Source: DB, BofA, Goldman Sachs Tyler Durden Mon, 07/04/2022 - 11:10.....»»

Category: blogSource: zerohedgeJul 4th, 2022

Futures Rebound On Report Biden To Roll Back Chinese Tariffs Soon

Futures Rebound On Report Biden To Roll Back Chinese Tariffs Soon After Friday's torrid surge, which some speculated was due to pension funds tactically delaying their month-end buying until the start of the next month coupled with another major squeeze as recession fears overflowed and the market priced in a whopping 15bps of rate cuts in Q1 2023 due to the start of the Biden recession (because bad news is again good news), futures initially dipped before recovering most of their losses after the WSJ reported that Biden is "expected to roll back some tariffs on Chinese imports soon, a decision constrained by competing policy aims: addressing inflation and maintaining economic pressure on Beijing." Maybe, but all the decision which also weakened the dollar, will show is that as expected all along, the president - or rather his son - was in China's pocket from the very beginning. In any case, after dropping below 3,800, S&P futures bounced and were trading near session highs, if still down 0.2% from Friday's high, when US stocks capped their 11th decline in 13 weeks (Let's go, Brandon). Today's illiquid session, which sees US cash markets closed due to the July 4 holiday, has also seen Nasdaq futures down 0.4% while Dow futs were down -0.1%. After a catastrophic first half and the first bear market since Covid, stocks remain in the grip of the worst selloff in at least three decades as increasing chances of a global recession are spooking investors. At the same time, sticky inflation has left little room for the Federal Reserve to apply brakes on monetary tightening. This toxic combination presents markets a trading challenge not seen since the late 1970s, and only a massive recession, one which eliminates the risk of inflation and ushers in aggressive Fed easing can help save the day. The MSCI All-Country World Index plunged 21% in the first half, the worst YTD losses since at least 1988. Similarly, the 14% loss in the Bloomberg Global Aggregate Index of investment-grade debt was its worst performance since 1990, the earliest date for which records are available. "The market has begun to worry more about economic growth than just liquidity withdrawal and inflation,” Stephen Innes, managing partner at SPI Asset Management, wrote in a note. “Unlike previous downturns, inflation is much higher and unemployment is much lower. These dynamics delay any potential dovish central-bank pivot despite the rapid shift in front-end rate expectations over the past week." Across the Atlantic, European stocks rose 0.9% for the first time in four days as dip-buyers emerged, and returned to best levels after a choppy start. Euro Stoxx 50 rose as much as 0.75%, with CAC outperforming. Energy, healthcare and telecoms are the strongest Stoxx 600 sectors. Banks that are most sensitive to economic conditions, including Spanish and Italians lenders as well as Germany’s Commerzbank, underperformed on Monday as investors remain concerned about an economic slowdown and high inflation. Among the worst performers are Sabadell -3.1%, Intesa -2.9%, Banco BPM. Italian bonds tumbled with investors watching domestic political tensions. Here are the biggest European movers: AO World shares slump as much as 18%, to the lowest since March 2020, after the Sunday Times reported that credit insurer Atradius has reduced cover for suppliers to AO World. Shop Apotheke falls 13%, the sharpest intraday decline since May 10, after Oddo downgrades the stock to neutral from outperform. Grafton shares drop as much as 8.8%, the most in more than two years, after the building and home products supplier announces that CEO Gavin Slark is stepping down. Ashmore shares drop as much as 4.7% after Numis cut its recommendation on the emerging-market fund manager to hold from add, saying the investment outlook is poor and performance is weak. Maisons du Monde shares drop as much as 7.5% to the lowest level since May 2020 after being downgraded to reduce from hold at Kepler Cheuvreux, in a note called “Between a rock and a hard place.” SBB falls as much as 8.2% Monday, giving up some of Friday’s 10% gain, having announced the sale of 25% of its shares in Solon Eiendom Holding AS to OBOS. Polish banks fall after Poland’s ruling party leader threatened lenders with additional tax on their profits if they don’t increase interest on household deposits. Alior Bank falls 4.9%, Bank Handlowy -4.5%, Millennium -4.1% Waberer’s gains as much as 27%, the biggest intraday jump on record, after owners that together control a majority of the Hungarian hauler filed a buyout offer at HUF2,336 per share. Earlier in the session, Asian equities edged higher amid optimism the region’s earnings will prove resilient as the reporting season gets underway. The MSCI Asia Pacific Index climbed as much as 0.8%, buoyed by consumer discretionary shares as most sectors advanced. Benchmarks in Australia and Japan were among the best performers in the region. Bucking the trend, Indonesia’s stock gauge slumped more than 2% as a decline in commodity prices caused traders to book profits on Asia’s top-performing market this year.  While recession concerns have been weighing on global stock markets, falling commodity prices may ease inflationary pressure in Asia. China’s progress toward economic reopening may also help Asian stocks recover from their worst first half in three decades. “We are less threatened by inflation in the region, so a lot of corporations in Asia are going to see a better time in terms of earnings” as valuations have fallen, Vicki Chi, a fund manager at Robeco, told Bloomberg Television. China’s shares closed modestly higher as the nation races to quash a new virus flareup that risks spilling over into one of its most economically significant regions. In China, officials were trying to repel a Covid flareup that could buffet an economically significant region. That’s another test of Beijing’s strategy of trying to eliminate the pathogen with mass testing and disruptive lockdowns. Separately, developer Shimao Group Holdings Ltd. said it didn’t pay a $1 billion dollar note that matured Sunday, among the biggest dollar payment failures so far this year in China. In FX, the dollar dipped after the WSJ report that Biden may announce a decision to cut Chinese tariffs this week; at the same time the USD/CNH dropped 0.2% near 6.68, and EMFX caught a small bid with ZAR outperforming.  Bitcoin hovered above the $19,000 level. Fixed income traded heavy with curves bear flattening. Short end of the German curve underperforms, cheapening ~11bps in 2s and 5s. Gilts outperform bunds by ~2bps.  Italian bonds slid before a meeting between Prime Minister Mario Draghi and Five Star leader Giuseppe Conte to settle weeks of political tensions. The nation’s 10-year yield jumped 12 basis points to 3.21%, widening its spread over German bunds to 1.90 percentage points. Cash Treasuries are closed for Independence Day, T-note futures are range-bound. In commodities, crude futures extended their rebound from the recent hammering, rising over $15 to trade $109.44 while Brent rose to $113.3. Most base metals trade in the green; LME nickel rises 3.7%, outperforming peers. LME lead lags, dropping 0.4%. Spot gold falls roughly $6 to trade near $1,806/oz. * * * DB's Jim Reid concludes the overnight wrap Happy Independence Day to all of our US readers. It's nice that we can be friends again after 246 years. Although I hope relations haven't been strained by me publishing the chart over recent weeks that US 10yr treasuries (and earlier proxies) have seen their worst H1 for 244 years and just after the divorce. Having said that the week ended with a monster rally in bonds, and although it'll likely be on the quieter side in markets today, we won't be able to escape the near-term recession risks for very long. The Atlanta Fed Q2 tracker is now at -2.08% after slumping into negative territory at the end of last week, and if this is close to the mark that would mean two negative quarters and a technical recession. The official definition is owned by the NBER and they will likely need more evidence before they would declare it as they look at a broader range of indicators than just headline growth. However we'll likely know we're in it before it's declared so it'll be crucial to work out if this is the start to a descent into bigger problems or if that's still some months away. Note it continues to be "when not if". A big swing factor here could be employment and this week is jam packed with US labour data. Payrolls (Friday) will be the headliner but JOLTS (Wednesday), ADP and claims (Thursday) will also be very important. Labour markets remain strong around the world and although this is a generally a lagging indicator, we think some kind of turn should occur before we can declare what is absolutely the inevitable dive into recession. Our economists expect payrolls to slow (+225k forecast vs. +390k previously) but with unemployment falling a tenth to 3.5%. In many ways JOLTS (Wednesday) is our favoured employment measure but it has the disadvantage of being a month behind so we'll only get May's data this week. In the report, job openings have remained roughly 4.5mn above where they were prior to the pandemic so unless this dips there will still be a lot of demand for labour and the tightness will continue, thus leaving the Fed with a huge dilemma as growth slows. June's US services ISM on Wednesday will be watched for the headline growth implications and also the employment component which has been 'only' hovering around 50 in recent months. Ironically the increased growth pessimism towards the end of last week stabilised equities as a big rally in bonds and a more dovish repricing of the Fed kicked in. 10yr Treasuries rallied -25.0bps last week (-13.3bps Friday), their largest weekly decline since March 2020, and although the S&P 500 finished -2.21% lower, it did rally +1.06% on Friday on lower yields as Fed expectations kicked in. Back to the week ahead and we'll see how central banks were thinking about this weak growth vs labour tightness dilemma in the minutes from the Fed's (Wednesday) and ECB's (Thursday) June meetings but this will be slightly dated in light of how rapidly the macro is evolving. Elsewhere, trade and industrial data will be due from key economies globally. May trade data will be out for the US (Thursday), Germany (today), Japan and France (Friday). For the US, May factory orders will be released tomorrow, followed by June's ISM services index on Wednesday. In Europe, the Eurozone's PPI for May is due today, followed by May industrial production for Germany (Thursday) and France, June PMIs for Italy (Tuesday), and Germany's May factory orders (Wednesday). In Asia, the highlight will perhaps be the Caixin services and composite PMIs for China and the RBA meeting taking place tomorrow. Our economists expect the central bank to hike by +50bp. The full week ahead is in the day by day calendar at the end as usual. This morning in Asia, markets are quiet with the Nikkei (+0.58%) leading the pack and with the Shanghai Composite (+0.14%) and CSI (+0.16%) swinging between gains and losses in early trade. Elsewhere, the Hang Seng (-0.63%) is lagging as the market resumes trading after a holiday on Friday. Meanwhile, the Kospi (-0.58%) is struggling a bit after paring its early morning gains. Over the weekend there has been some chattter of Covid-19 cases in China continuing to climb as new Coronavirus clusters emerged in eastern cities. So one to watch over the next few days. Recapping last week now, and it marked the end of an ignominious first half for markets, which is an understatement if anything. See our H1, Q2 and June performance review here but in short, the S&P 500 had its worst start to the year in six decades, falling in return terms for consecutive quarters for the first time since the GFC, while 10yr Treasuries returned their worst first half since 1788. Zooming in on the week in isolation, a nasty cocktail of underwhelming production, spending, and confidence figures, mixed with still stubbornly high inflation led to a risk sell-off but with a rare recent flight to quality into bonds. Starting in Europe, ECB President Lagarde noted she did not believe we would return to the low environment world that defined the years running up to the pandemic, which, along with other ECB speakers throughout the week, continued to lay the groundwork for the hiking cycle to begin in July. Indeed, Eurozone CPI increased to 8.6% YoY, edging expectations of 8.5% even if German inflation temporarily eased. The STOXX 600 tumbled -1.40% (-0.02% Friday), which saw banks fall even more (-5.00%, -0.40% Friday). 10yr bund yields fell -21.0bps (-10.4bps Friday) while the 2yr rallied -29.7bps (-13.3bps Friday), bringing their decline to -57.8bps over the last two weeks, the largest two week decline since August 2011, on the prospect of a global growth slowdown that would stymie the ECB’s hiking cycle. In a sign of how volatile things have been, the weekly decline in 2yr yields was topped just back in March this year. On the periphery, 10yr BTPs kept pace, falling -37.2bps (-17.3bps Friday). Indeed, President Lagarde emphasised the ECB could use flexibility in reinvesting PEPP redemptions to support implementation starting this month. In the US, consumer confidence sagged while inflation expectations climbed. Meanwhile, every regional Fed manufacturing index is now in contractionary territory, though PMIs and ISM Manufacturing figures remain in expansion, printing at 52.7 and 53.0, respectively on Friday. Piling on to the poor near-term outlook, however, ISM New Orders fell into contraction zone at 49.2 versus 52.0 expectations. Meanwhile, core PCE managed to still print at 6.3% YoY. That mix is driving grave comments from Fed officials. Chair Powell re-emphasised that this hiking cycle would cause some pain, while SF Fed President Daly noted a Fed-induced recession was now in her outlook - a rare comment from a Fed official. It seems it’s also the market’s outlook. 10yr Treasuries rallied -25.0bps (-13.3bps Friday), their largest weekly decline since March 2020 when the pandemic first gripped global markets. That corresponded with a modest flattening in the 2s10s yield curve, but the shock lower was more or less parallel, as markets reduced the amount of tightening they believed the Fed would impart this cycle, with 2yr yields down -23.0bps (-12.0bps Friday), also the largest decline since March 2020. With that mix, it’s perhaps unsurprising that the S&P 500 gave up ground over the week, closing -2.21% lower (+1.06% Friday). Utilities outperformed given the terrible risk sentiment, gaining +4.11% (+2.48% Friday), while mega-cap FANG+ (-5.42%, +0.92% Friday) and tech-heavy NASDAQ (-4.13%, +0.90% Friday) had a rougher time. Brent futures fell -1.48% (-2.93% Friday) in light of the slowing global growth narrative, registering their first monthly decline (-6.54%) since November when Omicron drove slowing global demand fears. In Europe, natural gas prices climbed +15.0% (+2.26 Friday), as supply constraints look set to grip markets, between a failing compressor in Norway and fears that Russia's planned maintenance period (July 11-21) for the Nordstream pipeline will be opportunistically used to restrict supply thereafter. Tyler Durden Mon, 07/04/2022 - 09:04.....»»

Category: blogSource: zerohedgeJul 4th, 2022

Legendary investor Mark Mobius says investors should watch bitcoin to figure out if the stock market has bottomed

"Bitcoin goes down, the next day the Dow Jones goes down," making the cryptocurrency a leading indicator, Mobius told Bloomberg. Mark Mobius.South China Morning Post/Getty Images Bitcoin is acting as a leading indicator for stocks, billionaire investor Mark Mobius told Bloomberg.  "Cryptocurrencies are a measure of investor sentiment," he said in an interview published Wednesday.  Bitcoin has lost more than 70% since logging an all-time high in November.  Bitcoin is giving stock investors insight into where the equity market is headed, veteran investor Mark Mobius told Bloomberg in an interview published on Wednesday. "Cryptocurrencies are a measure of investor sentiment," he said. "Bitcoin goes down, the next day the Dow Jones [Industrial Average] goes down. That's the pattern you get. That shows that bitcoin is a leading indicator." The co-founder of Mobius Capital Partners and a preeminent investor in emerging markets spoke as the cryptocurrency market has been undergoing a "crypto winter" with prices struggling to capture or capitalize sustainable gains.The broader crypto market has dropped to less than $1 trillion in valuation after hitting all-time highs above $3 trillion in November. Bitcoin was trading around $20,066 on Wednesday, down more than 70% from its all-time high of $69,000 in November.Mobius said sentiment in the equity market hits rock bottom only when institutional and retail investors stop plowing more money into the market because of sharp losses. "That's the time to start buying stocks," he said.US stocks have sunk into a bear market as the Federal Reserve increases borrowing costs to cool the hottest rates of consumer price inflation in 40 years. With the Nasdaq Composite losing nearly 30% and the S&P 500 down more than 20%, market watchers have been on the lookout for signs the sell-off has run its course.But if bitcoin investors "are still talking about buying on dips, that means there is a feeling of hope," Mobius said. "That also means that we have not reached the bottom of a bear market."Read the original article on Business Insider.....»»

Category: topSource: businessinsiderJun 22nd, 2022

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

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

Category: blogSource: zerohedgeMay 25th, 2022

Millennials and Gen Z Invested When It Was Fun. Now They’re Riding Out a Crash

Young investors have been taking big swings on high-risk, high-return trades. What's next? “Being open to crypto astrology might literally change your life,” says Maren Altman. She’s a 23-year-old astrology influencer with over 1.2 million TikTok followers, and she believes the study of celestial bodies can be a valuable tool for making sense of cryptocurrency. “I’m tracking planetary cycles,” she says. “So I look at the positions of the planets at a given moment and then other times in history.” Altman emphasizes that you don’t have to be an expert trader to take advantage of this approach to investing. Just learn the signs that the market is about to get worse and “put some money aside to buy in if it dips.” [time-brightcove not-tgx=”true”] Crypto astrology is just one unusual example of how younger generations are doing away with traditional investing methods in favor of less time-tested approaches, from meme stocks to crypto to NFTs. Fueled by the economic volatility of the COVID-19 pandemic, millennial and Gen Z investors have been taking big swings on high-risk, high-return trades rather than letting investments simmer. They’re also weathering a punishing crash. On May 14, Altman posted a reassuring message for everyone who lost money in the recent debacle. The market, she said, would stabilize—especially since Luna was “eclipsed under a lunar eclipse.” She was talking about the near-total collapse of the crypto token Luna, which accompanied the fall of its sister stablecoin TerraUSD (UST) and plunged the broader crypto market into freefall last week. The crash wiped out more than $400 billion in crypto market capitalization in a matter of days and bankrupted many investors. It’s been a “cryptocurrency bloodbath,” says Glauber Contessoto, a 34-year-old crypto enthusiast better known as the “Dogecoin Millionaire.” Contessoto made a name for himself in the crypto world last year by exceeding $1 million in Dogecoin holdings just over two months after investing his life savings of around $180,000 in the meme coin in 2021. And while he says that creating a dollar-pegged stablecoin like UST that can’t stay stable “takes all of the trust out of what everyone’s trying to do with crypto,” he’s committed to staying the course. “Whether you’re looking at Bitcoin or Dogecoin or Cardano or Ethereum… all of them have seen fluctuations,” he says. “The issue with newer coins is it’s harder to gauge if they’re going to recover or not, because we haven’t seen the data to prove that.” Crypto’s decline is reflective of a wider retreat from risky assets like tech stocks that’s been triggered in recent months by inflation, rising interest rates, and economic uncertainty brought on by Russia’s invasion of Ukraine. But crypto’s downturn has been notably sharper than the drop in the stock market. While the S&P 500 has slumped by roughly 18% so far this year, Bitcoin’s price has plummeted by nearly 40% in the same timeframe. Even with Dogecoin falling by over 50% this year, Contessoto’s faith in crypto’s long-term viability hasn’t waned. “All of this is temporary,” he says. “If you look at the history of Bitcoin, it’s still the most incredible investment you could have made in the last decade. We’ve seen drops in Bitcoin of 80%, 90% over the years and it never gets easier. But you stand firm because you know that crypto is the future and you know that everything will pan out eventually and slowly rise.” Why young people got so into investing Before crypto and NFTs began spiking in popularity, meme stock mania set in amongst young people. It was January 2021, and users of Reddit’s WallStreetBets subreddit banded together to intentionally inflate GameStop’s stock in order to force a short squeeze. That made the market more volatile. It was a fateful moment in time for retail investors. More than 10 million Americans opened new brokerage accounts in 2020, according to a 2021 report by consulting firm Deloitte. Encouraged by pandemic-induced shocks that led to record highs and lows, this new class of individual investors was responsible for 20% of all stock trading less than a year after the pandemic’s onset and has continued to grow more empowered as time has gone on. Most of these new investors are from younger generations. Survey data from brokerage firm Charles Schwab suggests that roughly two-thirds are millennials and Gen Zers, meaning young people are enjoying an unprecedented level of market power. They’re also wielding it in unprecedented ways. Research conducted by global data intelligence company Morning Consult indicates that 13% of Gen Zers and 11% of millennials are willing to take substantial financial risks in expectation of earning substantial rewards as compared to 3% of Boomers. The possibility of getting rich quick is what appeals to many younger people about the crypto and NFT markets, says 33-year-old Shane Martz, a crypto influencer known on social media as the Jolly Green Investor. “The time to take risks on investments is when you’re young,” he says. “And right now, crypto and NFTs are that scene. They offer you the opportunity of getting back 10x or 100x on your investment within a few months or even weeks.” A November report published by Pew Research Center showed that roughly 31% of 18-29-year-old Americans have invested in, traded, or used a cryptocurrency, compared with smaller shares of adults in older age groups. Altman attributes this trend to the rise of easily accessible investing advice online. “The internet opens access to information that might have previously been gate-kept or intentionally just not advertised to the public,” she says. “When I was taking business school classes, I felt like there were certain words for things that were—I don’t want to say pretentious—but intended to keep people out. It doesn’t need to be that complicated. Online, people can cut through that easier.” That’s even how Contessoto got his start. He says he first began looking into crypto after the popular commission-free investing app Robinhood took steps to curb the trading of GameStop stock and other heavily shorted securities in early 2021—and ultimately learned about Dogecoin on a Reddit thread “I had some money invested in GameStop and then after Robinhood pulled what they did, it became apparent that style of investing was no longer working for me” he says. “I started looking at alternative ways of investing and that’s how I came across crypto.There were a lot of people in my shoes who lost a lot of money and started switching over.” What now? As the past week has shown, putting your faith in more volatile assets doesn’t always pan out. Newbie investors are often on the lookout for an investing opportunity that has the potential to change their fortune overnight because of success stories they’ve seen online, says Martz. But those types of gains aren’t the norm. “Social media is the reason everyone really wants to get involved in these newer trends because it makes them seem so easy and glamorous,” he says. “Everyone’s always chasing the next shiny thing. They’re seeing people driving around in Lambos on TikTok and Instagram saying, ‘I work two hours a day from anywhere in the world,’ or, ‘I just turned $1,000 into $500,000.’ But the reality is that successful investing takes a lot of work and dedication.” Even after his unprecedented success investing in Dogecoin, Contessoto says that he still cautions less-experienced investors against wild speculation. “People ask me questions all the time like, ‘How do I do what you did?’ But I consider Dogecoin this once-in-a-lifetime, perfect-storm scenario. I couldn’t even do it again.” Instead, he advises those just getting into the crypto space to stick to “blue-chip cryptocurrencies” like Bitcoin and Ethereum. “If you look at their track records, those two are the powerhouses. Obviously, it’ll be a slower grind with a slower growth rate. But it’s like, you can either play it safe or you can try your hand at a bunch of speculation plays and maybe lose all your money.” Still, Contessoto realizes it might seem disingenuous to give others advice that he didn’t take himself. “It’s hard to tell people to do something that you didn’t,” he says. “You know, I’m saying, ‘Hey, play it safe—buy Bitcoin and Ethereum.’ But I was over here YOLO-ing into Dogecoin and it happened to work out great for me.” Martz says that crypto’s current debacle illustrates how the crypto market can be manipulated just like the stock market. “We’ve seen over the past week that there’s large entities buying and selling to drive the price up and down. And unfortunately, it’s the whales that win the game every time. The retail investors always lose,” he says. “So the best thing you can do is educate yourself and try to take advantage of the trends.” But that doesn’t mean that a return to traditional investing is seen as the way forward for those who have made the switch. While some critics view crypto as a Ponzi scheme, Contessoto says they’re missing the big picture. “A lot of these old-school investing guys look at crypto as something that doesn’t create anything and is only worth more because more people are buying into it,” he says. “But we’re talking about a new form of money that didn’t exist a little over 10 years ago. It’s something more people should research and try to understand how it can be beneficial.” For those who are looking to the stars for an answer, Altman predicted on TikTok that prices will somewhat restabilize and improve over the summer. “Once eclipse season ends, I expect a lot of this insanity to end,” she said......»»

Category: topSource: timeMay 19th, 2022

Rabobank: If The US Is Going To Win This War, It Needs Higher Rates, A Stronger Dollar, And Lower Commodity Prices

Rabobank: If The US Is Going To Win This War, It Needs Higher Rates, A Stronger Dollar, And Lower Commodity Prices By Michael Every of Rabobank Everything Old is New Again Using the matrix of both bond yields AND commodity prices I suggested yesterday as a judge of what the market is thinking vs. what the Fed then needs to be doing seems to have held water. Amid the usual “why bother paying attention to facts when one can buy dips” equity action, US 10-year yields surged 8bp back to 2.99% and 2-year yields 12bps to 2.69%, AND oil and wheat moved higher, the former to over $115 before dipping back to around $113, the latter starting lower but closing at a new record high. Bonds sold off after we got a hawkish Powell interview that showed he was looking at the continued rise in commodities, not any falls in demand. Specifically, Powell stated ”There’s an overwhelming need to get inflation under control”; that “this is not a time for tremendously nuanced readings of inflation: we need to bring it down in a convincing way. We do not see that right now. Some signs are promising, others are not”; and that the Fed “will push ahead with rate increases until we get as far as we need to get – we’ll keep going.” Indeed, Powell stressed, “Neutral is not necessarily a stopping point. If we have to go beyond neutral, we will not hesitate.” He also underlined “We will tighten until we are at a place where financial conditions are appropriate, and inflation is coming down.” In other words, bond yields cannot truly come down before key commodities do. Whocouldanooed? For those rightly thinking that rate hikes don’t help inflation driven by the supply side, which is seeing real incomes fall sharply for those outside Wall Street, there was no succour. Powell added the Ukraine war could last longer than expected, as could Chinese lockdowns, and that “there is a real possibility that globalisation does into reverse to some extent.” Indeed, while inflation is partly driven by supply bottlenecks, the Fed is not seeing much evidence of it “healing,” and, crucially, “is not setting policy based on the view we get relief from the supply side.” As such, “we clearly have a job to do on the demand side.” But what of the Fed’s 2020 shift to focus on the lowest possible unemployment rate for all Americans in order to bridge socio-economic chasms? Well, now Powell sees the natural rate of unemployment as likely higher than 3.6%, where it sits, and implied he expects joblessness to rise ahead, adding he wants to see only “healthy” nominal wage inflation consistent with 2% CPI, which it currently exceeding in many places. (Australia just saw a 2.4% y-o-y print for Q1, which was below consensus, and may take some heat out of Aussie markets.) Overall, Powell said there would be “pain involved” in doing what was necessary, and a “soft-ish” landing was only now “plausible”. So, yes, the implication is the recession Mr Market is talking of – just not the rates easing-of-financial-conditions Fed response he was already starting to price for. That was followed up by Evans arguing the Fed should raise rates to a 2.25%-2.5% neutral range “expeditiously”, and favours “front-Loaded” hikes to transition to a more measured pace, which would give them time to monitor supply chains --which are being noticed and have no resolution-- in order to evaluate tighter policy. In short, everything old is new again: hawkishness; wanting higher unemployment and lower nominal (and real) wage growth; and a Fed that is prepared to talk the talk – although walking the walk, or walking and chewing gum at the same time, is yet to be seen. Meanwhile, we got more central bank news from Europe, where Reuters says, ‘Exclusive-ECB's Lagarde gives national central bank chiefs louder voice on policy’. The details are that ECB President Lagarde “has given national central bank chiefs a bigger say in policy meetings, asking her own board to speak less and set aside more time for debate,” according to sources. Chief economist Lane and fellow board member Schnabel have been told to limit their presentations and leave more space for the central banks of the euro’s 19 countries to air their views. This is implied as being introduced because “a few voices typically dominate,” and “criticism has grown since last summer as Lane and his staff repeatedly underestimated the size and duration of inflationary pressures. The surge in prices, which some ECB policymakers warned were persistent, eventually prompted the central bank to change tack and open the door to higher interest rates.” So, this is not so much about democracy as the fact that the loudest voices on inflation have been completely wrong (by not seeing everything everywhere all at once, as noted yesterday). Regardless, it takes us back to an older era when a wider variety of speakers had a say. On which, wouldn’t it be nice if we also got business, trade/logistics, and union voices heard around the central bank table too today, rather than just the financial sector and academic economists like Lane? Their input would certainly be relevant, it appears. And why not national security figures too? The first modern central bank, the BOE, was set up to finance a major war, as were its European counterparts. (As the EU and UK are daggers drawn again over Northern Ireland, with trade war in the wind.) Today they cannot even do a good job of fighting inflation, let alone defending Western interests. Yet everything old may be new again there too due to the Ukraine metacrisis. US Treasury Secretary Yellen is now talking of a new Marshall Plan, which takes us back to the 1950s. Inconveniently, that involves winning the war first, which means US Lease-Lease, which is already in place, taking us back to the 1940s, and integrating military, economic, and financial components: after all, the measurement of ‘GDP’ originated in the US in WW2 as a tool to win it, not to set up the quarterly ‘guess the weight of the cake and make billions’ competition it has since become. If the US is going to win this war, it needs to address the economic component – which implies higher rates, a stronger dollar, and lower commodity prices to tame its inflation and reduce Russian income. Others might want similar FX movement, as the EIA notes today: “A strong US dollar means that countries that use currencies other than the US dollar pay more as crude oil prices increase. Since June 1, 2021, the Brent crude oil price has increased by 59% in US dollars and by 86% in euros.” Now imagine your currency collapses because you try to do ‘new normal’ QE while running commodity-driven trade deficits - and you don’t get Fed swap lines,… as Turkey’s TRY stumbles further over geopolitics, and China stops reporting foreign investor bond trades as capital outflows accelerate, and new home prices just dropped 0.3% m-o-m. Yet the US will also need to address the financial component. Being *very* charitable, that might explain why there are rumors flying around that the White House is considering de facto forcing Russia to default on its foreign debt by not extending a soon-to-lapse rule allowing Moscow to make such dollar payments. It will also involve joined-up actions such as offering India $500m in US military aid, approaching the levels offered to Egypt and Israel, to persuade it to switch from Russian to US weapons, as part of a broader geopolitical realignment. (Which was already underway via The Quad: this is also to help tip the balance as India decides between French and US planes.) Yet at the same time, this links back to supply chains. There are reports that Ukraine has already depleted a quarter and a third of the total US stock of Javelin and Stinger missiles, and current US production is in no way capable of replacing them: they are being fired far faster than they can roll off of production lines. Imagine what happens if the war drags on beyond the end of the year. Imagine if a new war begins somewhere else. Imagine the global military hegemon without the weaponry it needs to fight. And that dilemma brings us back to integrating military, economic, and financial components. Relatedly, we recently got another ‘old is new’ shift from the IMF, who are now officially more supportive of capital controls, pre-emptively in some cases. Those who follow a Godley approach to balance sheets would point out that there are many good reasons for introducing capital controls like the ones we had under Bretton Woods, which takes us back to 1945-1971. If you don’t have destabilizing global capital flows, you don’t have destabilizing global trade deficits, because the former drives the latter. Meanwhile, those who follow a geopolitical-realist approach to markets will extend the argument to say it is the US which is most likely to ultimately introduce capital controls (and more tariffs) against some countries which it runs large bilateral trade deficits with, i.e., no US capital outflows to China, and no capital inflows to the US from China, which would effectively decouple the two. And when one says ‘ultimately’, one is not looking too far into the future at the rate things are shifting and given the train of thought from the US Trade Representative. One is not only looking at China in this regard. Germany could be in the cross-hairs too if the country fails to follow through on its promise to rearm before the 2024 US presidential election, and instead goes for more appeasing ‘trundle durch bumble’. Imagine the rates impact of this kind of US policy shift towards trade only within an Anglosphere, or a Network of Liberty, or ‘Freedom Trade’ not free trade. Yet is not out of the question based on the current political and geopolitical trends and the iron logic of war. Far from it. Rather, everything old is new again. ”Don't throw the past away; You might need it some rainy day; Dreams can come true again; When everything old is new again Get out your white suit, your tap shoes and tails; Put it on backwards when forward fails; Better leave Greta Garbo alone; Be a movie star on your own” Tyler Durden Wed, 05/18/2022 - 11:05.....»»

Category: blogSource: zerohedgeMay 18th, 2022

What Will The Next "Market Bottom" Look Like

What Will The Next "Market Bottom" Look Like Liquidity is dismal, with even Goldman warning that "this chart should be on everyone's radar. This is the top of book depth of S&P futures divided by 1mo ATM vol. It is flashing red. The set up for an equity market crash is as high as I have seen it." ... Meanwhile, predictably, volatility is explosive and refuses to ease amid the continued selling... ... which means that one week after the S&P 500 fell by 9% in the month of April - its worst month since March 2020 - the bloodbath has continued, with the S&P tumbling below 4,000 for the first time in over a year. Discussing the latest market dynamics, Morgan Stanley - which has been quite bearish on risk over the past year - thinks that in the medium-term, the market is likely to trend lower, but near-term, the market could be due for a quick squeeze higher. It does say that any short squeeze should be faded as it is unlikely to be sustained (as it should be interpreted as a bear market rally). As such the bank's Quants and Derivatives desk (QDS) still prefers to lean short the market but to hedge with long upside calls. Why? Here's how QDS views the recent price action and why it sees odds for a major bounce here as modest. The recent price action and much of QDS’s forward-looking view can be best understood through the lens of positioning. Positioning of "fast money" market participants, such as Hedge Funds and systematic macro strategies (trend following CTAs, vol control funds, and risk parity funds), is very light, both sitting in the sub-10th percentile over the past 5Y. And while short interest is no longer as extreme as it was a couple of months ago, extremely light net positioning + a touch of ‘FOMO’ + challenging P/L suggests that there could be plenty of interest to chase the market higher on any rally. On the other side of this fast money are the "slower money" market participants – institutional real money plus retail: as discussed yesterday when we noted that Monday was the 5th biggest selling day on record, they have reversed their recent dip-buying and have been been driving more of the sell pressure and, according to Morgan Stanley, are likely to continue to drive price action in the medium-term. That's a problem since retail demand has begun to slip... ... and retail will likely be less supportive to the broader equity market going forward especially since all post covid gains - including the meme stock frenzy - is now gone. Retail demand has been weaker than expected relative to seasonal trends post-tax day, estimated retail P/L is deteriorating, and inflation is eating away at individuals’ disposable income. Retail has been an important buyer of dips, and with the retail bid dissipating just a lack of buying is likely enough to create an air pocket in the medium-term. Which bring us to the question everyone wants answered: what could the next ‘market bottom’ look like given these positioning dynamics?  According to MS, signs of a market bottom are unlikely to resemble traditional "capitulation" that’s played out in the last few years. Why? Because traditional capitulation is typically marked by a quick de-grossing by hedge funds + systematic macro strategies, where positioning is already light. Instead, the next leg of de-risking is likely to be more gradual, coming from asset allocators/real money/retail and is therefore likely slower to play out, making a precise bottom more difficult to call. JPMorgan, always far more cheerful than Morgan Stanley, as the following S&P chart annotated with Marko Kolanovic's weekly recos to buy each and every dip shows... ... is obviously more bullish, and also takes a stab at answering the question "how close are we to the bottom and is Wednesday’s CPI a positive catalyst?" Here is JPM's Andrew Tyler response who notes that "those were the two most asked client questions on Monday": Before trying to answer those question, let’s take a look at markets. Yesterday’s moves, which included a 3 standard deviation sell-day by Retail make some feel better but the SPX failing to hold 4k will make others nervous. Marko points out that ARKK is trading where it was the second week of Marcy 2020. Biotech is trading below pandemic lows. R2K is trading near the level of Summer 2018. All of these data points were before Fed Liquidity and stimmy. Combined this is a likely oversold condition. Returning to those client questions, they do not have to be mutually exclusive. Did we see a bottom? I have no idea but on a 2-3 month basis, I think buying at these levels makes some sense but it is tough to think one should be putting on material risk ahead of the CPI print. For CPI, Feroli is above the Street and it is entirely possible that we may have one or more elevated prints before we start to see a significant decline in official measures of inflation. Overall, I think there are some opportunities but still prefer to hold a market-neutral portfolio. I agree with Marko’s assessment that there is a ton of irrational behavior surrounding the growthier parts of the market. BUT. I am sure we all remember the quote about markets, irrationality, and solvency. That said, a near-term play that makes sense is the Energy complex. While the recent move higher was fueled by sentiment surrounding an energy embargo, there supply/demand dynamic is supportive of prices and it is tough to see WTI spending much time below $95-100 range as we approach seasonal demand. And there you have it: one bearish take, one bullish. Ironically, even the bulls are now tripping over themselves to build a narrative, because in the same note that JPM tries to cobble together a feeble bullish case, another trader goes back to what we have long claims is the biggest and most important variable for any sustained rally - lilquidity... or the lack thereof. Here is JPM flow trader Joel Nyback discussing - what else - market liquidity: ESM2 top level averaged 13 contracts today and spent 25% of the day ≥2ticks. To put that market width in context, there have been three periods since Jan 2020 where more than 20% of the day was spent ≥2ticks. The first was during the COVID selloff and the other two were earlier this year. The precedents suggest it will be a while before we see the environment meaningfully improve. Intraday realized volatility was 23v and volumes marginally lower than last week. We shouldn’t expect anything helpful here for at least the next week. In other words, bias and narrative aside, the only thing that matters to markets right now is liquidity (i.e., confidence), and without at least a modest bounce there, stocks will have an extremely difficult time bottoming, let alone rising. For more, please read the full MS and JPM notes available to professional subs in the usual place. Tyler Durden Tue, 05/10/2022 - 11:40.....»»

Category: dealsSource: nytMay 10th, 2022

Futures Dead Cat Bounced As BTFDers Emerge On Turnaround Tuesday

Futures Dead Cat Bounced As BTFDers Emerge On Turnaround Tuesday The relentless rout that erased $3.4 trillion from the Nasdaq 100 in the past month paused on Turnaround Tuesday as battered tech valuations attracted scattered dip buyers, but nothing like the full-throttled BTFD buying parade observed in months gone by. Futures on the tech-heavy gauge advanced as much 1.4% as bargain hunters returned after the Nasdaq 100 slumped to the lowest since November 2020 on Monday, capping three days of major losses. S&P 500 futures were 0.7% higher to 4,016 after rising as much as 1.2% earlier but also after plunging to as low as 3,961. After rising as high as 3.20% on Monday, 10-year Treasury yields dropped for a second day, sliding below 3.0% and providing further relief to technology shares. The dollar erased a loss and Treasuries edged higher, signaling the return of some haven demand amid nervousness over the path of Federal Reserve policy. European bonds rallied. The Nasdaq’s 14-day relative-strength index (RSI) closed at 33 on Monday, getting closer to the level of 30, which to some analysts indicates a security is oversold and is poised to rise. Another sharp selloff “seems unlikely without an external trigger,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. “Nevertheless, as long as the problems persist, we do not expect a big recovery and have used the relief rally to move our equity exposure to neutral.” Indeed, traders have been caught between stubbornly high inflation that erodes asset values and central-bank tightening that threatens to slow economic growth, or even push some nations into recession. Recent U.S. data suggesting the Federal Reserve will stay on an aggressive rate-hike path have sparked the latest bout of risk-off trades. Fresh outbreaks of Covid in China, and the nation’s stringent measures to control them, have worsened sentiment. “For now, investors need to be prepared for continued volatility,” Solita Marcelli, Americas chief investment officer at UBS Global Wealth Management, wrote in a note. She added “sentiment is bearish” but not capitulating. In premarket trading, electric vehicle makers are up, with Tesla, Rivian and Lucid set to rebound after losing $188 billion in three days. AMC Entertainment is 6.4% higher after reporting better-than-expected quarterly results as hits like “Spider-Man: No Way Home” lured people back to movie theaters. Bank stocks edge higher in premarket trading amid a broader rebound for equity markets after Monday’s rout. S&P 500 futures are up about 0.8% this morning, while the U.S. 10-year yield retreats for a second day to sit at roughly 3%. In corporate news, BlackRock said it won’t support efforts by shareholders who try to micromanage companies on climate change. Meanwhile, Bitcoin rebounded back above $30,000 after briefly sinking below the closely watched level. Here are some of the biggest U.S. movers today: Most large cap U.S. technology and internet stocks rose in premarket trading, on course to recoup some of the heavy losses they suffered in a steep selloff over the last three sessions. Apple (AAPL US) is up 1.2%, Microsoft (MSFT US) +1.2% and Meta (FB US) +2.8%. AMC Entertainment (AMC US) is up 3.8% in premarket trading after reporting better-than-expected quarterly results as hits like “Spider-Man: No Way Home” lured people back to movie theaters. Electric vehicle makers Tesla (TSLA US), Rivian (RIVN US) and Lucid (LCID US) are rebounding after losing $188 billion in three days of heavy selling in technology and growth stocks. Shockwave Medical (SWAV US) may move after it raised its revenue guidance for the full year, with analysts saying that the company’s performance was boosted by its coronary business. Shares rose 11% in extended trading on Monday. Upstart Holdings (UPST US) shares plunge 48% in premarket trading after the cloud-based artificial intelligence lending platform cut full- year revenue guidance on macro uncertainties. Piper Sandler cut the stock to neutral. Novavax (NVAX US) is down 21% premarket, with analysts saying that the biotech firm’s revenue for the first quarter missed expectations. Plug Power (PLUG US) shares are 5.6% lower premarket after the fuel cell company reported net revenue for the first quarter that missed the average analyst estimate, with KeyBanc noting pressure on margins and higher costs. Video game stocks may move after Sony’s earnings fell short of estimates amid supply constraints and component shortages. Watch shares in Activision Blizzard (ATVI US), Electronic Arts (EA US) and Take-Two Interactive (TTWO US). U.S. stocks and particularly the Nasdaq 100 have been crushed this year (amid a tireless tirade from JPM's Marko Kolanovic to buy each and every dip) as investors fret over recession risks from the Federal Reserve embarking on aggressive monetary tightening amid surging inflation. Higher interest rates mean a bigger discount for the present value of future profits, hurting growth and in particular tech stocks with the highest valuations.  European stocks trade well, with most cash indexes gaining over 1% to recover roughly half of Monday’s losses when the index slumped to its lowest level in two months. Euro Stoxx 50 rose as much as 1.75%, FTSE MIB outperforms slightly, FTSE 100 lags but still adds 1%. Construction, banks and autos lead broad-based Stoxx 600 sectoral gains. The Stoxx 600 energy sub-index edges lower, being one of the worst-performing sectors in a rising broader market for European stocks, as oil keeps falling. Shell declines as much as 1.5%, TotalEnergies SE -1.6%, Equinor -4.5%. Here are some of the biggest European movers today: Luxury stocks such as Kering (+0.5%) and Watches of Switzerland (+4.2%) rebounded after the declines of the previous sessions, with investors hopeful that the Covid-19 situation in the key market of China may be slightly improving. Hermes rises as much as +1.6%, LVMH +2.4% Airbus gains as much as 3.7% in Paris trading after being raised to buy from hold at Societe Generale, with the broker highlighting the planned production ramp-up of the “highly profitable” A320 family. Swedish Match rises as much as 28% after Philip Morris International said it’s in talks to buy the company. While a deal would make strategic sense, a counter-bid can’t be ruled out, analysts said. Centrica climbs as much as 6.5%, the most since Feb. 25, after the company guided adjusted earnings per share to be at the top end of the consensus range. Euroapi soars as much as 9.5% after the Sanofi spinoff is initiated with a buy recommendation and EU20 price target at Deutsche Bank, which sees “good value” and an attractive business. E-commerce stocks rise in Europe, with many outperforming the benchmark Stoxx 600 Index, buoyed by dip buyers returning to growth and technology shares that have been battered this year. Zalando up as much as 4.9%, Home24 +12%, Moonpig +3.6% Earlier in the session, Asian stocks extended their decline to a seventh day as the specter of rapid credit tightening in the U.S. and protracted lockdowns in Chinese cities prompted some investors around the region to reduce holdings of riskier assets.  The MSCI Asia Pacific Index fell as much as 2.1% to its lowest level since July 2020, weighed down tech shares after a three-day selloff in the Nasdaq 100. Hong Kong’s Hang Seng Index ended 1.8% lower as the market reopened after a holiday, though benchmarks in mainland China rebounded from early-trading lows on hopes for easier monetary conditions. MSCI Asia Pacific Index down 0.7% Japan’s Topix index down 0.9%; Nikkei 225 down 0.6% Hong Kong’s Hang Seng Index down 1.8%; Hang Seng China Enterprises down 2.2%; Shanghai Composite up 1.1%; CSI 300 up 1.1% Taiwan’s Taiex index up 0.1% South Korea’s Kospi index down 0.5%; Kospi 200 down 0.5% Australia’s S&P/ASX 200 down 1%; New Zealand’s S&P/NZX 50 down 1.3% India’s S&P BSE Sensex Index down 0.2%; NSE Nifty 50 down 0.4% “There’s nowhere to escape so it’s pretty tough,” said Yuya Fukue, a trader at Rheos Capital Works. “Economic data appears to be deteriorating of late, though that has seemed to have gone little noticed while the markets were so focused on the Fed’s policy. It feels as if the game is changing.” Among Chinese tech giants, Alibaba tumbled 4.8% in Hong Kong, while Tencent dropped 2.3%. Regional declines were broad, with investors dumping even this year’s star energy shares as oil prices eased.  Singapore’s Straits Times Index and Australia’s S&P/ASX 200 both dropped about 1%. The Philippine benchmark ended 0.6% lower, recovering after skidding more than 3%, after Ferdinand Marcos Jr. won a landslide victory in the country’s presidential election. Mainland Chinese shares closed higher after the People’s Bank of China repeated a pledge to proactively address mounting economic pressure and highlighted a drop in deposit rates, which could spur banks to lower the cost of borrowing for the first time in months. “The market was a bit oversold. In addition, PBOC is also mentioning a drop in deposit rates, raising expectations of more room for banks to increase lending,” said Aw Hsi Lien, a strategist at Tokai Tokyo Research. India’s benchmark equity index slipped to a two-month low amid a weaker trend in Asia as surging oil prices and inflationary pressures weighed on investor sentiment. The S&P BSE Sensex fell 0.2% to 54,364.85 in Mumbai, after swinging between gains and losses several times during the session. The NSE Nifty 50 Index slipped 0.4% to 16,240.05. This is the third consecutive session of declines for the key indexes.  Sixteen of the 19 sector sub-indexes compiled by BSE Ltd. dropped, led by metal stocks. Reliance Industries Ltd. slipped 1.7% to a seven-week low and was the biggest drag on the Sensex, which saw 18 out of its 30 member-stocks trading lower.   In earnings, among the 27 Nifty 50 companies that have announced results so far, 10 have missed estimates while 17 either exceeded or met forecasts.  In FX, the Bloomberg Dollar Spot Index fell 0.1% after climbing to a two-year high on Monday, and the greenback was steady or weaker against all of its Group-of-10 peers. The euro consolidated and the region’s yields fell as Italian bonds led an advance. The pound was steady against both the dollar and euro while gilts outperformed peers. Domestic focus is on the Queen’s speech laying out the government’s agenda for the next parliamentary session and Brexit risks after reports the U.K. is preparing to scrap parts of the Northern Ireland protocol. U.K. retail sales are falling on an annual basis for the first time since the start of last year as the cost of living crisis crushes consumer confidence and puts the brakes on spending. Scandinavian currencies led gains among G-10 pairs after both currencies fell to the weakest level in around two years versus the dollar on Monday. The Australian and New Zealand dollars also bounced off two-year lows as stock indexes trimmed an intraday decline. Aussie’s gains were tempered as iron ore fell for a third day to bring the three-day slide to about 15%. The yen edged lower as Treasury yields recovered from a sharp overnight drop. Bonds pared earlier gain after the 10-year debt sale. Bank of Japan Executive Director Shinichi Uchida says that widening the central bank’s yield target band would be equivalent to a rate hike and wouldn’t be favorable for Japan’s economy In rates, Treasuries rose in early U.S. trading with belly leading gains and the curve flattening modestly after Monday’s bull-steepening. Yields are richer by ~4bp across in belly of the curve, steepening 5s30s spread by ~3bp as long-end yields lag; 10-year trading just around 3%, richer by ~3bp on the day, trailing gilts by ~7bp in the sector. Core European rates outperform led by gilts while stocks and U.S. futures recover a portion of Monday’s steep losses. Bunds bull-flatten, while peripheral spreads tightened to Germany with short-dated BTPs outperforming. Treasury auction cycle begins with 3-year note sale, and several Fed speakers are slated. U.S. new-issue auction cycle consists of $45b 3-year note, followed by 10- and 30-year sales Wednesday and Thursday. WI 3-year yield ~2.800% is higher than auction stops since 2018 and ~6bp cheaper than last month’s, which stopped through by 0.1bp. Three-month dollar Libor +0.13bp at 1.39986% In commodities, crude futures are choppy, WTI dips back into the red having stalled near $104. Spot gold rises ~$9 near $1,863/oz. Much of the base metals complex trades poorly. LME copper outperforms, holding in the green but off best levels after a test of $9,400/MT. Bitcoin reclaimed the $31K handle, but is yet to make a concerted move higher. Looking ahead, we get the April NFIB Small Business Optimism print (93.2, Exp. 92.9), Chinese M2, Speeches from Fed's Williams, Waller, Bostic, Barkin, Kashkari, Mester, ECB's de Guindos & BoE's Saunders, Supply from the US. Earnings from Norwegian Cruise Line & Warner Music. Biden speaks on soaring inflation at 11am EDT. Biden will also meet with Italian Prime Minister Draghi at the White House, and the UK state opening of Parliament is taking place, where the government outlines its legislative programme for the year ahead. Of course, the big event is tomorrow morning when the US CPI print comes. Market Snapshot S&P 500 futures up 1.1% to 4,031.75 STOXX Europe 600 up 1.2% to 422.32 MXAP down 0.8% to 159.98 MXAPJ down 0.8% to 523.71 Nikkei down 0.6% to 26,167.10 Topix down 0.9% to 1,862.38 Hang Seng Index down 1.8% to 19,633.69 Shanghai Composite up 1.1% to 3,035.84 Sensex up 0.4% to 54,674.30 Australia S&P/ASX 200 down 1.0% to 7,051.16 Kospi down 0.5% to 2,596.56 German 10Y yield little changed at 1.07% Euro little changed at $1.0564 Brent Futures up 0.8% to $106.83/bbl Gold spot up 0.5% to $1,862.69 U.S. Dollar Index little changed at 103.65 Top Overnight News from Bloomberg The EU is considering the issuance of joint debt to finance Ukraine’s long-term reconstruction, which may end up costing hundreds of billions of euros, according to an EU official familiar with the plan China’s provinces are set to sell a historic amount of new special bonds by the end of June as part of an infrastructure investment push intended to rescue an economy stymied by Covid outbreaks and lockdowns Hungarian Prime Minister Viktor Orban’s talks with the head of the EU about proposed sanctions on Russian oil imports made progress, but failed to reach a breakthrough, according to both sides Investor confidence in Germany’s pandemic rebound improved, but remained deeply negative as the war in Ukraine darkens the outlook for Europe’s largest economy. The ZEW institute’s gauge of expectations rose to -34.3 in May from -41 the previous month, defying expectations for a third straight deterioration. An index of current conditions worsened Saudi Arabia’s oil minister warned that spare capacity is decreasing in all sectors of the energy market, as prices of products from crude to diesel and natural gas trade at or near multi-year highs in the wake of Russia’s invasion of Ukraine A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were mostly negative after the resumed sell-off on Wall St where the S&P 500 slipped beneath the 4,000 level for the first time since March 2021. ASX 200 briefly gave up the 7,000 status with notable underperformance in the energy and mining-related sectors. Nikkei 225 slumped from the open although moved off its lows as participants digested stronger than expected Household Spending data and after BoJ's Uchida dismissed the prospects of a tweak to the BoJ’s 50bps yield target band. Hang Seng and Shanghai Comp both initially joined in on the selling with heavy losses in the tech sector contributing to the underperformance in Hong Kong on return from the extended weekend, although the downside in the mainland was later reversed after the recent policy support efforts by China’s MIIT and CBIRC. Top Asian News China Tech Stocks Slide as Growth Woes, Global Rout Grip Traders Investor’s Guide to the 2022 Philippine Presidential Election ArcelorMittal Evaluating Bidding for ACC, Ambuja: ET Now Philippine Stocks Fall as Traders Weigh Marcos Win, Global Rout European equities feel some reprieve following the prior session’s selloff; Euro Stoxx 50 +1.2%. Relatively broad-based gains are seen across the majors with some mild underperformance in the FTSE 100. Sectors show some of the more defensive sectors at the bottom of the bunch – alongside energy – whilst Construction, Autos, Banks, and Industrial Goods reside as the current winners. US equity futures are firmer across the board, ES +1.0%, with the NQ narrowly outpacing peers after underperforming yesterday. Top European News Russian Gas Flows to Europe Remain Steady on Key Links Highest Inflation in Three Decades Boosts Czech Rate Hike Case BPER Banca Soars After Earnings Beat, With Fees as Highlight Russia’s Economy Facing Worst Contraction Since 1994 FX The Dollar retains a firm underlying bid ahead of another slew of Fed speakers; risk sentiment remains fluid and fragile. The Swiss Franc has hit a fresh 2022 peak vs the Greenback; USD/JPY is consolidating around 130.00. EUR/USD was unfazed by mixed German ZEW data but later lost ground under 1.0550. Cable rotates either side of 1.2350 awaiting Brexit/N. Ireland news, further political fallout and more comments from BoE hawk Saunders. Crude and commodity FX have gleaned a degree of traction from partial recoveries or stabilisation in underlying prices. CBRT and regulator have asked banks to undertake FX transactions with corporate clients between 10:00-16:00, when the market is liquid, via Reuters citing bankers. Fixed Income Core benchmarks bounce further after a brief breather early on, with little in way of fresh fundamentals behind the upside. Initial highs were faded pre-UK/German issuance; once this cleared, Bunds and Gilts lifted to 152.50+ and 119.00+ peaks. Stateside, USTs are bolstered but far from best, with the curve re-flattening into today's 3yr sale and yet more Fed speak. Commodities Crude futures have come under renewed pressure in recent trade after seeing some gains in the European morning.   The initial downside coincided with the mixed Germany ZEW reports alongside the downbeat commentary from Hungary regarding an imminent oil ban; albeit, benchmarks are off overnight USD 100.44/bbl and USD 103.19/bbl respective lows. Saudi Energy Minister says it is "mind-boggling" why focus is on high oil prices and not on gasoline, diesel or others. World needs to wake up to an existing reality that it is running out of energy capacity at all levels, via Reuters. UAE Energy Minister says oil prices could double or triple in "chaotic" market. US officials reportedly asked Brazil's Petrobras in March to boost output, but it the oil Co. said it could not, according to Reuters sources. China's Shenghong Petrochemical has started a trial operation at its (320k BPD) greenfield refining complex in east China, according to Reuters sources. Germany is said to be shifting away from plans for a strategic national coal reserve, according sources cited by Reuters. Spot gold holds onto mild gains as DXY pulled back from the fresh YTD highs set yesterday. LME futures post mild gains following yesterday’s downside with the market still looking somewhat fragile. DB's Jim Reid concludes the overnight wrap It's school photo day today. After discussing it with my kids last night I said to them that I'd dig out my old school photos so they could see me at school. Without hesitation and with a straight face Maisie said, "Are they in black and white Daddy?". I was half amused and half depressed. Markets are pretty black at the moment with little white on show. Actually the only bright colour is a sea of red. Indeed after a rocky few weeks in markets, there’s been a further rout over the last 24 hours as investor jitters about the global growth outlook have continued to escalate. There has been some respite in Asia but markets remain very shaky. There wasn’t really a single catalyst to yesterday’s steep declines, but ultimately there’s been a growing scepticism in markets as to whether the Fed and other central banks will actually be able to achieve a soft landing without a recession as they seek to bring down inflation. One interesting development though was that rates rallied as the equity slump intensified, rather than both selling off as has been the norm in recent weeks. Although the day lacked a single catalyst, the bond market moves seem to turn around the same time as Atlanta Fed President Bostic spoke. He picked up where Chair Powell left things after last week’s press conference. Bostic signaled that +50bp hikes were part of his core view, placing low odds on anything larger, stating +50bp hikes were “already a pretty aggressive move.” Like other Fed speakers, he signaled a desire to get policy to neutral and then assess. While he isn’t a voter this year, his voice does carry weight at the hawkish end of the committee so the price action likely reflected the market believing that a consensus continues to build for 50bps, and not 75bps, even among the hawks. Sovereign bonds were actually seeing a strong sell-off before his comments but rallied fairly fiercely from around the same time. 10yr Treasury yields hit an intraday high of 3.20% during the European morning (+7.5bps on the day) but ended up closing -9.3bps lower at 3.03%, showing that wide intraday ranges and volatility continue to grip the market. With the Fed continuing to put a perceived ceiling on the near-term pace of hikes, 2yr yields rallied -13.7bps on the day with the curve steepening another +5.3bps. The amount of Fed hikes priced in by the December meeting down by -15.5bps. As I type, 10yr US yields are fairly flat in Asia. The move echoed in Europe, where 10yr bunds rallied -3.5bps to 1.09%. The broader risk-off move meant that there was a further widening in spreads yesterday, with the gap between Italian 10yr BTPs over bunds widening by +4.9bps to 205bps, which is the widest they’ve been since May 2020. And that widening was seen on the credit side as well, where iTraxx Main moved above 100bps for the first time since April 2020 in trading, before falling back somewhat to settle at 98bps (+1.4bps). Against this backdrop, the S&P 500 fell by a sizeable -3.20% that takes the index to its lowest level in over a year. That comes on the backs of 5 consecutive weekly losses, which is already the longest run in over a decade, and given the performance yesterday it would take a strong comeback over the remaining four days this week to avoid that run extending to 6 weeks. See my Chart of the Day yesterday (link here) for more on how rare it has been to see an 11 year run without a 5 successive weekly decline. Energy was the worst performing US sector, falling an astonishing -8.30%, in its worst one-day performance since June 2020, after the fall in oil (more below). The sector is still by far the best performing S&P sector YTD, up +36.79%, with every other sector in the red. Despite the rate rally, it was a bad day for mega-cap and other growth tech stocks. Indeed, the NASDAQ fell a further -4.29% to its lowest level since November 2020, whilst the FANG+ index of 10 megacap tech stocks fell an even larger -5.48%. For reference, that now takes the FANG+ index’s decline since its all-time high in November to a massive -38.22%. Even a high quality component like Amazon is now down -35.75% since March 29th and is pretty much back to pre-covid levels. Over the other side of the pond, Europe saw some sizeable declines as well, with the STOXX 600 down -2.90% to leave the index not far away from its recent lows in early March. With the Fed set to continue their hiking cycle, just as the ECB are still pondering on when to even start hikes and China’s growth prospects are fading, the US dollar has continued to benefit. Yesterday, the Japanese Yen (+0.21% vs USD) was the top-performing G10 currency, in line with its traditional status as a safe haven, but Bitcoin continued to lose ground, falling to its lowest level since July last year, after falling to $31,562. It briefly fell below 30k this morning. It's been interesting that Bitcoin is not getting much mention with all the inflationary issues seen in recent months. It seems to be suffering from a higher dollar, higher real yields and a tech related sell-off. Markets continue to fall in Asia but US futures are up. Hang Seng (-3.06%) is the largest underperformer, but is paring its losses after falling more than -4% as the market returned after a holiday with the Chinese listed tech firms among the worst hit. Elsewhere, the Nikkei (-0.93%) and Kospi (-0.95%) are down. Meanwhile, mainland Chinese stocks are trading in positive territory with the Shanghai Composite (+0.17%) and CSI (+0.15%) somewhat recovering from opening losses. Looking ahead, S&P 500 (+0.56%), NASDAQ 100 (+0.92%) and DAX (+0.25%) futures are moving higher. Early morning data showed that Japan’s household spending declined -2.3% y/y in March, its first drop in three months albeit the fall was less than -3.3% estimated by Bloomberg and followed +1.1% growth in February. Back to inflation and one potentially problematic indicator came from the New York Fed’s latest consumer survey, which found that median inflation expectations for 3 years ahead rose to +3.9%, which is the highest since December, and up from +3.5% back in January. It’s still not as high as the +4.2% readings back in September and October, but will obviously be unwelcome news to the Fed whose path to a soft landing is in part reliant on inflation expectations remaining well anchored around target. Turning to the situation in Ukraine, a key risk event yesterday had been Russia’s Victory Day parade, where it was speculated that President Putin would move towards a general mobilisation. However, in reality it finished with surprisingly little news, and whilst not showing a path towards de-escalation, didn’t move to escalate things further. Separately, it was reported by Bloomberg that the EU would soften its proposed sanctions package on Russian oil exports, with an article saying that they would drop the proposal to ban EU-owned vessels transporting Russian oil to third countries. The sanctions package has already come under criticism from some member states, and the article said that Hungary and Slovakia had been offered a longer time period lasting until end-2024 to comply with the proposals to ban Russian oil imports, with Hungary in particular saying more talks were needed to support oil-related sanctions. So with no further escalation and a softening in sanctions, oil prices fell back significantly amidst weak risk appetite more generally. Brent crude was down -5.74%, whilst WTI fell -6.09%, which follows 2 consecutive weekly gains for both. This morning oil prices are again lower with Brent and WTI futures -1.74% and -1.68% lower respectively. To the day ahead now, and central bank speakers include the Fed’s Williams, Barkin, Waller, Kashkari and Mester, along with ECB Vice President de Guindos and Bundesbank President Nagel. Data releases include Italy’s industrial production for March and Germany’s ZEW survey for May. Finally on the political side, President Biden will meet with Italian Prime Minister Draghi at the White House, and the UK state opening of Parliament is taking place, where the government outlines its legislative programme for the year ahead. Tyler Durden Tue, 05/10/2022 - 07:57.....»»

Category: smallbizSource: nytMay 10th, 2022

US stock sell-off deepens as the S&P 500 dips below 4,000 for the first time in a year and the Nasdaq falls over 4%

Stocks plunged again on Monday, extending steep losses for the Nasdaq even as bond yields edged lower. Investors have to brace for more market volatility thanks to the new Omicron variant.Xinhua News Agency/Getty Images US stocks plunged Monday, with the S&P 500 dipping below 4,000 for the first time since April 2021.  The tech-heavy Nasdaq dipped more than 4%, and the stock market's "fear gauge" jumped. Stocks and bonds are in a simultaneous correction for the first time in over 50 years. The brutal market sell-off continued Monday, with each of the three major indexes ending lower to begin the week. The S&P 500 sunk below 4,000 for the first time since April 2021 and the tech-heavy Nasdaq lost more than 4%.The Cboe Volatility Index, the so-called fear gauge of the stock market, surged to 34.66 Monday. The sell-off in stocks came even as the yield on the 10-year Treasury note edged lower to about 3.04%, down from Friday's 3.1%, as investors look to escape the carnage in equities. So far in 2022, there's been nowhere to hide in markets as stocks, bonds, and crypto have all been getting crushed, and stocks and bonds are in a simultaneous correction for the first time in over 50 years.  "In my opinion, investors have turned too pessimistic about the outlook for the US economy and stock market," veteran stock market bull Edward Yardeni told the Financial Times Monday. "I don't recall so much stock bearishness in a very long time." Here's where US indexes stood as the market closed 4:00 p.m. on Monday: S&P 500: 3,991.36, down 3.2% Dow Jones Industrial Average: 32,245.57, down 1.99% (653.80 points)Nasdaq Composite: 11,623.25, down 4.29% Morgan Stanley analysts said in a Monday note that retail traders have now lost all the money they gained during the pandemic.Twitter stock fell in Monday's session. Short seller Hindenburg Research published a report saying the company's implied price would be 37% lower in the absence of Elon Musk's takeover bid. The Tesla chief, the analysts wrote, holds all the leverage in the deal, and it is possible he reprices his bid. On Wall Street, Goldman Sachs is set to stop doing work with most SPACs due to liability concerns amid tighter regulation in the space, Bloomberg reported. But the investment bank may change course if the SEC scales back its SPAC oversight guidelines. In commodities, lumber prices fell to their lowest level of the year Monday, as the highest mortgage rates in 13 years dent housing demand. Overseas, China's yuan hit an 18-month low against the dollar, with Beijing's Covid lockdowns dragging down the economy and as US bond yields remain elevated. Meanwhile, the three biggest cryptocurrencies by market cap — bitcoin, ether, and solana — all tumbled Monday. Shares of Coinbase and Silvergate Capital tanked with the broader token selloff.Oil moved lower, with West Texas Intermediate down 6.7% to $102.39 a barrel. Brent crude, the international benchmark, moved down 6.4% to $105.20 a barrel. Gold edged lower 1.53% to 1,853.20 per ounce. The 10-year yield dipped 8.4 basis points to 3.04%.Bitcoin plunged 11.64% to $30.569.95.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderMay 9th, 2022

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

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

Category: blogSource: zerohedgeMay 4th, 2022

Futures Slide Ahead Of Tech Earnings Deluge

Futures Slide Ahead Of Tech Earnings Deluge One day after stocks staged a remarkable rebound and closing well in the green after sliding as much as 1.5% (ostensibly after getting a boost from the latest bout of bearishness from Dennis Gartman), index futures are trading lower again despite another attempt by China's central bank to reassure investors overnight that China's sliding risk assets will rebound, with investors once again preoccupied by risks from aggressive monetary tightening. S&P500 futures contracts were 0.4% not too far off the worst levels ahead of a busy session of earnings releases including Google, Microsoft and Google; Nasdaq 100 futures declined 0.3%. Treasuries were steady and the dollar gained. “Markets in general are preoccupied by the prospect of tighter monetary policy conditions from global central banks to stem rising prices,” said Cesar Perez Ruiz, chief investment officer at Pictet Wealth Management. “Indeed, while the Federal Reserve and the ECB both stepped up their inflation-fighting rhetoric, they failed to prevent market-based inflation expectations from moving higher.” Twitter extended gains in premarket trading after Elon Musk agreed to buy the social media company for $44 billion. Its shares are still trading below the offer price of $54.20 per share. Analysts say Musk’s vision to reduce moderation to promote free speech could put the social media company’s advertising dollars at risk. Here are some of the other big U.S. movers today: Meme stock Cenntro Electric (CENN) drops as much as 15% in U.S. premarket trading, after the maker of commercial electric vehicles reported a net loss of $16.4 million for 2021. Redbox Entertainment (RDBX) shares rise 2.8% in U.S. premarket trading after the company disclosed after Monday’s close that CFO Kavita Sutha had resigned. O-I Glass (OI) “crushes” its first-quarter, according to Truist Securities, with the broker noting the glass bottle maker’s operating profit beat and a guidance hike. O-I shares were up 12% in postmarket trading. Venator Materials (VNTR) jumps as much as 27% in premarket trading Tuesday after the company reached an $85 million cash settlement with Tronox Holdings over a break fee from a failed chemical plant deal dating back to 2018. Nkarta (NKTX) shares slump 8% in U.S. premarket after launching a stock offering via Cowen, SVB, Evercore at a price of $15/share that represents 19.9% discount to last close. Universal Health’s (UHS) weaker-than-expected results and potential guidance downgrade were driven by labor headwinds, analysts say. Shares fell 12% in after-hours trading. Protagonist Therapeutics’ (PTGX) PN-943 drug candidate “still has legs to make it across the finish line,” despite the Phase 2 data showing that a 450 mg BID dose did not meet its primary endpoint. Shares fell 31% in postmarket trading. Barclays sees positive fundamentals for medical office building property category, expanding coverage with initiations on Healthcare Realty Trust (HR US) and Physicians Realty Trust (DOC) at overweight. Companies reporting earnings on Tuesday include Microsoft, Google parent Alphabet and Visa. European stocks traded well, the Stoxx 600 Index 0.8% higher with energy and mining shares gaining as commodity prices rebounded. Euro Stoxx rises as much as 1.25%, roughly halving Monday’s decline. Miners and real estate lead broad sectoral gains. A third of Stoxx 600 companies will be updating on earnings and sales this week.  Asian stocks pared most of their early Tuesday advance as Chinese shares gave up gains spurred by a renewed central bank pledge to support the region’s biggest economy. The MSCI Asia Pacific Index was up 0.3% as of 5:38 p.m. in Hong Kong, versus an earlier rally of as much as 0.8%. China’s CSI 300 Index ended 0.8% lower as worries about a potential city-wide lockdown in Beijing weighed on sentiment. Still, a gauge of the nation’s tech stocks jumped almost 3% in Hong Kong on fresh policy promises to end a regulatory crackdown in the sector. Continued losses in Chinese equities have weighed on the Asian stock benchmark, which is headed for a fourth straight month of losses. China’s government expanded Covid-19 testing to most of Beijing, sparking fears about an unprecedented lockdown. Traders have said a change in the nation’s Covid-Zero strategy is the key to turning around sentiment.  “It would be difficult to see a quick improvement in sentiment” amid weak market fundamentals and fund flows, said Kim Kyung Hwan, a Chinese equity strategist at Hana Financial Investment in Seoul. “Market players are waiting for stronger measures, such as an interest-rate cut.” Elsewhere in Asia, stocks rose in India and South Korea while those in Australia slipped. Traders are also monitoring results releases in what is set to be the busiest week of the current earnings cycle in Asia. Japanese equities rose for the first time in three sessions, boosted by gains in telecoms. Service providers also lifted the Topix, which rose 0.1%. SoftBank Group and M3 Inc. were the largest contributors to a 0.4% rise in the Nikkei 225 Australian stocks fell the most in two months on the continued Materials selloff. The S&P/ASX 200 index fell 2.1%, the most since Feb. 24, to close at 7,318.00, as trading resumed after a three-day break. The materials and energy groups led declines following drops in commodities prices. EML Payments tumbled to the lowest level in two years after lowering its revenue and earnings forecasts for the full year. Nufarm was among the biggest gainers, rising to its highest level since September 2018 after issuing 1H guidance.  In New Zealand, the S&P/NZX 50 index fell 0.8% to 11,813.18. Fixed income grinds higher with 10y bund and UST futures erasing Asia’s losses; the 10-year TSY is around 2.795% outperforming bunds by ~2.5bp, gilts by ~3.5bp. Treasuries are moderately richer across the curve, sharply outperforming bunds and gilts over the London session, although 10-year note futures remain inside Monday’s range. US yields are richer by 1bp-3bp across most of the curve with long-end lagging slightly, steepening 5s30s and 10s30s by ~2bp. Peripheral spreads widen to cover with long-end Portugal underperforming. Japan’s bond futures gained after the central bank said it will extend its unlimited debt buying operation by two more days. In FX, the Bloomberg Dollar Spot Index rose a fourth day, as the greenback advanced against most of its Group-of-10 peers. Treasury yields dropped 2-3 bps across the curve. The euro fell to touch $1.0673, the lowest level since March 2020. European bonds were little changed, underperforming U.S. Treasuries.  China’s yuan rose for the first time in six days after the nation’s central bank pledged to support the economy through targeted financing for small businesses, and a quick resolution of the ongoing crackdown on technology firms, in a bid to reassure investors nervous about growth and Covid lockdowns. Australian dollar climbed on leveraged buying as China’s policy-support pledge spurred a turnaround in the nation’s stock indexes and added to a bounce in oil and iron ore. The yen was set for its longest winning streak in almost a month.  The pound ticked lower against the dollar amid broad-based greenback strength and Gilts inched up, led by the short end. Prime Minister Boris Johnson will urge ministers to explore “innovative ways” to ease pressures on household finances on Tuesday In commodities, crude futures decline with WTI eventually finding support near $97. Spot gold posts small gains, Bitcoin holds a narrow range near $40,500. Binance has launched Binance Refugee Crypto Card for all current and new Binance users from Ukraine moving to EEA countries Looking at the day ahead, data releases from the US include the Conference Board’s consumer confidence indicator for April, preliminary March data on durable goods orders and core capital goods orders, the FHFA house price index for February, and new home sales for March. From central banks, we’ll hear from the ECB’s Villeroy and de Cos. Finally, earnings releases include Microsoft, Alphabet, Visa, Pepsico, UPS, Texas Instruments, General Electric and General Motors. Market Snapshot S&P 500 futures down 0.3% to 4,281.50 STOXX Europe 600 up 0.8% to 448.67 MXAP up 0.2% to 166.28 MXAPJ up 0.3% to 546.79 Nikkei up 0.4% to 26,700.11 Topix up 0.1% to 1,878.51 Hang Seng Index up 0.3% to 19,934.71 Shanghai Composite down 1.4% to 2,886.43 Sensex up 1.0% to 57,161.33 Australia S&P/ASX 200 down 2.1% to 7,317.98 Kospi up 0.4% to 2,668.31 German 10Y yield little changed at 0.84% Euro down 0.2% to $1.0687 Brent Futures down 0.3% to $101.97/bbl Brent Futures down 0.3% to $101.97/bbl Gold spot up 0.3% to $1,902.86 U.S. Dollar Index up 0.13% to 101.89 Top overnight News from Bloomberg ECB Governing Council member Martins Kazaks says the central bank should raise interest rates soon and has room for as many as three hikes this year, Reuters reports The renewed pledge by Chinese authorities to boost the economy is being met with skepticism by stock traders worried about a potential city-wide lockdown in Beijing China’s central bank pledged to increase support for the economy, seeking to reassure investors as financial markets take a hammering from a worsening growth outlook and threats of widespread Covid lockdowns. China’s economy slowed rapidly in April as the costs of both a worsening Covid outbreak and the nation’s stringent approach to eliminating the virus took their toll. Oil held its decline below $100 a barrel as investors assessed the impact of China’s Covid-19 resurgence on the outlook for global demand. Base metals in London plunged on Monday, following sinking iron ore markets in Asia as investors fret over deteriorating demand outlook in China and higher interest rates in western economies. A more detailed look at global markets courtesy of Newsquawk APAC stocks were mostly higher with bourses in the region encouraged after the rebound on Wall Street. ASX 200 bucked the trend as the prior day’s rout caught up with markets in Australia and New Zealand on return from the extended weekend, with miners pressured by tepid output from South32 and Woodside Petroleum. Nikkei 225 gained after a surprise decline in Unemployment and amid preparations for a relief package. Hang Seng and Shanghai Comp were lifted as strength in tech helped the former reclaim the 20k level and after further PBoC policy support pledges gradually offset the initial Beijing COVID-19 jitters in the mainland. Top Asian news BOJ Extends Unlimited Bond Buying Into Policy Meeting This Week China Tech Stocks Rebound as Beijing Renews Policy Support China Is Running Out of Ways to Stem Self-Made Market Meltdown Tencent-Backed Fintech Startup Airwallex Said to Seek New Funds European bourses feel some reprieve following the bout of selling seen in recent sessions and following Wall Street's afternoon bounce yesterday. Sectors are all in the green but to varying degrees – with Basic Resources rebounding with a vengeance after yesterday’s slide, albeit Energy has failed to hold onto early gains as the underlying commodity price wanes. Stateside, US equity futures trade relatively flat with a mild downside bias (ES -0.1%, NQ -0.1%, RYT -0.1%, YM -0.1%), trimming earlier losses. United Parcel Service Inc (UPS) Q1 2022 (USD): EPS 3.03 (exp. 2.88), Revenue 24.4bln (exp. 23.79bln), reaffirms guidance; doubles buy-back target to USD 2bln Top European News Germany to Send Anti-Aircraft Tanks to Ukraine in Policy Shift European Gas Prices Swing With Focus on LNG Imports, Russia Flow Gupta’s GFG Alliance Offices in Paris Raided by French Police Sunak Warns Future Generations at Risk From U.K. Debt Burden FX Dollar mixed as broad risk appetite returns after Monday’s flight to safety; USD down vs high betas, but up against most index components. Aussie and Kiwi refreshed following long holiday weekend and further rebound in Yuan on the back of China’s RRR reduction effective May 15 Euro and Pound flounder as DXY eyes 102.000 and conflict contagion weighs heavier in Europe relative to the US Yen continues to consolidate off multi year lows after a dip in Japan’s unemployment rate and Government rolls out fiscal relief measures Japanese PM Kishida said rapid FX moves are undesirable; no comment on specific JPY levels. Fixed Income Debt futures resume recovery rally or retracement from recent cycle lows with curves a tad flatter ahead of 2 year US auction    Bunds are just shy of Monday's 155.26 peak, Gilts back above 119.00 and 10 year T-note eyeing 120-00 BTPs hold firm following Italian issuance, irrespective marginally softer cover ratios UK debt lags after larger than forecast PSNB deficit and upwardly revised 2022/32 DMO remit UK DMO raises its 2022/23 Gilt issuance remit to GBP 131.5bln from GBP 124.7bln and sees GBP 7bln additional T-bill sales Commodities WTI and Brent June futures continue drifting lower as the crude complex continues to be dampened by China's COVID situation. Spot gold was pressured by the firmer Buck and fell to a current intraday low of USD 1,894/oz in early trade before finding a base and reclaiming a USD 1,900/oz handle   Base metals, meanwhile, are mostly firmer in what is seemingly a rebound following yesterday's downside. Shanghai Futures Exchange raises trading limits and margin requirements for steel rebar, wire rod, and hot rolled coils futures from settlement on April 28. US Event Calendar 08:30: March Durable Goods Orders, est. 1.0%, prior -2.1%; -Less Transportation, est. 0.6%, prior -0.6% 08:30: March Cap Goods Ship Nondef Ex Air, est. 0.5%, prior 0.3%; Cap Goods Orders Nondef Ex Air, est. 0.5%, prior -0.2% 09:00: Feb. S&P CS Composite-20 YoY, est. 19.20%, prior 19.10% Feb. S&P/CS 20 City MoM SA, est. 1.50%, prior 1.79% 10:00: April Conf. Board Consumer Confidenc, est. 108.2, prior 107.2 Present Situation, prior 153.0; Expectations, prior 76.6 10:00: April Richmond Fed Index, est. 9, prior 13 10:00: March New Home Sales, est. 768,000, prior 772,000 March New Home Sales MoM, est. -0.6%, prior -2.0% DB's Jim Reid concludes the overnight wrap I'll admit to being a bit tired this morning as at 2am I got woken by loud constant shouts of "Daddy, Daddy". On bleary eyed investigation one of the twins wanted to know when we are next going to a water park. As we haven't discussed this or been to one since last summer this was a bit random. I said it was inappropriate to shout the house down at 2am to ask this. He then said "what's inappropriate mean". I angrily shut the conversation down which didn't help him or I get back to sleep very quickly. The market felt tired and worn down by the building risks yesterday and by the time Europe closed things were looking pretty bleak. However a late rally turned the S&P 500 from being -1.67% to closing +0.57%. The Nasdaq closed +1.29% and was rallying back even before Twitter agreed to sell the company to Elon Musk. Outside of that late story it was hard to find a narrative for the strong rebound. Tech stocks will stay front-and-center though as earnings progress this week, with Microsoft and Alphabet both set to report after the close tonight. It was much easier to find a narrative for the earlier sell-off as investors grappled with the continued Covid outbreak in China, further signs of inflationary pressures, and the prospect that the Fed and other central banks’ hiking cycles might push their economies into recession. As Europe closed the S&P was over -7% lower in April and on track to see the worst month since the pandemic rout of March 2020. Even with the rebound, the index is still more than -5% lower over April and still at risk of taking the ignominious title of worst monthly return since Covid if it dips below this January’s -5.26% return. Bonds also sold off with the US equity bounce back but unlike equities held on a large proportion of the days gains. 10yr Treasuries closed down -7.9bps to 2.82%, after being as much as -14bps lower intraday. That decline was driven by declining inflation expectations, as growth fears dominated. Given the global growth fear flavour of yesterday’s risk off, the 2s10s curve flattened -3.7bps to 18.8bps, as 2yr yields lagged the longer-maturity rally. The curve has maintained its level this morning but the yield reversal has continued with 2 and 10yr yields both back up around +3.5bps as we type. The dollar was another significant beneficiary yesterday, strengthening +0.53% to levels not seen since March 2020, and leaving it on track for its best monthly performance since January 2015. It's given up -0.18% of the gains so far this morning. As discussed, the biggest concern yesterday came from China, where the potential that there could be a lockdown in Beijing (in addition to the one already in Shanghai) saw the CSI 300 (-4.94%) fall to a 2-year low in yesterday’s session, marking the index’s worst daily performance since the original Covid-19 outbreak there in February 2020. This morning the index is +0.90% higher with the Shanghai Composite (+0.67%) also trading in positive territory after the PBOC reassured markets of their policy support for the economy. That comes as Beijing expanded its Covid testing to 11 further districts from today until April 30, with growing questions as to how the economy will perform against the backdrop of further lockdowns, particularly if the country continues its Zero Covid strategy. Other Chinese assets are also struggling, with the offshore Yuan weakening to its lowest levels against the US Dollar since 2020, though yesterday the People’s Bank of China said in a statement that they will lower banks’ FX reserve ratio from 9% to 8% beginning May 15. Overnight, the Yuan has witnessed a rebound, climbing +0.4% to 6.533 against the US dollar, snapping five days of losses. Elsewhere in Asia, equity markets are mostly trading higher with the Hang Seng (+1.81%) leading gains across the region in early trading amid a gain in tech stocks. Elsewhere, the Nikkei (+0.51%) is up following the release of upbeat jobs data. Data showed that Japan’s jobless rate unexpectedly dropped 0.1 percentage points to 2.6% in March while the Job-To-Applicant Ratio improved to +1.22 in March from +1.21, climbing for the third consecutive month. Meanwhile, the Kospi (+0.60%) is climbing after South Korea’s Q1 GDP data surprised on the upside. The nation’s GDP expanded +0.7% q/q, slowing from +1.2% a quarter earlier, but slightly faster than the +0.6% expected. Looking ahead, stock futures in the US are pointing to a positive start with contracts on the S&P 500 (+0.23%) and Nasdaq (+0.25%) trading up with European future soaring (Stoxx 50 +1.66%) after the poor close yesterday. European sovereign bonds are likely to sell off at the open after a strong close yesterday before the risk relief rally. Yesterday, yields on 10yr German bunds (-13.5bps) saw the biggest declines as havens outperformed. The French 10yr spread over bunds did widen by +2.6bps, but that was part of a broader widening in European spreads rather than because of the election result that was mostly priced in already, and we also saw the Italian (+4.1bps) and Greek (+11.0bps) spreads move by even larger margins. That left the Italian spread at 173.6bps, its widest level since June 2020. Back to equities and earlier the STOXX 600 (-1.81%) slumped along with other bourses on the continent, closing during the nadir in US equities. On a sectoral basis, the biggest global underperformer for equities were energy stocks, but that was no surprise considering the decline in oil prices given concerns over Chinese demand going forward. By the close, Brent Crude fell by -4.06% to $102.32/bbl, but rallied along with equities after trading as much as -6.30% lower intraday and below $100/bbl for the first time in a couple of weeks. WTI was also down -3.46% at $98.54/bbl. And other energy prices lost ground too, with European natural gas futures (-2.15%) falling to their lowest levels since Russia’s invasion of Ukraine began, at €92.84/MWh. Oil is back up around 1% this morning after the renewed global risk appetite. In spite of the more negative growth tone in markets, the Ifo’s business climate indicator from Germany yesterday came in above expectations in April, with the reading at 91.8 (vs. 89.0 expected), marking an unexpected improvement from the March reading that had been the worst since August 2020. Otherwise on the data side, the Dallas Fed’s manufacturing activity index for April fell to 1.1 (vs. 5.0 expected), the lowest since July 2020. To the day ahead now, and data releases from the US include the Conference Board’s consumer confidence indicator for April, preliminary March data on durable goods orders and core capital goods orders, the FHFA house price index for February, and new home sales for March. From central banks, we’ll hear from the ECB’s Villeroy and de Cos. Finally, earnings releases include Microsoft, Alphabet, Visa, Pepsico, UPS, Texas Instruments, General Electric and General Motors. Tyler Durden Tue, 04/26/2022 - 07:45.....»»

Category: blogSource: zerohedgeApr 26th, 2022