The FTX Contagion Spreads

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Category: topSource: investorplaceNov 24th, 2022

Futures Slide On China Covid Curb Concerns; Disney Jumps After Chapek Fired

Futures Slide On China Covid Curb Concerns; Disney Jumps After Chapek Fired After opening modestly in the green, US equity futures have drifted steadily lower all session and were last trading near their Monday lows as concerns that China may tighten Covid curbs after China reported its first Covid-related death in almost six months and a city near Beijing rumored to be a test case for dropping all curbs enforced a slew of restrictions all weighed on growth in the world’s second-largest economy, as well as the ongoing carnage in the crypto space. At 7:30am ET, S&P futures were down 0.5% to 3,953 while Nasdaq 100 futures slumped 0.9% to session lows, below 11,600. The dollar stormed higher as investors sought shelter in the dollar; 10Y yields rose to 3.83%, while bitcoin traded around $16,000 after dumping over the weekend. Oil dipped but rebounded from session lows on concern of a weakening demand outlook from China and following a $10 price target cut to $100 for Q4 2022 from Goldman overnight. US-listed Chinese stocks including Alibaba, Baidu and fell in US premarket trading after China saw its first Covid-related death in almost six months, sparking concern that Beijing could see a return of heightened restrictions on schools, restaurants and shops amid a continuing outbreak in the capital. Worsening outbreaks across the nation are stoking concerns that authorities may again resort to harsh restrictions. A city near Beijing that was rumored to be a test case for the ending of virus restrictions has suspended schools, locked down universities and asked residents to stay at home for five days. Elsewhere in premarket moves, Walt Disney shares soared 8% after the firm fired embattled CEO Bob Iger and brought back former leader Bob Iger as chief executive officer, a surprise capitulation by the board after a string of disappointing results. Cryptocurrency-related stocks declined after the price of Bitcoin retreated amid worries over contagion from the downfall of Sam Bankman-Fried’s FTX empire. Shares in Riot Blockchain -4.5%, Marathon Digital  -3.1%, Coinbase -4.6%. Squarespace shares gained 2.2% after being upgraded to overweight from neutral at Piper Sandler, which identifies the website- building and hosting company as having the lowest risk to its 2023 numbers among e-commerce stocks. "Markets got their hopes up that the Chinese government might loosen its Covid policy, but despite the slowing economy, there is little chance of that," said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. “This is going to be bad for commodity-related stocks as well as luxury companies and other exporters to China.” However, others like Morgan Stanley, remain hopeful and expect that China will end Covid zero in a few months; in its base case the bank sees China reopening by April as shown below. "Financial markets have caught a cold amid worries that mounting Covid cases in China and a fresh tightening of restrictions will send a fresh shiver through manufacturing output and push down demand for raw materials," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. As Bloomberg notes, trading will be slow this week, with the US market closed Thursday for the Thanksgiving holiday and open for a half day on Friday. Meanwhile, Goldman strategists warned that the bear market had more room to run and that stocks were likely to see more declines and lower valuations in 2023. "The conditions that are typically consistent with an equity trough have not yet been reached,” strategists including Peter Oppenheimer and Sharon Bell wrote in a note on Monday. They said that a peak in interest rates and lower valuations reflecting recession are necessary before any sustained stock-market recovery can happen. After a sharp rally fueled by signs of cooling inflation, US stocks were subdued last week as Federal Reserve officials indicated they need to see a meaningful slowdown in prices before reducing the pace of their interest rate increases. The big event for the market this week comes Wednesday, when the central bank releases minutes from its latest policy meeting, possibly providing clues on when it will shift to less-aggressive rate hikes. In Europe, the Stoxx 50 index fell 0.5%, with the IBEX outperforming peers, adding 0.4%, while FTSE MIB lags, dropping 1%. Miners, tech and chemicals are the worst-performing sectors. Here are the notable European movers: Virgin Money UK shares rose as much 16%, the most in two years, after the British lender announced an extension of its share buyback program and reported earnings that analysts said could prompt upgrades in profit forecasts. Ipsen rose as much as 4.5%, to the highest since April, after JPMorgan said the stock may get a boost from clinical trial data on its Onivyde and elafibranor drugs in 2023. Rheinmetall shares jumped as much as 3.7% after Deutsche Bank upgraded the defense and automotive company to buy from hold and Berenberg raised its PT on the stock. Diploma shares gained as much as 3.3% after the seals and components distributor reported full-year revenue that beat analyst estimates. Next and Boohoo fell after they were both downgraded to hold from buy at Panmure. The broker cited inventory challenges for UK apparel retailers more broadly as demand has fallen in the UK clothing market since early October. Next fell as much as 1.9% while Boohoo dropped 7%; M&S and Asos also fell. Shares in Vallourec dropped as much as 13% in Paris trading after the steel and alloy tubing group announced third- quarter results that fell short of analyst expectations. Shares in IT services firm Bechtle fell as much as 5.4% after Exane downgraded the stock to neutral, citing concern about how margins will be affected by wage inflation and cost increases. SGS shares fell as much as 3.6%. The testing and inspection firm was cut to underweight from neutral at JPMorgan, with the broker saying shares look “mispriced.” Earlier in the session, Asian stocks also declined, with Hong Kong leading losses, as investors assessed the outlook for China’s reopening while continuing to monitor the Federal Reserve’s policy trajectory. The MSCI Asia Pacific Index dropped as much as 1.2%. Chinese technology stocks were the biggest drags on the gauge, also driving the Hang Seng Index down almost 2%, after fresh reports of Covid deaths and lockdowns in China. Malaysian shares pared losses as a deadline for party leaders to name a prime minister was extended after Saturday’s election produced the country’s first-ever hung parliament. Benchmarks across Asia Pacific also fell, while the dollar strengthened, as Federal Reserve Bank of Boston President Susan Collins reiterated the likelihood of large US interest-rate hikes, with the outlook for inflation still uncertain. US stocks had risen recently on hopes for a slower pace of tightening. “After the recent good US consumer and producer price inflation reports, it was easy to conclude that there are much better times ahead in the asset markets,” said Gary Dugan, chief executive officer at the Global CIO Office in a note. “It just won’t be that easy.” Asian stocks had been rebounding as well, gaining as much as 15% from a trough in October, helped also by hopes for reduced restrictions in China. The advance started to falter last week amid lingering doubts over China’s reopening and US rate policy India’s major stock indexes posted their biggest decline in more than a month, tracking weaker global markets and as shares of Reliance Industries and index-heavy software makers slipped.   The S&P BSE Sensex closed 0.8% lower at 61,144.84 in Mumbai, while the NSE Nifty 50 Index eased by an equal measure. Both indexes posted their biggest single-day slump since Oct. 11, with the Sensex now trading 1.3% off its recent peak. Global stocks fell amid concern that China may tighten Covid curbs after a string of reported deaths. Worsening outbreaks across the nation are stoking concerns that authorities may again resort to harsh restrictions.  All but two of the 19 sector sub-gauges compiled by BSE Ltd. traded lower, led by information technology companies. In FX, the dollar gained as fears of a return to stricter Covid containment measures in China boosted demand for havens. The Bloomberg dollar spot index rises 0.7%. CHF and CAD are the strongest performers in G-10 FX, SEK and JPY underperform. The yen plunged by more than 1% dropping as low as 142 per dollar. The Japanese currency held up well throughout most of the Asian session, but began a steep slide shortly before European session began. The euro fell by as much as 1% versus the dollar, the biggest slide this month, to touch $1.0226.  The Australian dollar and Swedish krona were also among the worst performers It’s not unusual for implied volatility to trail realized in the currency market, especially at times when key risk events like central bank policy meetings are far ahead on the calendar. When it comes to the euro-dollar pair, options are underpriced across the curve, with striking moves on the one- and six-month tenors New Zealand dollar short-dated FX option volatility advanced as pricing for a 75- basis-point hike in the official cash rate holds at 60%, two days out from the decision In rates, Treasuries were mixed with the belly of the curve underperforming, cheapening 2s5s30s fly by 3.2bp on the day. Wider losses were seen across gilts where the front-end underperforms.  Treasury yields were cheaper by 0.5bp across belly and richer by 1.5bp across long-end of the curve, flattening 5s30s spread by 1.5bp on the day -- reaching as low as -10.9bp and tightest since Nov. 7. The US 10-year yields around 3.825% and slightly richer on the day;  gilts lag by additional 1.5bp in the sector. US session focus includes double auction event for 2- and 5-year notes while Daly is expected to speak in the afternoon.  The gilts curve bear-flattens with 2s10s narrowing 2.3bps, while the Bund curve bear-steepens. Peripheral spreads are mixed to Germany; Italy widens, Spain and Portugal tighten. In commodities, WTI and Brent are lower by around USD 0.50/bbl or 0.50% on the session, but have lifted from earlier lows and as such are some way from Friday's base. The crude complex was weighed by China's COVID controls, with a stronger US dollar also impacting and adding to the broader complex's woes. Goldman Sachs cut its Q4 Brent oil outlook by USD 10/bbl to $100/bbl due to China COVID concerns, while it sees elevated oil flows from China ahead of EU curbs and a price cap; $ forecasts Brent to recovery to USD 110/bbl in 2023, expects oil demand to increase at an above trend rate of circa. 1.6mln BPD in 2023. Spot gold/silver are unable to glean any haven-related upside in wake of the USDs strength, with the yellow metal over $10/oz below the USD 1751/oz 10-DMA despite briefly surpassing the figure overnight; base metals similar dented. Cryptocurrency prices struggled in the ongoing crisis sparked by the downfall of Sam Bankman-Fried’s once powerful FTX empire. Crypto-exposed stocks fell. It's a quiet start to the holiday-shortened week, with just the October Chicago Fed national activity index due at 830am. We get earnings from Zoom; On the Fed speaker slate, Fed's Daly talks on price stability. Market Snapshot S&P 500 futures down 0.6% to 3,950.25 STOXX Europe 600 down 0.2% to 432.60 MXAP down 1.2% to 150.77 MXAPJ down 1.4% to 487.13 Nikkei up 0.2% to 27,944.79 Topix up 0.3% to 1,972.57 Hang Seng Index down 1.9% to 17,655.91 Shanghai Composite down 0.4% to 3,085.04 Sensex down 0.9% to 61,121.88 Australia S&P/ASX 200 down 0.2% to 7,139.25 Kospi down 1.0% to 2,419.50 German 10Y yield up 1% to 2.03% Euro down 0.9% to $1.0230 Brent Futures down 0.7% to $86.97/bbl Gold spot down 0.6% to $1,739.61 U.S. Dollar Index up 0.86% to 107.85 Top Overnight News from Bloomberg Asset managers are turning ever more bearish on the dollar amid bets that the Federal Reserve may be approaching the peak of its interest-rate hike cycle Investors are slowly coming to terms with the sheer size of the UK government’s borrowing needs over the next few years and it doesn’t look pretty The PBOC net drained 2b yuan ($421m) via its open-market operations on Monday for the first time since Nov. 9, as a selloff in government and corporate bonds eased China’s financial regulators have asked banks to stabilize lending to property developers and construction firms, the latest effort by policymakers to turn around the real-estate crisis and bolster economic growth More than two years of growth-squelching policies sent international investors fleeing China. It’s taken all of two weeks to lure them back Sam Bankman-Fried’s bankrupt crypto empire owes its 50 biggest unsecured creditors a total of $3.1 billion, new court papers show, with a pair of customers owed more than $200 million each A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks began the week mostly lower amid headwinds from China after several areas announced fresh virus restrictions including lockdowns and the country also reported its first COVID-19 deaths in about six months. ASX 200 was constrained by underperformance in the mining-related sectors amid a decline in commodity prices and with BHP shares pressured amid reports its chairman is considering retiring next year. Nikkei 225 lacked direction amid further political tremors in the Kishida government after Internal Affairs Minister Terada resigned due to involvement in a funding scandal and was the third cabinet member to step down in under a month. KOSPI declined amid geopolitical concerns after North Korea's recent missile launches and with sentiment subdued as data for the first 20 days of November showed exports fell 16.7% Y/Y and imports fell 5.5% Y/Y. Hang Seng and Shanghai Comp suffered losses due to the worsening COVID situation in the mainland, while the Hong Kong benchmark was the worst hit with the special administrative region said to be near to cutting non-emergency services at public hospitals amid a surge in COVID cases and its Chief Executive Lee also tested positive for COVID-19. Furthermore, the PBoC maintained its key lending rates with the 1-Year and 5-Year LPR kept at 3.65% and 4.30%, respectively, although this was widely expected. Top Asian News China reported 2,365 (prev. 2,267) new coronavirus cases in the mainland on November 20th, 24,730 (prev. 22,168) new asymptomatic cases and 2 COVID deaths, which follows its first COVID-related death in six months on Saturday. Beijing’s Chaoyang district urged residents to remain at home on Monday as cases continue to rise, according to Reuters. It was also reported that the Baiyun district in China's Guangzhou imposed a 5-day lockdown from November 21st-25th and China's Shijiazhuang city is to conduct mass coronavirus testing in certain areas. Beijing City has tightened testing requirements for travellers entering Beijing, according to an official; will now require 3 PCR tests in 3 days upon arrival, via Reuters. Hong Kong is near to cutting non-emergency services at public hospitals again amid a surge in COVID cases, according to SCMP. It was also reported that Hong Kong Chief Executive John Lee tested positive for COVID-19. Taiwan’s representative at APEC Morris Chang said he had a very happy interaction with Chinese President Xi during a brief meeting, according to Reuters. US VP Harris met with Chinese President Xi briefly at APEC and she noted to Xi that they must maintain open lines of communication to responsibly manage the competition between their countries, according to a White House official. Furthermore, Harris said that the US does not seek conflict or confrontation and welcomes competition, while she added that her Asia trip signifies the significance of the relationship between the US and its allies and partners in the region, according to Reuters. US House GOP leader McCarthy said he will form a select committee on China if he is elected as House Speaker, according to Reuters. Germany plans to tighten disclosure rules for companies exposed to China and plans to assess company disclosures to decide whether they should conduct stress tests on China risks, according to a draft document cited by Reuters. APEC leaders’ declaration affirmed the commitment to promote strong, balanced, secure sustainable and inclusive growth and stated that they are determined to uphold and further strengthen the rules-based multilateral trading system, while they welcomed progress this year in advancing the free-trade area of the Asia-Pacific. Furthermore, APEC is determined to achieve a post-COVID economic recovery and recognised that more intensive efforts are needed to address challenges such as rising inflation, food security, climate change and natural disasters, according to Reuters. Japanese PM Kishida accepted the resignation of Internal Affairs Minister Terada in order to prioritise parliamentary debate and which follows the latter’s involvement in funding scandals, while it was later reported that Japan appointed former Foreign Minister Matsumoto as the new Internal Affairs Minister, according to Reuters. European bourses are pressured across the board, Euro Stoxx 50 -0.6%, as China's COVID crackdowns weighs on sentiment in an otherwise limited European morning. Sectors feature a defensive bias with those most sensitive to renewed COVID controls posting modest underperformance. Stateside, futures are similarly pressured, ES -0.6%, given the above headwinds with the US docket slim today at the start of a holiday shortened week. Goldman Sachs equity strategy: bear market is not over, continue to think near-term path is likely to be volatile and down before reaching a final trough in 2023, via Reuters. Top European News ECB's Lane says (when questioned on the increment of upcoming hikes) "what matters is the level we're going to arrive at. The exact allocation across different meetings is a secondary issue", via ECB. Does not think December is going to be the last rate hike, "The logic of a pause for the ECB: we’re not at that point". UK PM Sunak will be urged by businesses on Monday to seek better EU relations and will face pressure from businesses to soften the impact of Brexit such as by opening doors to more immigration to fill holes in the nation's labour market, according to FT. UK was reportedly considering Swiss-style ties with the EU and the government believes that EU relations are thawing which could lead to 'frictionless' trade, according to The Times. However, UK Health Minister Barclay said he did not recognise a report that the government wants to shift to a Swiss-style relationship with the EU, according to Reuters. FX Dollar benefits from short squeeze amidst latest bout of China-related risk aversion, DXY eyes 108.000 from 106.890 low. Yen sinks alongside Yuan, towards 142.00 after breach of 100 DMA near 141.00. Euro loses 1.0300+ status as Buck bounces and overshadows hawkish-leaning ECB commentary and firm rebound in EGB yields. Aussie undermined by deteriorating Chinese COVID situation, but Kiwi holds up better in hope of hawkish RBNZ hike on Wednesday; AUD/USD hovers on 0.6600 handle, NZD/USD hangs above 0.6100. Sterling loses Fib support just over 1.1800 after failing to breach round number above convincingly. Fixed Income Despite pronounced action earlier on, core fixed benchmarks are in relative proximity to the unchanged mark with Bunds just 20 ticks lower overall. Bunds were bid on a surprising MM domestic PPI decrease; however, ECB's Lane then pushed the complex back down before the latest Beijing, China updates saw that downside dissipate to leave the benchmark only modestly softer. Stateside, USTs have been directionally in-fitting though magnitudes slightly more contained ahead of a holiday-thinned weak and with two lots of supply due later. Commodities Crude benchmarks are weighed on by China's COVID controls, with a stronger USD also impacting and adding to the broader complex's woes. Specifically, WTI and Brent are lower by around USD 0.50/bbl or 0.50% on the session, but have lifted from earlier lows and as such are some way from Friday's base. BP (BP/ LN) - Stopped production at its Rotterdam Refinery (400k BPD), been taken "completely and safely out of operation". Follows reports via Bloomberg on Friday of a serious incident re. a steam outage, via BP. Subsequently, workers will not assist in restarting operations at the Rotterdam refinery (400k BPD) unless their wage demands are met, via Union. A large explosion reportedly hit Russia’s Gazprom pipeline amid suspicions of sabotage related to Russia’s war in Ukraine, according to the Daily Mail. Kuwait’s oil revenues for FY21/22 rose 84.5% Y/Y to KWD 16.33bln, according to the Finance Ministry. US VP Harris said the US will use its APEC host year to set new ambitious sustainability goals and she proposed setting a new aggregate target for reducing carbon emissions from the power sector in APEC, while she also proposed to set a goal for reducing methane emissions and said the US will introduce a new initiative on a just energy transition, according to a White House official cited by Reuters. UN climate agency published a new COP27 cover decision draft deal text and approved a proposal covering funding arrangements loss and damage from climate change suffered by vulnerable countries. However, it was also reported that EU climate policy chief Timmermans said the deal is not enough of a step forward and that the mitigation programme agreement allows some parties to hide from their commitments, while he added that too many parties are not ready to make more progress, according to Reuters. Goldman Sachs cut its Q4 Brent oil outlook by USD 10/bbl to USD 100/bbl due to China COVID concerns, while it sees elevated oil flows from China ahead of EU curbs and a price cap; UBS forecasts Brent to recovery to USD 110/bbl in 2023, expects oil demand to increase at an above trend rate of circa. 1.6mln BPD in 2023. Russia is now the largest fertiliser supplier to India for the first time as it provides discounts, according to Reuters sources. China's NDRC is to lower retail prices of gasoline and diesel by CNY 175/tonne and CNY 165/tonnes respectively as of November 22nd. Spot gold/silver are unable to glean any haven-related upside in wake of the USDs strength, with the yellow metal over USD 10/oz below the USD 1751/oz 10-DMA despite briefly surpassing the figure overnight; base metals similar dented. Geopolitics IAEA said powerful explosions shook the area of Ukraine’s Zaporizhzhia nuclear power plant on Saturday evening and Sunday morning with more than a dozen blasts heard within a short period during the morning. It was also reported that Ukraine’s Energoatom said Russia's military shelled the Zaporizhzhia nuclear power plant on Sunday morning and that there were at least 12 hits on the plant’s infrastructure facilities, while Russia’s Defence Ministry said Ukraine fired shells at power lines supplying the nuclear power plant, according to Reuters and TASS. US Defense Secretary Austin said Russia is carrying out atrocities in Ukraine and said that ‘these aren’t just lapses’, while he added that China, like Russia, is seeking a world where ‘might makes right’. Austin said autocrats like Russian President Putin are watching the Ukraine conflict and could seek nuclear weapons, while he added autocrats could conclude obtaining ‘nuclear weapons would give them a hunting licence of their own’, according to Reuters. UK PM Sunak told Ukrainian President Zelensky that the UK will provide a GBP 50mln air defence package to Ukraine which will include 125 anti-aircraft guns and technology to counter Iranian-supplied drones, according to Reuters. Russian President Putin spokesperson says there is no discussion in the Kremlin of a fresh wave of military mobilisation, via Reuters. German Defence Ministry spokesperson says air policing is being discussed with Poland, via Reuters. US Event Calendar 08:30: Oct. Chicago Fed Nat Activity Index, est. -0.03, prior 0.10 Central Bank speakers 13:00: Fed’s Daly Talks on Price Stability A more detailed look at global markets courtesy of DB's Jim Reid This morning my new credit strategy team and I have just published our 2023 credit outlook. Our view on the terminal rate for 2023 credit spreads and peak level 2024 defaults hasn’t changed much since we last updated our spread targets in April, when we became the first bank to warn of a tough 2023 US recession. In this outlook, we slightly increase our targets and see YE ‘23 spreads for EUR and USD IG hitting 245bps and 235bps, and EUR and USD HY hitting 930bps and 860bps, respectively. This is a widening from current levels of +53bps, +100bps, +400bps and +410bps, respectively. Our full-year total return forecasts for EU IG is 1.6%, USD IG -0.2%, USD HY -3.3% and EUR HY -4.4%. A lack of near-term maturities will limit 2023 defaults, but our models highlight that leverage is 2x more important than maturity walls at explaining historical default patterns. We forecast YE'23 defaults in USD HY of 4.5%, USD Loans of 5.6%, EUR HY of 2.2%, and EUR Loans of 3.7%. But by 2H’24, we forecast peak defaults in USD HY of 9%, USD Loans of 11.3%, EUR HY of 4.3% and EUR loans of 7.1%. Indeed loans worry us more than high-yield bonds in 2023. We see USD loans returning -10.8% over FY'23 as defaults rise and CLO demand is impaired from future downgrades. In the near-term, European credit should continue to outperform US credit, as event risk in the region falls with spreads still wide to the US. Our bearishness gathers momentum later in 2023. Indeed, the major 2023 theme will be the likely US recession in H2. Whether this happens and how severe it is will make or break 2023. In some ways we feel that this has been a pretty easy US cycle to predict as it's been an old fashioned boom-and-bust cycle. Half the 66 economists who forecast the US economy on Bloomberg now predict at least two consecutive quarters of negative growth for 2023 (albeit mildly negative). Has there ever been such a large number predicting a recession from a starting point of not being in one? The worry we would have is that economists’ models seldom predict a recession. So if they now do, that speaks volumes. The risk is that if and when it arrives, it creates systemic risk from somewhere in the over-levered / illiquid financial system. Something normally breaks when the Fed hikes. So the main driver of 2023 view is the combination of still relatively high rates, a tough US recession, and what crisis that might subsequently trigger. If we’re wrong on the US recession call, or if it is mild and without systemic risk, then we will be wrong on our forecasts. We suspect most readers will hope we are. See the full report here. Hopefully this new report won't distract you from the World Cup. I've drawn Argentina and Poland in the office sweepstake which will distract me from England's likely stressful journey through the tournament, however long it lasts. The start of the World Cup coincides with Thanksgiving week so it will be the usual compressed few days of activity. The FOMC minutes (Wednesday) and the ECB's account of their last meeting (Thursday) will be the key macro events. Focus will likely be on their thinking about the terminal rate (both) and QT plans (ECB), with both now more likely to hike 50bps than 75bps in December. We will also see global flash PMIs on Wednesday. Other data will include an array of business activity indicators, including durable goods orders in the US. Indeed, Wednesday is a US data dump ahead of Thanksgiving and we will also see the final UoM consumer confidence data which includes the inflation expectations revision which is important. Claims also comes a day early. The Fed speakers last week helped prompt a big flattening of the US curve as they generally hinted towards a terminal rate of above 5%. As such before we see the FOMC minutes, tomorrow sees three Fed speakers who might add to the debate. They are all hawks (Mester, George and Bullard) though and have all spoken since the FOMC so the market should know their biases. Over the weekend, the Atlanta Fed President Raphael Bostic (non-voter) opined that he believes that the Fed can slow the pace of rate hikes and feels that the Fed's target policy rate need not rise more than 1 percentage point to tackle inflation and help ensure a soft landing. Boston Fed Collins also spoke but kept all options open. Lastly, with only around 20 S&P 500 firms left to report earnings this season, this week's results line-up will be tech-heavy and feature a number of large Chinese firms. These include Baidu (Tuesday), Xiaomi (Wednesday) and Meituan (Friday). In the US, we will hear from Zoom today and Analog Devices, Autodesk and HP tomorrow. Risk aversion has resurfaced across Asian equity markets this morning with fresh China COVID-19 fears after the nation witnessed its first Covid-related death in 6 months on Saturday with two more following on Sunday, sparking concerns that Beijing would reimpose strict Covid curbs even as they consider longer-term reopenings. As I type, the Hang Seng (-2.09%) is the largest underperformer with the Shanghai Composite (-0.81%), the CSI (-1.30%) and the KOSPI (-1.11%) all slipping. Elsewhere, the Nikkei (+0.02%) has been wavering between gains and losses. In overnight trading, stock futures in the DMs are pointing to a weak start with contracts on the S&P 500 (-0.29%), NASDAQ 100 (-0.24%) and the DAX (-0.37%) trading in the red. Meanwhile, yields on the 2 and 10yr USTs are -2.5bps and -4.1bps lower, respectively, with the curve now at -72.6bps, a fresh four decade low. Coming back to China, the People’s Bank of China (PBOC) left its benchmark lending rates unchanged for the third straight month, maintaining its one-year loan prime rate (LPR) at 3.65%, while the five-year LPR (a reference for mortgages) was kept intact at 4.30%. With the authorities recently extending more support to property developers, the possibility of additional easing seems less likely from the central bank. In energy markets, oil prices are continuing their recent decline amid China demand concerns. Brent crude futures are down -1.02% at $86.73/bbl with WTI (-1.09%) just below $80/bbl. Reviewing last week now, US yields and equities sold off while European counterparts rallied, though the moves in equities in particular were small despite another week filled with macro news. Starting on rates, Fed Vice Chair Brainard kept to the company line in outlining a likely step down to +50bp hikes starting in December, but, unlike her colleagues, did not explicitly tie the slower pace with a higher terminal rate. Regional Fed Presidents were happy to take up that mantle, however, with St. Louis Fed President Bullard continuing to lead the vanguard. Indeed, Bullard noted that policy rates may even need to get as high as 7% to fight inflation, from just under 4% today. The Taylor Rule was invoked in that speech. That sent 2yr Treasury yields +19.2bps higher on the week (+7.2bps Friday). 10yr yields lagged, climbing +1.3bps (+5.9bps Friday), which drove the 2s10s curve to its most inverted of the cycle, ending the week at -70.6bps. While curves also flattened on this side of the Atlantic, Bunds and Gilts outperformed, where 10yr Bunds fell -14.6bps (-0.6bps Friday) and Gilts were -11.9bps (+3.7bps Friday) lower. Despite continued tech layoffs, fears of a material escalation in the war after the missiles landed in Poland (for which tensions were quickly eased), and tighter expected Fed policy, equities were subdued but resilient. Indeed, the S&P 500, which fell -0.69% over the week (+0.48% Friday), had its first weekly performance that did not exceed +1% in either direction since early August, while the STOXX 600 climbed +0.25% given the move lower in European discount rates. For a truly muted performance, we highlight the Dow Jones, which was -0.01% lower (+0.59% Friday). While aggregate indices put in a lacklustre shift, regional indices in Europe outperformed, with the DAX up +1.46% (+1.16% Friday) and the CAC +0.76% (+1.04% higher), and certain sectors underperformed in the US where the Nasdaq fell -1.57% (+0.01% Friday) and the Russell 2000 was -1.75% lower (+0.58% Friday). Elsewhere, Brent crude oil pulled back -8.72% (-2.41% Friday), which was its worst weekly return since early August, coincidentally also the last week that the S&P 500 had an absolute value return below 1%. Tyler Durden Mon, 11/21/2022 - 07:57.....»»

Category: blogSource: zerohedgeNov 21st, 2022

A crypto exec shares details of his phone calls with Sam Bankman-Fried days before FTX imploded

Insider's Phil Rosen talks to a top exec at a crypto exchange that wanted to help FTX before it declared bankruptcy. Good morning to my favorite corner of the internet. Senior reporter Phil Rosen here. It's good to see you. Today, we're zooming in on the revealing calls that took place just before the fall of FTX, between Sam Bankman-Fried and a rival exec. I caught up with that exec to hear about Bankman-Fried's eleventh-hour scramble for a billion-dollar deal.But before we get to that: Between the crypto, Twitter, and Taylor Swift headlines, it's easy to forget there are other things happening, too. Here's what else to bring to your water cooler chat today: A lot of tech jobs are based on tests — and pretty much everyone's cheatingThese billionaires want to save civilization by having tons of kidsMeet Wall Street titan Apollo's new class of dealmakersNow, shall we?If this was forwarded to you, sign up here. Download Insider's app here.SOPA Images / Contributor/ Getty Images1. Sam Bankman-Fried, the recently dethroned king of crypto, had been making a lot of calls seeking a lifeline before his firm crumbled. Days before FTX filed for bankruptcy, he was reaching out to competitors, including Lennix Lai, the director of financial markets at OKX, one the largest crypto exchanges in the world.Over the weekend, I sat down with Lai, who had a working relationship with Bankman-Fried and recently spoke to him. Ahead of FTX's November 11 bankruptcy filing, Bankman-Fried reached out to Lai late at night in Southeast Asia on November 8. "The very first call that we received from Sam he said everything's under control, but they might need cash, one to two billion dollars max in short-term credit, in exchange for FTT value or equity in FTX," Lai told me. He didn't reject the request, and said he was willing to help but just needed to mull it over with his team at OKX first. Bankman-Fried, Lai added, sounded calm and admitted the liquidity crunch was his own fault. Then, hours later, Bankman-Fried called again with much more anxiety in his voice. "He mentioned they were in a very critical situation, and only got a few hours," Lai said. "We didn't know what that meant. Also, they were talking about a lot more billions [of dollars], so that was difficult for us."Lai encouraged Bankman-Fried to reach out to Binance CEO Changpeng Zhao, because he could help stabilize FTX's native token, FTT, which Lai saw as one of the key issues. But even on that second call, Lai didn't explicitly say no to Bankman-Fried. He just wasn't prepared to make a billion-dollar rescue deal without taking several days to make a decision. Get the full details on my conversation with OKX's Lennix Lai here. Thoughts or feedback? Let me know on Twitter (@philrosenn) or email me ( other news:Christine Lagarde is leading the European Central Bank during a tumultuous period.Pool/Getty Images2. US stock futures fall early Monday, as global economic outlook worsened amid concerns that China could tighten COVID-19 restrictions. Meanwhile, Japan says natural gas is sold out until 2026. Here are the latest market moves.3. On the docket: Zoom Video Communications, Dell Technologies, and more, all reporting.4. This top-performing fund manager warned of a huge collapse for stocks six months ago. But he's since changed his tune and is now bullish for what's ahead. He broke down what he's investing in right now.5. European Central Bank President Christine Lagarde said Europe will need to face higher interest rates. In her view, a potential recession won't be enough to tame inflation on its own. Policymakers currently are weighing whether to slow down the pace of rate hikes at the December meeting. 6. Home prices could fall faster if once-reluctant sellers flood the market with more supply. While home sales and construction have adjusted sharply to collapsing demand, home prices have much further to fall, according to Pantheon Macroeconomics. "We think prices need to drop by about 20% from their spring peaks in order to reach a sustainable level."7. Wall Street warnings suggest that a recession is imminent. BofA strategists pointed to big drops in pending home sales, lumber prices, and global freight rates as signals of a downturn. But that doesn't mean there isn't a "big bull trade" to make. 8. Morgan Stanley analysts handpicked dividend stocks they think will provide attractive yields over the next three to five years. And they expect those payouts to keep rolling in even as the economy slows down. See the list of 21 names here.9. This 15-year veteran IRS lawyer said if you lost money on FTX, there's a good chance of getting something back still. He said you may need to file a proof of claim to be considered an FTX creditor, and that you're still responsible for filing taxes related to your trades on the exchange. Here's what else he recommends as bankruptcy proceedings unfold. Coinbase stockMarkets Insider10. Bank of America downgraded Coinbase stock as the FTX fallout spreads through the sector. Analysts clarified that Coinbase isn't another FTX, but that doesn't mean it's immune from contagion. Here are three headwinds the firm has to navigate in the aftermath.Keep up with the latest markets news throughout your day by checking out The Refresh from Insider, a dynamic audio news brief from the Insider newsroom. Listen here.Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email prosen@insider.comEdited by Jason Ma in Los Angeles and Hallam Bullock (@hallam_bullock) in London.  Read the original article on Business Insider.....»»

Category: personnelSource: nytNov 21st, 2022

In the Markets: Crypto firms find innovative ways to say how sad they are

As contagion spreads, brokers must share grim news with clients, writes senior reporter Aaron Elstein.....»»

Category: blogSource: crainsnewyorkNov 16th, 2022

Stock Rally Fizzles Following Return Of Hawkish Fed Comments

Stock Rally Fizzles Following Return Of Hawkish Fed Comments The rally in US index futures paused after Wall Street stocks posted their best week in several months, following comments from a Federal Reserve official that the fight against inflation has further to run. Contracts on the S&P 500 were down 0.3% at 7:30 a.m. ET... ... while Nasdaq 100 futures fell 0.7%, after Fed Governor Christopher Waller said on Sunday that policymakers had “a ways to go” before ending interest-rate hikes. His comments also lifted 10-year Treasury yields by 9 basis points. Waller: The FOMC statement in November was designed to signal a potential step down to 50 basis points. "We knew the markets were going to jump for joy." So the Fed used Powell's press conference to "drive the point home" that it's the ultimate level for rates that matters. — Nick Timiraos (@NickTimiraos) November 13, 2022 In premarket trading, beside the surge of Chinese stocks listed in the US following China's announcement of a "rescue package", Advanced Micro Devices shares also rose after brokers UBS and Baird upgraded the chipmaker to buy and outperform, respectively. Biogen (BIIB US) shares rise as much as 5% in premarket trading, after Roche’s Alzheimer’s drug, a potential competitor to Biogen’s, failed a pair of large studies. On Monday, the dollar traded near its best levels of the day, pressuring all of its Group-of-10 counterparts. Treasury yields rose across the curve, led by 10-year rates that climbed for the first time in a week.  Oil fell with gold, while Bitcoin gains exceeded 2% after earlier sliding more than 3%; the drop in crypto was halted after Binance CEO Changpeng Zhao said the world’s largest digital-asset exchange plans to set up an industry recovery fund. Last week, a big miss across the board in CPI data fueled bets that the US central bank would temper its hawkish narrative. The Dow Jones Industrial Average ended the week 2.1% short of recording a 20% gain off its Sept. 30 low -- the technical definition of a bull market. The S&P 500 chalked up its biggest weekly rise since June, while the tech-heavy Nasdaq 100 climbed 1.9% for its best two-day gain since 2008. “The burst of euphoria which erupted over US markets and spread more widely at the end of last week is ebbing away after fresh warnings that the fight against inflation is still a hard slog yet to be won,” said Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown. That comes after a tumultuous weekend for rival FTX, which was once seen as among the best-run exchanges but has filed for Chapter 11 bankruptcy. Worrying details that have emerged include the fact that just before filing for bankruptcy, FTX Trading International held just $900 million in liquid assets against $9 billion of liabilities, according to sources familiar with the matter. Chinese stocks listed in the US also were also higher, and were set to extend their rally to a third day, after Beijing issued a 16-point plan to boost the real-estate market on Friday, the strongest sign yet that President Xi Jinping is turning his attention toward shoring up the world’s second-largest economy. The move pushed Chinese stocks into a bull market, even as the Hang Seng China gauge holds on to a loss of more than 25% this year. After a dismal earnings season, which saw mega-cap tech stocks underperform while earnings growth waned, some are skeptical about the earnings outlook. “Investor euphoria over the prospect of a ‘Fed pivot’ contrasts with the deteriorating profit margins and darkening business outlook expressed by many S&P 500 firms,” Goldman Sachs Group Inc. strategists led by David Kostin said in a note. In Europe, stocks are steady, holding on to early session gains as personal care, telecoms and media outperform while travel and real estate lag. The Stoxx 600 rose 0.1%; Roche dropped after the news on its much-awaited experimental Alzheimer’s drug. Here are the most notable market movers: Informa shares jump as much as 8.8%, the most in two years, after the company raised full-year revenue and operating-profit guidance, despite assuming zero revenue from live and on-demand events in China in November and December German pharmaceuticals giant Merck KGaA rises as much as 6.4% after Bank of America upgraded to buy from neutral, flagging Phase III data for multiple sclerosis drug Evobrutinib which it says could be a “game-changer” for the company’s “perceived lackluster pharma business.” Pepco Group soars as much as 19% in Warsaw after the discount retailer was added to MSCI’s global standard indexes in a semi-annual review published after markets closed on Nov. 10. Teleperformance rises as much as 5.6%, clawing back more ground following the slump it suffered last week sparked by a report involving its Content Moderation unit in Colombia. Rheinmetall climbs as much as 5.2%, touching the highest since Aug. 18, following the German defense company’s acquisition of Spanish ammunition maker Expal in a deal that Warburg says looks like a “good strategic fit.” Close Brothers falls as much as 6.5% as the UK financial services firm is cut to sell from hold at Investec, which says the shares now look “a little too expensive.” Tremor falls as much as 27%, the most since Aug. 16, after a “challenging 3Q market” led to reported revenue missing analyst estimates. Ferrexpo slumps as much as 9.7%, the most since Oct. 24, after Credit Suisse downgrades the stock to neutral from outperform, citing a deteriorating operating environment in Ukraine. Roche falls as much as 5.7%, the most since May, after the Swiss pharmaceutical company said its long-awaited Alzheimer’s treatment failed its phase 3 trial, with its research partner MorphoSys plunging as much as 33%, the most in two decades. In Asia, Chinese stocks extended recent gains on hints of shifting Covid policy along with more support heading toward the property sector. US chipmakers could be in focus, with President Joe Biden and Chinese leader Xi Jinping meeting in Bali, Indonesia, on the sidelines of the Group of 20 summit. Asian stocks were steady as weakness in markets such as Japan countered gains in China, where authorities issued a sweeping rescue package to bail out the property sector. The MSCI Asia Pacific Index pared an earlier gain of as much as 0.8% to trade flat. While gauges in China pared a bulk of their early gains, the Hang Seng China Enterprises Index closed up nearly 2%, taking its surge this month to 21%. Vietnam’s benchmark was the worst performer in the region, while Japanese shares also slipped. SoftBank Group’s plunge weighed the most on the regional benchmark. China’s property stocks surged as financial regulators issued a 16-point plan to boost the real estate market. Along with Friday’s easing of some Covid controls, the measures gave traders confidence that China is finally taking concrete steps to tackle the two biggest sore points for its economy and markets -- Covid Zero and the property crisis. READ: Chinese Stocks Storm Into Bull Market on Covid, Property Shifts The MSCI Asia index is up about 11% so far in November, heading for its first monthly gain since July. It is still down more than 21% this year. Traders will be closely watching any further progress on China’s reopening and whether the downshift in US inflation paves the way for a moderation in future Fed interest rate hikes. “We see next year as a much better one for Asia/EM equities, following the longest bear market in history,” Morgan Stanley strategists including Jonathan Garner wrote in a note. The softer-than-expected US inflation will allow the Fed to finish hiking in January, while growth in the region will likely pick up from the second quarter of 2023 helped by China’s reopening, they added Japanese equities ended lower as investors worried over the strengthening yen and possible cryptocurrency contagion risk amid FTX’s deepening woes.  The two factors overpowered the initial optimism over China’s moves to support eventual reopening and beleaguered property sector. The Topix Index fell 1.1% to 1,956.90 as of market close Tokyo time, while the Nikkei declined by a similar magnitude to 27,963.47.  SoftBank Group Corp. contributed the most to the Topix Index decline as it plunged 13%, the most since March 2020 after disappointing second quarter results. Out of 2,165 Topix members, 575 rose and 1,524 fell, while 66 were unchanged. “The Nikkei Stock Average last week rose sharply and recovered to the 28,000 yen level, and stocks are being sold off for profit-taking,” said Hitoshi Asaoka, strategist at Asset Management One. The strengthening of the yen is also playing into today’s move, he added.  Key stocks gauges in India fell after benchmark Sensex surged to a record high on Friday, weighed by fast-moving consumer-goods companies while the country’s earnings season nears completion. The S&P BSE Sensex fell 0.3% to 61,624.15 in Mumbai, while the NSE Nifty 50 Index dropped 0.1%. The 50-stock Nifty index is still less than 1% short of its record level seen in October last year.  Volatility in local stocks surged 3%, the most since Oct. 11, while the benchmark Sensex is trading at 14-day RSI of 66, close to levels that traders consider as overbought. Of 49 Nifty companies, which have so far reported earnings, 32 have reported profit in-line or above consensus estimates while 14 have missed. Oil & Natural Gas Corp will be releasing its number later today. ICICI Bank contributed the most to the Sensex’s decline, decreasing 1.3%. FMCG firms ITC and Hindustan Unilever were also among prominent decliners In FX, the Bloomberg dollar resumed its ascent after crashing last week, rising 0.5% as the greenback gained versus all of its Group-of-10 peers. CAD and EUR are the strongest performers in G-10 FX, JPY underperforms, breaking above 140.40/USD. The euro fell to trade around $1.03 after earlier rising to $1.0367, the highest level since Aug. 10. Yields on Bunds and Italian bonds fell. ECB’s Guindos, Centeno and Nagel speak later. The new Italian government will likely miss its fiscal targets amid headwinds to growth, Moody’s said in a statement last week; Fitch reviews Italy, Moody’s reviews Portugal and S&P reviews Ireland on Friday The pound pulled back from a 2 1/2-month high versus the greenback. The gilt curve bull-flattened ahead of the UK government’s Autumn Statement due later in the week The Office for Budget Responsibility expects government borrowing to rise to nearly £100b in 2026-27, Financial Times reported on Sunday, citing an “ally” of UK Chancellor Jeremy Hunt Australian and New Zealand sovereign bonds fall across the curve on the hawkish Fed comments. The Aussie and kiwi both weakened on the back of broad-based US dollar strength The yen was the worst G-10 performer and fell below 140 per dollar. Bank of Japan Governor Haruhiko Kuroda said it’s “very good” that rapid weakening of the yen has halted for now after one-sided moves In rates, the Treasury yield curve steepened after the hawkish Fed comments and Friday’s moves in Bunds. The 10-year yield rose 6 bps after earlier adding 9bps to touch 3.90%, erasing a portion of Thursday’s historic gains sparked by softer-than-expected October CPI data. Treasury futures had erased a portion of the gains on Friday when the cash bond market was closed for US Veterans Day. Yields are higher by 5bp-8bp Monday, little changed from where they began the Asia session, after Fed Governor Waller, speaking during US evening hours on Nov. 13, said the central bank still has “a ways to go” before it stops raising interest rates, and that the market got “way out in front” after the inflation data. The 5-year TSY, higher by 7bp at 4%, is back in line with its 50-DMA after falling below it Thursday for the first time since Aug. 19. Interest-rate strategists at Goldman Sachs were among those saying the market reaction to October CPI was excessive; the yield declines are “likely overdone,” as risks remain skewed toward an extended Fed tightening cycle, they wrote. Gilts lead latest push, 10-year yields outperform bunds by about a basis point; USTs 10-year yields lag, rising 7bps as they catch up after being closed on Friday. In commodities, WTI crude futures fall below $88 as initial upside on the USD’s pullback dissipated with the DXY now back above 107.00. Benchmarks are near session lows on the above action and also amid a further strengthening of COVID measures within Beijing after the city reports the highest number of cases in a year. Janet Yellen said India can buy Russian oil at any price if it does not use Western insurance or maritime services, according to a Reuters interview, and said the existence of a G7 oil price cap will give India and other developing countries leverage in bargaining with Russia on oil. Yellen said they are happy for India, China, and Africa to get a "bargain" on Russian oil, inside or outside the price cap. An Indian government official said they do not believe India will follow the price cap mechanism and have communicated that to the countries. OPEC+ "may discuss adjustments to members' oil production baselines in early December as many of them struggle to meet their agreed quotas", according to Energy Intel. "Delegates said it is too early to predict what might happen in Vienna in terms of any potential changes to the alliance's production policy or baseline adjustments. " There is nothing on today's economic calendar; we get earnings from Tyson Foods; Fed's Williams and Brainard speak, ECB's Panetta, Centeno and Guindos speak Market snapshot S&P 500 futures down 0.5% to 3,981.25 STOXX Europe 600 up 0.2% to 433.04 MXAP down 0.1% to 151.66 MXAPJ up 0.7% to 490.04 Nikkei down 1.1% to 27,963.47 Topix down 1.1% to 1,956.90 Hang Seng Index up 1.7% to 17,619.71 Shanghai Composite down 0.1% to 3,083.40 Sensex down 0.1% to 61,714.09 Australia S&P/ASX 200 down 0.2% to 7,146.35 Kospi down 0.3% to 2,474.65 German 10Y yield down 0.9% to 2.14% Euro down 0.2% to $1.0323 Brent Futures down 0.6% to $95.38/bbl Gold spot down 0.7% to $1,759.48 U.S. Dollar Index up 0.51% to 106.84 Top Overnight News from Bloomberg Further interest rate hikes are expected to ensure inflation’s return to our medium-term target of 2%, ECB’s governing council member Constantinos Herodotou says in an interview with Greece’s Naftemporiki website Germany’s biggest labor union is locked in talks with employers over a pay deal for about 3.9 million workers, in one of the most significant domestic showdowns of Europe’s energy crisis so far The ECB will probably receive several hundreds of billions of euros in early repayments of long-term loans this year after officials toughened the terms of the program to aid their fight against inflation China issued sweeping directives to rescue its property sector, adding to a major recalibration of its pandemic response in the strongest signs yet that President Xi Jinping is turning his attention toward shoring up the world’s second-largest economy The EU is “ready to go” with an effort to impose a price cap on Russian oil, Ursula von der Leyen, the president of its executive arm, said Mondayd A more detailed look at global markets courtesy of Newqsuawk APAC stocks eventually traded mostly lower despite the positive lead from Wall Street on Friday.     ASX 200 was contained on either side of the flat mark with losses in Industrials, Telecoms and Healthcare offsetting the gains from the Metals, Mining, and Materials sectors. Nikkei 225 saw its losses lead by Softbank shares tumbling over 12% following its earnings on Friday, which saw the Co’s Vision Fund post a quarterly net loss. KOSPI eventually faded earlier gains following the trilateral meeting between the US, Japan, and South Korea over the weekend, in which White House National Security Adviser Sullivan said the US, Japan, and South Korea have a coordinated response if North Korea carries out its 7th nuclear test. Hang Seng and Shanghai Comp traded in the green for most of the session, with Hong Kong outperforming following source reports that the PBoC and China's Banking and Insurance Regulator told financial institutions to extend support for property firms, with the Hang Seng Property index surging over 15% in early trade, but traders remain cognizant of the Biden-Xi meeting poised to take place on Monday at 09:30GMT/04:30EST. Top Asian News eijing authorities stated on Monday to further strengthen COVID prevention and control measures and reminded residents not to go out unless necessary. The measures are seen as a response to the mounting pressure of soaring cases in the city, according to Global Times. China reported 1,794 new confirmed COVID cases in the Mainland on Nov 13th (vs 1,711 on Nov 12). Beijing reported the highest number of local COVID cases in over a year, reporting 404 cases on Sunday, according to Bloomberg. The PBoC and China's Banking and Insurance Regulator told financial institutions to extend support for property firms, according to Reuters sources. Bloomberg reported that China's real estate rescue package consists of a 16-point playbook for finance officials across the country, according to sources. China's Securities Journal noted that China is expected to inject liquidity via a new MFL (unverified). PBoC injected CNY 5bln via 7-day reverse repos with the rate at 2.00% for a CNY 3bln net drain. PBoC issues a notice to further support the extension of loan repayments for small firms. BoJ Governor Kuroda said the Japanese economy is picking up; now is the stage to continue monetary easing to support the economy, according to Reuters. Kuroda said they are closely watching the impact of raw material inflation and currency moves on firms and households. Kuroda said the BoJ and the government are closely monitoring the impact of FX, and market moves on the economy and prices; and said abnormally one-sided sharp JPY weakening appears to have paused, partly thanks to the government's FX intervention. Earthquake shakes buildings in Tokyo, Japan, via Reuters; prelim. magnitude of 6.1 via NIED. Magnitude 5.6 earthquake near the S. Coast of Honshu, Japan, via EMSC European bourses are posting mild gains, Euro Stoxx 50 +0.2%, with participants awaiting the conclusion of the Biden-Xi meeting. Sectors were predominantly in the green, though performance has turned more mixed as the session progresses. Stateside, futures are pressured as the recent rally seemingly runs out of steam and also following Fed's Waller pushing back on the post-CPI reaction, ES -0.4%. Top European News UK Chancellor Hunt said he will set out a long-term plan for energy, and said we do have to increase taxes and cut spending. He said he wants to make sure a recession is as short and shallow as possible if the UK falls into one. He added that he will be talking about constraints on the labour force in the budget plan, via Reuters. UK Chancellor Hunt said the OBR forecasts will likely present a similar picture to recent BoE forecasts of a recession. Hunt plans to commit around GBP 20bln to extend the energy price guarantee scheme by six months from April and is eyeing a multi-billion-pound package to shield pensioners and benefit claimants from the increases in power bills, according to The Times. UK Treasury discussing raising energy price cap from April; department considers making policy announcement in the autumn statement rather than waiting until spring, according to Guardian sources. It is understood that continuing some universal level of support, possibly in the form of a higher energy cap, is also on the table. Germany's IG Metall union has called for further strike action on Monday. Strikes will take place at targeted locations in the states of Hesse, Thuringia and Rhineland-Palatinate, according to the union cited by Reuters. ECB's Panetta says monetary policy needs to tighten so that inflation does not become entrenched, the consequences of possible errors may not be perceptible today, but they would become evident over time. It may then be too late to fully reverse them. FX DXY spent much of the morning attempting to reclaim the 107.00 mark, with peers deriving modest upside as such though this was mixed with EUR and GBP a touch softer, for instance. However, the index has since surpassed the 107.00 handle and lifted to a 107.19 peak to the detriment of peers across the board, though EUR and GBP haven't slipped much further and reside around 1.03 and 1.1750 respectively. Traditional havens CHF and JPY are the current laggards, with the JPY particularly impaired and USD/JPY above 140.50 as such and was perhaps spurred by Governor Kuroda reminding that they are to continue with monetary easing. Yuan drew much of the focus overnight after the PBoC set its strongest fix since late-September and amid two-way newsflow for the region regarding property support and COVID controls; CNY concluded the domestic session at 7.0378. PBoC set USD/CNY mid-point at 7.0899 vs exp. 7.0896 (prev. 7.1907); strongest fix since Sep 27th RBI Governor Das said India has a major challenge with regard to inflation. He added that the RBI's FX interventions are impacted by day-to-day developments, and the objective is to prevent excessive volatility. Das added that the RBI's reserves are very comfortable, via Reuters. Fixed Income Core benchmarks were relatively rangebound in the European morning, with the benchmarks struggling to derive any lasting traction from brief forays some 30/40 ticks either side of the unchanged mark. However, a concerted bid has been seen most recently in EGBs and Gilts; perhaps spurred by ECB's Panetta who placed emphasis on the risk of policy errors. Stateside, USTs are a touch softer and are playing catchup to the Veteran’s Day holiday on Friday and also conscious of remarks from Fed’s Waller who has pushed-back on the post-CPI pricing. As such, USTs are lower by a handful of ticks towards the mid-point of 111.27+ to 112.06+ parameters with yields elevated though the 10yr is sub-4.00% and significantly shy of last week’s 4.24% peak. In commodities Crude benchmarks have been slipping throughout the European morning as initial upside on the USD’s pullback dissipated with the DXY now back above 107.00. Benchmarks are near session lows on the above action and also amid a further strengthening of COVID measures within Beijing after the city reports the highest number of cases in a year. US Treasury Secretary Yellen said India can buy Russian oil at any price if it does not use Western insurance or maritime services, according to a Reuters interview, and said the existence of a G7 oil price cap will give India and other developing countries leverage in bargaining with Russia on oil. Yellen said they are happy for India, China, and Africa to get a "bargain" on Russian oil, inside or outside the price cap. An Indian government official said they do not believe India will follow the price cap mechanism and have communicated that to the countries. OPEC+ "may discuss adjustments to members' oil production baselines in early December as many of them struggle to meet their agreed quotas", according to Energy Intel. "Delegates said it is too early to predict what might happen in Vienna in terms of any potential changes to the alliance's production policy or baseline adjustments. " Iraq's Prime Minister said Iraq is keen to commit to OPEC policies and decisions but the OPEC production quota should be reconsidered by OPEC members. Iraqi PM added that Iraq needs to raise its oil production to generate more revenues and is keen to maintain stable oil prices of "not above USD 100/bbl". Iraq said it will have a discussion with OPEC members to increase its production quota, via Reuters. ExxonMobil (XOM) announced the first LNG cargo from the Coral South FLNG project in Mozambique, the floating production vessel is expected to produce up to 3.4mln metric tons of LNG per annum, via Reuters. JPMorgan expects Brent to re-test USD 100/bbl in Q4-2022 and average USD 98/bbl in 2023, via Reuters. Earthquake magnitude 6.4 hit around 20km North-west of Lebu, Chile, according to EMSC. Both precious and base metals have succumbed to the USD’s relative resurgence with additional headwinds from the mentioned COVID controls. Specifically, spot gold has slipped back towards the USD 1750/oz mark. Crypto FTX was subject to a hack with "mysterious" outflows totalling over USD 600mln, according to CoinDesk. FTX said it has been hacked and instructed users not to install new updates and to delete all FTX apps. FTX CEO John Ray said unauthorised access to certain assets has occurred. FTX is in the process of removing trading and withdrawal function to a new cold wallet custodian, via Reuters. Hedge fund Galois Capital said that close to half of its capital is stuck on the FTX Exchange, according to FT. Hong Kong's AAX Exchange is suspending withdrawals for up to 10 days, as the failure of FTX reverberates through crypto markets, according to CoinDesk. Crypto lender BlockFi has paused withdrawals and limited platform activity amid FTX collapse, according to Bloomberg Crypto Exchange Huobi says it will continue to take all appropriate steps to withdraw crypto assets from FTX as soon as possible; the incident does not currently affect normal business operations of the group, according to Reuters. Visa (V) has terminated its global debit card agreement with FTX, according to a Visa spokesperson via Reuters. Binance CEO, on crypto exchanges, said there are still quite a lot of players that cut corners, via Reuters. Subsequently, says they are forming an industry recovery fund, to assist projects which are otherwise strong but are in a liquidity crisis. Geopolitics Ukrainian Foreign Minister said Russian counterpart Lavrov has not asked for a meeting, according to Reuters. Ukrainian President Zelensky said Kyiv's forces have taken control of over 60 settlements in the Kherson region. He added that Ukrainian forces are holding firm as brutal battles take place every day in the Donetsk region, via Reuters. US President Biden and Russian Foreign Minister Lavrov arrived in Indonesia for the G20 Summit, according to Reuters. US Treasury Secretary Yellen said some Russian sanctions could be extended beyond the end of the war in Ukraine, according to WSJ. US Treasury Secretary Yellen said they will determine the price level for the Russian oil price cap in the coming weeks, via Reuters. US-China latest US President Biden says US and China can manage differences and stop competition from turning into conflict, expects US and China to play a role in address climate and food shortages. Chinese President Xi says has stayed in touch with US President Biden via video but it is no replacement for in-person meetings, both nations need to chart their course and find the right direction for the relationship and elevate it. Prepared to have a candid and in-depth exchange of views on the US-China relationship. The White House said further engagement after the Biden-Xi meeting could include face-to-face meetings, according to Reuters. Stated prior to the meeting US President Biden will make it clear in the meeting with Chinese President Xi that the US does not seek competition or conflict, and the meeting could last "a couple of hours", according to Reuters citing the White House National Security Adviser Sullivan. Stated prior to the meeting US President Biden underscored that freedom of navigation and overflight must be respected in the East China Sea and the South China Sea, via Reuters. US President Biden will raise the issue of North Korea with Chinese President Xi at the G20 Summit, according to the White House. Biden will tell Xi that if North Korea continues, there will be more enhanced US military presence in the region. Blackrock (BLK) has shelved its China bond ETF amid growing tensions between the US and China alongside a reversal in the China-US yield differential, according to FT. US Treasury Secretary Yellen will ask for clarity on China's plans to ease COVID restrictions alongside issues in the Chinese property market, in a meeting with the PBoC Governor, according to Treasury officials cited by Reuters. US Treasury Secretary Yellen said the US will likely discuss export controls with Chinese officials, according to Bloomberg. US Event Calendar Nothing scheduled Central Bank Speakers 11:30: Fed’s Brainard Discusses the Economic Outlook 18:30: Fed’s Williams Moderates Panel at the Economic Club of New York DB's Jim Reid concludes the overnight wrap It’s feels to me we’re in a race against time for markets and the global economy over the next 12 months. Can inflation slow quickly enough for central banks to be able to slow down their hiking cycles enough to avoid systemic accidents? Last week was a great mini case study of the race to come as the bankruptcy of crypto exchange FTX battled it out with a big downward surprise in US inflation. Ultimately the latter won out handsomely, but you can’t help thinking that the rate hiking cycle has claimed another victim with regards to FTX even if other things might also be at play with this company. In a world of free liquidity seen over the prior decade, lots of money has flowed into things that on the surface make little sense but have been transformed into multi-billion or even multi-trillion industries. Most people I speak to don’t think the current crypto implosion is systemic and this could very well be correct. However, what’s next to unwind/unravel in a hiking cycle that’s not over yet even with slower US inflation last week? The way I like to think about it is that it’s much easier for things not to be systemic when US payrolls are still averaging +289k as they have been over the last 3 months. They averaged +444k in H1. Fast forward 6-9 months when they’re likely to be negative and things that break in the financial system could easily turn more systemic. In the near-term the technicals and fundamentals continue to be more supportive. Impressive levels of European gas storage due to the weather, very short positioning in US equities, mid-terms being out the way, positive seasonals, less event risk in the Russian/Ukraine war, and now softer US inflation than expected are all helping. However, it’s completely feasible to see a year-end rally and still think risk markets will ultimately be a lot lower in 12 months' time. Indeed, this morning my new Credit Strategy team have just updated a tactical bullish piece (link here) we put out at the end of October (link to that piece here) suggesting that spreads have room to rally through year-end and early Q1'23, especially with investors bearishly positioned into a period of bullish seasonals. We prefer cash credit over synthetic with banks the favoured sector. Our bearish YE 2023 targets haven't changed since early April but we'll be updating this in our 2023 outlook next week. The most interesting thing about Friday was that European yields, which rallied hard with the US on Thursday, reversed their entire gains on Friday with 10yr Bunds -15bps and then +15bps. The China 20-point Covid restriction easing plan released earlier that day seemed to help. As the US bond market was closed on Friday it’s only responded this morning and 2 and 10yr yields are both around 8bps higher, trading at 4.41% and 3.89%, respectively, as we go to press. Helping that move, this morning in Sydney, Fed Governor Christopher Waller stated that policy makers still had “a ways to go” before stopping interest-rate hikes despite inflation softening in October. He added that the Fed would like to see a similar run of soft CPI readings to take a foot off the brake. He also seemed worried that the market reaction last week was similar to that seen in July where financial conditions loosened more than the Fed wanted. We'll see how the other Fed speakers react to last week's CPI later this week. Elsewhere in the overnight session, not content with a 20-point Covid plan, China also released a 16-point plan to support the fragile domestic property sector. This came public over the weekend. So it seems that the passing of the party congress has led to a loosening of both restrictions and policies. With the new composition of the ruling party it wasn't clear that this was going to be the case, so this is welcome news for anything China growth related, though the news need to be factored in against the increasing number of Covid cases recorded across the country. Asian equity markets are mixed this morning, but with China risk leading the way. The Hang Seng (+2.92%) is leading gains with mainland Chinese equities also rallying with the Shanghai Composite (+0.75%) and the CSI (+1.16%) both edging higher. Elsewhere, the Nikkei (-0.82%) is trading in negative territory as heavyweight SoftBank plunged more than -10% after its Vision Fund posted further losses while failing to announce a widely expected share buyback. Meanwhile, the KOSPI (-0.02%) is struggling to find direction. Looking forward, US equity futures are pointing to a negative start today, with contracts tied to the S&P 500 (-0.29%) and the NASDAQ 100 (-0.49%) edging lower. Crypto has remained under pressure as Bitcoin fell as low as $15,846, recording its lowest levels in around two years amid FTX’s deepening woes. It was over $20,000 early last week. Looking forward and it’s not a blockbuster week for data but there are still some important potential highlights. The US consumer will be in focus, with retail sales (Wednesday) and major retailers' earnings including Walmart and Home Depot (tomorrow) due amongst others. Other major US data releases will include housing market indicators and the PPI (tomorrow). In geopolitics, the G20 summit will run from Tuesday to Wednesday and the COP27 will end on Friday. The G20 will be watched closely for signs of how aligned the members are on the continued war in Ukraine and also for any headlines around Presidents Biden and President Xi's side meeting. China macro and micro will also be in focus with industrial production and retail sales data (both tomorrow), as well as earnings from major tech firms like Tencent and Alibaba. Japan's GDP and inflation will also be due. In Europe, the UK will release inflation (Wednesday) and employment (tomorrow) data with the government's autumn statement is taking place on Thursday. The latter is less important now that policy credibility has been restored but will still give us a lot of info about the direction for travel in UK policy. In more detail on some of the main events now. The US PPI tomorrow deserves some decent attention as it will give some insight into the upcoming core PCE which clearly remains the Fed’s preferred inflation measure. October’s headline (+0.4% forecast vs. +0.4% previously) and core PPI (+0.3% vs. +0.3%) are expected to show similar gains to the prior month but the real focus will be on health care services series, which is a direct input into the core PCE deflator. This series has been very volatile of late but has shown signs of easing. So all eyes on this. Heath care was a huge downside surprise in last week’s CPI. Speaking of inflation, housing data will also be in focus after this week's CPI print showed some moderation in rental price pressures and also with mortgage rates having recently been at 22-year highs. Among indicators released will be housing starts and permits on Thursday and existing home sales on Friday. In terms of corporate earnings, there won't be many major American companies reporting aside from the aforementioned retailers with over 90% of the S&P 500 members having already released results. In tech, we will get NVIDIA and Cisco on Wednesday and Applied Materials and Palo Alto Networks on Thursday. Over in Europe, notable companies reporting include Vodafone and Infineon on Tuesday and Siemens on Thursday. The day-by-day calendar is at the end as usual and as you’ll see it also includes numerous ECB and Fed speakers throughout the week, including President Lagarde (Wednesday and Friday). Recapping last week now and it was yet another wild week that saw a US election, major battleground advances for Ukrainian forces, a major crypto blowup, and a below expectations CPI report that gave the market signs of a potential Fed pivot that it has been desperately hoping for. All in four days on a holiday shortened week for fixed income markets in the US. Starting with bonds, Treasury yields rallied big this week following the below expectations October CPI report. That saw 10yr yields down -34.6bps and 2yr yields -32.6bps lower, the largest weekly decline in both tenors since the initial Covid onset in March 2020, as pricing for the December meeting finished the week just shy of 50bps at 49.8bps, while terminal pricing ended the week at 4.89% for next spring, its first close below 4.9% in two weeks. 10yr yields also fell in Europe, but lagged the US move, where bunds fell -13.5bps (+15.1bps Friday) and gilts were -17.9bps lower (+6.6bps Friday). European yields sold off Friday when Treasury trading was closed, following reports that China was easing more of their Covid restrictions and with University of Michigan inflation expectations over the next 5 years hitting their highest level in 5 months at 3%. The S&P 500 gained +5.90% (+0.92% Friday) while the Nasdaq +8.1% (1.88% Friday) outperformed with the index being comfortably lower for the week before Thursday’s CPI. European shares also climbed, with the STOXX +3.66% higher (+0.09% Friday) and the Dax up +5.68% (+0.56% Friday). Finally, reports that FTX, the second-largest crypto exchange was going under, drove a route in crypto assets, that saw Bitcoin fall -20.72% over the week and -5.95% on Friday. Tyler Durden Mon, 11/14/2022 - 08:06.....»»

Category: worldSource: nytNov 14th, 2022

Crypto faces a serious risk of broader contagion as FTX collapses and it"s unclear how deep it will go, Citi analyst says

"Within cryptocurrencies, it's unclear as to how far and how deep this goes," Citi analyst Joseph Ayoub told CNBC. A big screen display of stock prices hangs behind traders working at the New York Stock Exchange NYSE on May 9, 2022.Michael Nagle/Xinhua via Getty Images FTX filed for bankruptcy on Friday, and Citi analyst Joseph Ayoub warned of broader risks to the crypto sector. "I think there's a serious risk of broader contagion to the ecosystem itself," he told CNBC on Friday.  But he doesn't think the crypto crash will extend to the rest of the financial market. The overall cryptocurrency market faces risks of contagion as Sam Bankman-Fried's FTX files for bankruptcy, according to Citi analyst Joseph Ayoub. "I think there's a serious risk of broader contagion to the ecosystem itself," he told CNBC on Friday. "I think it's unlikely that contagion spreads toward broader financial markets, and that's mainly because the size of the crypto space, which is only around $830 billion in comparison to the $43 trillion US equity market."Companies in the sector will face renewed skepticism and trust in the fallout of FTX's collapse, Ayoub added, but it also means other firms can move to capture more market share now that one of the biggest players has gone under. On Tuesday, Binance agreed to a tentative agreement to bail out FTX, but a day later it backed away from the deal. FTX failed to secure other investors for a rescue, resulting in the Chapter 11 bankruptcy filing. Bankman-Fried also stepped down as CEO. Meanwhile, the extent of the fallout from FTX's troubles on the rest of the cryptocurrency sector remains to be seen. "Within cryptocurrencies, it's unclear as to how far and how deep this goes," Ayoub said. "Contagion can last for a significant amount of time, and with the amount of companies that are involved and the amount of investments involved with FTX, and following Chapter 11 it could take a long time for this to resolve."Without a clear backstop to limit further contagion, he maintained, the FTX crash differs from the 2008 financial crisis when the government stepped in with a massive cash injection and bailed out Wall Street.But there is no central bank for crypto, though FTX's bailouts of BlockFi and Voyager Digital earlier this year drew comparisons to a lender of last resort. "It almost seems ironic now that we were previously thinking that Sam Bankman-Fried and FTX were providing some sort of lender of last resort optionality... and now it seems there is no significant lender of last resort," Ayoub said.Read the original article on Business Insider.....»»

Category: smallbizSource: nytNov 13th, 2022

Tether stablecoin loses its dollar peg as contagion from FTX"s collapse spreads through the crypto market

Despite reassurances from founders of the stablecoin, Tether has continued to push back its timeline on being audited by an independent firm. Tether dropped to well below $1 Thursday as crypto markets showed signs of stress.Justin Tallis/Getty ImagesTether briefly lost its dollar peg on Thursday after the implosion of FTX shook the confidence of the entire crypto market.Tether is the third largest cryptocurrency with a current market value of about $70 billion.The stablecoin fell to a low of $0.98 Thursday morning before recovering most of its losses.Tether lost its dollar peg on Thursday after the ongoing implosion of Sam Bankman-Fried's FTX shook confidence in the entire cryptocurrency market. The development is unsettling because it adds to concerns of contagion spreading throughout the crypto market as trust declines considerably. For example, bitcoin has seen volatile trades, falling more than 20% to below $16,000 earlier as a cascade of margin calls threatens to unwind much of the leverage seen in crypto markets. It's now back above $17,000.Tether, which is the third largest cryptocurrency and the world's largest stablecoin, fell to a low of $0.98 in Thursday morning trades before it recovered most of those losses. The stablecoin has a market value of just under $70 billion, which is down 16% from its peak of about $83 billion. The decline has come amid an ongoing bear market in cryptocurrencies, and as concerns grew about the balance sheet holdings of Tether following the collapse of stablecoin TerraUSD in May.But while the leaders behind Tether have repeatedly reassured investors that their stablecoin is indeed backed by reserves at a one-to-one exchange ratio, they have continued to push back the timeline on being independently audited.Responding to the downfall of FTX, Tether co-founder William Quigley told CNBC on Wednesday that crypto exchanges and currencies shouldn't lever up highly volatile assets with debt."Everyone thought that the major exchanges were not susceptible to any kind of serious meltdown. And once again, we keep going back to whether it's 3AC, or Voyager, or Celsius or Luna, and it's the matter of debt. Debt is toxic with crypto," Quigley said."And it just violates a basic principle of finance; you don't lever up highly volatile assets," he continued. "When Wall Street came into this market last year big time … I think one of things they dragged in was their fascination with leverage," he later added.The CTO of Tether, Paolo Ardoino, tweeted on Thursday that the stablecoin processed about $700 million in redemptions over the past day with no problems. "No issues. We keep going," he said. In a Wednesday blog post, Tether once again reassured its holders that it has almost $70 billion of collateral that can back redemptions. But until an independent audit is conducted, it's likely that suspicions will continue, leaving the possibility for the stablecoin to break its peg again. Read the original article on Business Insider.....»»

Category: topSource: businessinsiderNov 10th, 2022

Citi analyst doesn"t see cause for concern for U.S. banks despite Credit Suisse woes

Citi analyst Keith Horowitz said late Sunday the bank doesn't see cause for concern about financial contagion of U.S. banks from Credit Suisse , amid social media speculation about the health of the major Swiss lender. "We understand the nature of the concerns, but the current situation is night and day from 2007 as the balance sheets are fundamentally different in terms of capital and liquidity, and we struggle to see something systemic," Horowitz said. He noted that credit default swap spreads of U.S. banks have widened over the last few weeks, but that U.S. bank stocks "are very attractive here." Shares of JPMorgan Chase rose 0.7% in premarket trades. Goldman Sachs Group Inc. traded flat. The Financial Select Sector SPDR ETF is down 22.3% in 2022, compared to a drop of 24.8% by the S&P 500 .Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit for more information on this news......»»

Category: topSource: marketwatchOct 3rd, 2022

Confiscation Next: China May Seize Undeveloped Land From Distressed Real Estate Companies

Confiscation Next: China May Seize Undeveloped Land From Distressed Real Estate Companies With Chinese markets disappointed by the lack of a stimulus announcement during yesterday's July Xi-chaired Politburo meeting, which sparked a broad selloff in tech and property shares and sent the Hang Seng China Enterprises Index of stocks 2.8% lower on Friday, taking its July loss to over 10%... ... Beijing, finding itself increasingly trapped by the continued deterioration in the country's massive housing sector especially in the aftermath of the recent mortgage revolt, is reportedly considering confiscation (i.e., nationalization) next: according to Bloomberg, China is considering a plan to seize undeveloped land from distressed real estate companies, using it to help finance the completion of stalled housing projects that have sparked mortgage boycotts across the country. The proposal would take advantage of Chinese laws allowing local governments to wrest back control of land sold to real estate companies if it remains undeveloped after two years, without compensation. That would give authorities more leeway to direct funds toward uncompleted homes, potentially to the detriment of creditors who would lose claims on some of developers’ most valuable assets. According to Bloomberg sources, in a typical scenario the government would seize land from a distressed developer and give it to a healthier rival, which would in turn provide funding to complete the distressed developer’s stalled projects. The government could also rezone the seized land in some cases to increase its value, the people added, asking not to be named discussing private information. The proposal is one of several measures under consideration as Xi Jinping’s government tries to prevent turmoil in the housing market from fueling social unrest and derailing the broader economy. Last week, we learned of a dedicated bailout fund meant to stabilize the housing system. The focus on completing projects is the latest sign that policy makers are prioritizing homeowners over bondholders, who have been burned by a record number of defaults by real estate giants including China Evergrande Group. It is still unclear if the confiscation proposal will get a green light from Chinese leaders; it is currently under discussion by the Ministry of Housing and Urban-Rural Development with other regulators. While in 2021 Beijing appeared to take the sharp deterioration across the property sector almost whimsically, perhaps Chinese leaders finally realized what's at stake here: the numbers are truly staggering. According to Bloomberg, outstanding individual mortgage loans hit 38.86 trillion yuan as of the end of June, growing at a rate of 5.1% annually. Meanwhile, total outstanding property development loans at June were 12.49 trillion yuan while the total outstanding loans to the property sector were 53.1 trilion yuan. In other words, not even China's state-owned banking system would be immune to contagion that spreads to broader mortgage sector. It's not just traditional mortgages that are at risk: China’s top 100 developers owned land parcels valued at 42.5 trillion yuan ($6.3 trillion) at the end of last year, according to China Real Estate Information Corp. Many of them borrowed heavily to buy the land, in hopes that prices would continue rising. That bet is now souring after a multi-year government clampdown on real estate leverage that has weighed on home prices, land values and new residential property sales. The result is that many distressed builders are sitting on land they’ve been unable or unwilling to develop. Just 37% of land parcels auctioned in the first batch of centralized land-bidding last year have started work as of March-end, according to a recent Caixin report. About 16% of the second batch were being developed, the newspaper said. Tyler Durden Fri, 07/29/2022 - 18:00.....»»

Category: dealsSource: nytJul 29th, 2022

Black Monday: All Hell Breaks Loose As Stocks Plunge Into Bear Market, Curve Inverts, Cryptos Crater

Black Monday: All Hell Breaks Loose As Stocks Plunge Into Bear Market, Curve Inverts, Cryptos Crater For all those claiming that stocks had priced in 3 (or more) 50bps (or more) rate hikes, we have some bad news. All hell is breaking loose on Monday, with futures tumbling (again) into bear market territory, sliding below the 20% technical cutoff from January's all time high of 3,856 and tumbling as low as 3,798.25 - taking out the May 10 intraday low of 3,810 - before reversing some modest gains. S&P 500 futures sank 2.5% and Nasdaq 100 contracts slid 3.1%, in a session that has seen virtually everything crash. Dow futures were down 567 points at of 730am ET. The global selloff - which has dragged Asian and European markets to multi-month lows and which was sparked by a hotter than expected US CPI print which heaped pressure on the Federal Reserve to step up monetary tightening - accelerated on Monday as panicking traders now bet the Fed will raise rates by 175 bps by its September decision, implying two 50-bp moves and one hike of 75 bps, with Barclays and now Jefferies predicting such a move may even come this week. If that comes to pass it would be the first time since 1994 the Fed resorted to such a draconian measure. The selling in stocks was matched only by the puke in Treasuries, as yields on 10-year US Treasuries reached 3.24%, the highest since October 2018, yet where 2Y yields sold off more, sending the 2s10s curve to invert again... ... for the second time ahead of the coming recession, an unprecedented event. The US yield curve appears destined to invert again in coming weeks after Wednesday’s CPI data: BBG We'll get two concurrent recessions — zerohedge (@zerohedge) May 12, 2022 Meanwhile, the selloff in European government bonds also gathered pace, with the yield on German’s two-year government debt rising above 1% for the first time in more than a decade and Italian yields exploding and nearing 4%, ensuring that another European sovereign debt crisis is just a matter of time (recall that all Italian net bond issuance in the past decade has been monetized by the ECB... well that is ending as the ECB pivots away from QE and NIRP). The exodus from stocks and bonds is gaining momentum on fears that central banks’ battle against inflation will end up killing economic growth. Inversions along the Treasury yield curve point to fears that the Fed won’t be able to stave off a hard landing. “The Fed will not be able to pause tightening let alone start easing,” said James Athey, investment director at abrdn. “If all global central banks deliver what’s priced there are going to be some significant negative shocks to economies.” Going back to the US market, big tech stocks slumped in US premarket trading as bets that the Federal Reserve hikes rates more aggressively sent bond yields higher, and Nasdaq futures dropped. Cryptocurrency-exposed stocks cratered as Bitcoin continued its recent decline to hit an 18- month low, precipitated by news that crypto lender Celsius had halted withdrawals... ... which sent Ethereum to the most oversold level in 4 years. Here are some of the biggest U.S. movers today: Apple shares (AAPL US) -3.1%, Amazon (AMZN US) -3.4%, Microsoft (MSFT US) -2.8%, Alphabet (GOOGL US) -3.7%, Netflix -3.8% (NFLX US), Nvidia (NVDA US) -4.5% Tesla (TSLA US) shares dropped as much as 3.1% in US premarket trading amid losses across big tech stocks, while the electric-vehicle maker also filed to split shares 3-for-1 late Friday. MicroStrategy (MSTR US) -18.4%, Riot Blockchain (RIOT US) -15%, Marathon Digital (MARA US) -14%, Coinbase (COIN US) -12.5%, Bit Digital (BTBT US) -10%, Silvergate Capital (SI US) -11%, Ebang (EBON US) -4% Bluebird Bio (BLUE US) shares surge as much as 86% in US premarket trading and are set to trim year-to- date losses after the biotech firm’s two gene therapies won backing from an FDA advisory panel. Chinese education stocks New Oriental Education (EDU US) and Gaotu Techedu (GOTU US) jump 8.3% and 3.4% respectively in US premarket trading after peer Koolearn’s endeavors into livestreaming e-commerce went viral and sent its shares up 95% in two sessions. Astra Space (ASTR US) shares slump as much as 25% in US premarket trading, after the spacetech firm’s TROPICS-1 mission saw a disappointing launch at the weekend. Invesco (IVZ US) and T. Rowe (TROW US) shares may be in focus today as BMO downgrades its rating on the two companies in a note saying it favors alternative asset managers over traditional players as a way to hedge beta risk against the current macro backdrop. In Europe, the Stoxx 600 also extended declines to a three-month low, plunging mover than 2%, with over 90% of members declining, as meeting-dated OIS rates price in 125bps of tightening, one 25bps move and two 50bps hikes by October.  Tech leads the declines as bond yields rise, with cyclical sectors such as autos and consumer products also lagging as recession risks rise.  The Stoxx 600 Tech Index falls as much as 4.3% to its lowest since November 2020. Chip stocks bear the brunt of the selloff: ASML -3%, Infineon -4.2%, STMicro -3.6%, ASM International -2.9%, BE Semi -2.8%, AMS -5.3% as of 9:36am CET. As if inflation fears weren't enough, French banks tumbled after a first round of legislative elections showed that President Emmanuel Macron could lose his outright majority in parliament. Here is a look at the biggest movers: Atos shares decline as much as 12%; Oddo says the company’s reported decision to retain and restructure its legacy IT services business in a separate legal entity is bad news for the company. Getinge falls as much as 7.6% after Kepler Cheuvreux cut its recommendation to hold from buy, cautioning that headwinds and supply chain challenges may intensify as Covid-related tailwinds abate. Elior plunges as much as 15% amid renewed worries over inflation and rising interest rates impacting a caterer that’s still looking for a new CEO following the unexpected departure of the previous one. Valneva falls as much as 27% in Paris after saying its effort to salvage an agreement to sell Covid-19 shots to the European Union looks likely to fail. Subsea 7 drops as much as 13% after the offshore technology company lowered its 2022 guidance, with analysts noting execution challenges on some of its offshore wind projects. French banks decline after a first round of legislative elections showed that President Emmanuel Macron could lose his outright majority in parliament. Societe Generale shares fall as much as 4.5%, BNP Paribas -4.2% Euromoney rises as much as 4.4% after UBS raises the stock to buy from neutral, saying the financial publishing and events firm’s “ambitious” growth targets for 2025 are broadly achievable. Earlier in the session, Asian stocks also declined across the board following the hot US CPI data and amid fresh COVID concerns in China. Nikkei 225 fell below the 27k level with sentiment not helped by a deterioration in BSI All Industry data. Hang Seng and Shanghai Comp. conformed to the downbeat mood with heavy losses among tech stocks owing to the higher yield environment and with mainland bourses constrained after the latest COVID outbreak and containment measures. The Emerging-market stocks index dropped about 3%, falling for a third day in the steepest intraday drop since March, as a fresh high in US inflation sparked concerns that the Fed may need to be more aggressive with rate hikes. In FX, the Bloomberg dollar rose a fourth day as the dollar outperformed all its Group of 10 peers apart from the yen, which earlier weakened to a 24-year low with NOK and AUD the worst G-10 performers. In EMs, currencies were led lower by the South Korean won and the South African rand as the index fell for a fifth day, the longest streak since April.  The onshore yuan dropped to a two-week low as a jump in US inflation boosted the dollar and China moved to re-impose Covid restrictions in key cities. India’s rupee dropped to a new record low amid a selloff in equities spurred by continuous exodus of foreign investors. The euro fell for a third day, touching an almost one-month low of 1.0456. Sterling fell after weaker-than-expected UK GDP highlighted the risks to the economy, with a global risk-off mood adding pressure on the currency, UK GDP fell 0.3% from March. The yen erased earlier losses after earlier falling to a 24-year low while Japanese bonds tumbled, prompting a warning from the Bank of Japan as its easy monetary policy increasingly feels the strain of rising interest rates globally. Bank of Japan Governor Haruhiko Kuroda said a recent abrupt weakening of the yen is bad for the economy and pledged to closely work with the government hours after the yen hit the lowest level since 1998. Bitcoin is hampered amid broad-based losses in the crypto space with the likes of Celsius pausing withdrawals/transfers due to the "extreme market conditions". Currently, Bitcoin is at the bottom-end of a USD 23.7-27.9 range for the session. In rates, the US two-year yield exceeded the 10-year for the first time since early April, an unprecedented re-inversion. The 2-year Treasury yield touched the highest level since 2007 and the 10-year yield the highest since 2018. Treasuries continued to sell off in Asia and early European sessions, leaving 2-year yields cheaper by 15bp on the day into the US day as investors continue to digest Friday’s inflation data. Into the weakness a flurry of block trades in futures added to soaring yields. Three-month dollar Libor jumps 8.4bps. US yields remain close to cheapest levels of the day into early US session, higher by 13bp to 6bp across the curve: 2s10s, 5s30s spreads flatter by 5bp and 5.5bp on the day -- 5s30s dropped as low as -16.6bp (flattest since 2000) while 2s10s bottomed at -2bp. US 10-year yields around 3.235%, remain cheaper by 8bp on the day and lagging bunds, gilts by 2.5bp and 5bp in the sector. Fed-dated OIS now pricing in one 75bp move over the next three policy meetings with 175bp combined hikes priced by September, while 55bp -- or 20% chance of a 75bp move is priced into Wednesday’s meeting. A selloff of European government bonds gathered pace as traders priced in a more aggressive pace of tightening from the ECB, with traders now wagering on two half-point hikes by October. The Bank of Japan announced it would conduct an additional bond-buying operation, offering to purchase 500b yen in 5- to 10-year government bonds Tuesday after 10-year yields rose above the upper limit of its policy band. In commodities, oil and iron ore paced declines among growth-sensitive commodities; crude futures traded off worst levels. WTI remains ~1% lower near 119.30. Spot gold gives back half of Friday’s gains to trade near $1,855/oz. Base metals are in the red with LME tin lagging While it's a busy week ahead, with the FOMC meeting on deck where the Fed is set to hike 50bps, or maybe 75bps and even 100bps, there is nothing on Monday's calendar. Fed Vice Chair Lael Brainard will discuss the Community Reinvestment Act in a pre-recorded video and an audience Q&A; she is not expected to discuss monetary policy given the FOMC blackout period. Market Snapshot S&P 500 futures down 2.4% to 3,803.50 STOXX Europe 600 down 2.0% to 414.12 MXAP down 2.7% to 161.61 MXAPJ down 2.8% to 534.45 Nikkei down 3.0% to 26,987.44 Topix down 2.2% to 1,901.06 Hang Seng Index down 3.4% to 21,067.58 Shanghai Composite down 0.9% to 3,255.55 Sensex down 3.2% to 52,585.17 Australia S&P/ASX 200 down 1.3% to 6,931.98 Kospi down 3.5% to 2,504.51 Brent Futures down 1.9% to $119.71/bbl Gold spot down 0.8% to $1,857.56 U.S. Dollar Index up 0.39% to 104.55 German 10Y yield little changed at 1.54% Euro down 0.3% to $1.0484 Brent Futures down 1.9% to $119.69/bbl Top Overnight News “Sell everything but the dollar” is resounding across trading desks as investors reprice the risk that the Federal Reserve hikes rates more aggressively than previously thought Investors rushed to price in more aggressive Federal Reserve rate hikes Monday as the US inflation shock continued to reverberate, sending two-year Treasury yields to a 15-year high and strengthening the dollar UK Prime Minister Boris Johnson risks reopening divisions that tore his Conservative Party apart in 2019, with his government set to propose a law that would let UK ministers override parts of the Brexit deal he signed with the European Union Crypto lender Celsius Network Ltd. paused withdrawals, swaps and transfers on its platform, fueling a broad cryptocurrency selloff and prompting a competitor to announce a potential bid for its assets French President Emmanuel Macron has a week to convince voters to give him an outright majority in parliament to ease the way for the controversial social and economic reforms he promised. Shares in France fell on the results A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks declined across the board following the hot US CPI data which rose to a 40-year high and amid fresh COVID concerns in China. Nikkei 225 fell below the 27k level with sentiment not helped by a deterioration in BSI All Industry data. Hang Seng and Shanghai Comp. conformed to the downbeat mood with heavy losses among tech stocks owing to the higher yield environment and with mainland bourses constrained after the latest COVID outbreak and containment measures. Top Asian News Beijing government said the scale of Beijing’s latest outbreak linked to bars is ferocious and explosive in nature after the city reported 166 cases in a bar cluster and with 6,158 people determined as close contacts linked to the bar cluster, while Beijing announced to halt offline sports events from today and the district of Chaoyang is to launch mass COVID testing on June 13th-15th, according to Reuters. Shanghai re-imposed a ban on dine-in restaurant services in most districts and punished officials for a management lapse at a quarantine hotel, according to Business Times. At least three Chinese cities of Beijing, Nanjing and Wuhan are trialling a shorter quarantine period of 7+7 days for international arrivals at entry points, according to Global Times. Beijing government spokesperson says that the Beijing COVID-19 bar outbreak still presents risks to the community; Beijing City reports 45 new local cases of 3pm, according to a health official, via Reuters, adding that the COVID-19 bar outbreak is still developing and epidemic control is at a critical juncture. Chinese Defence Minister Wei said China firmly rejects accusations and threats by the US against China, while he added the US Indo-Pacific strategy will create confrontation and that Taiwan is first and foremost China’s Taiwan. Wei also said those that pursue Taiwan's independence will come to no good end and that China will fight to the end if anyone attempts to secede Taiwan from China, according to Reuters. Furthermore, Wei reiterated that Beijing views the annexation of Taiwan as a historic mission that must be achieved which its military would be willing to fight for but added that peaceful unification remained the biggest hope of the Chinese people and they are willing to make the biggest effort to achieve it, according to FT. China urges local governments to raise revenue and sell assets to resolve debt risks, via Reuters. Urges local govt's to lower the debt burden; adding, they will crackdown on illegal debt raising. Japanese Defence Minister Kishi met with his Chinese counterpart in Singapore and said Japan and China agreed to promote defence dialogue and exchanges, while Japan warned China against attempting to alter the status quo in the South and East China sea, according to Reuters. Australian and Chinese defence ministers met in Singapore on Sunday for the first time in three years at the sidelines of the Shangri-La Dialogue summit with the talks described as an important first step following a period of strained ties, according to AFP News Agency. European bourses are hampered across the board, Euro Stoxx 50 -2.5%, in a continuation of the fallout from Friday's US CPI and amid fresh COVID concerns in China. US futures are in-fitting with this price action, ES -2.4% (sub-3800 at worst), ahead of the FOMC where the likes of Barclays now look for a 75bp hike after the May inflation release. Sectors in Europe are all in the red and feature Travel & Leisure as the underperformer given further cancellations going into the summer period. Top European News UK Northern Ireland Secretary Lewis said the government will publish legislation on the Northern Ireland Protocol on Monday and that the bill will rectify the issues in the protocol, according to Reuters. Reports suggest that the new law could see European judges blocked from having the final say on Northern Ireland-related disputes, according to the Telegraph. UK Tory MPs accused PM Johnson of ‘damaging the UK and everything the Conservatives stand for’ as he plans to release legislation on Monday to tear up the Northern Ireland protocol, according to FT. UK government ministers are drawing up plans to cut the link between gas and electricity to help reduce household bills for millions of families, according to The Times. UK Foreign Minister Truss says she has spoken to EU VP Sefcovic about the Nothern Ireland protocol and the preference is for a negotiated solution; adding, the EU needs to be willing to change the protocol. French President Macron’s majority in parliament is at risk as an IFOP initial estimate showed that Macron’s centrist camp is seen qualified for winning 275-310 out of 577 seats after the first round of the French lower house elections, while the IPSOS initial estimate shows the centrist camp is qualified for winning 255-295 seats, according to Reuters. Note, 289 seats are required for a majority FX Greenback extends US inflation data gains as near term Fed hike expectations crank up; DXY hits 104.750 to eclipse May 16 high and expose 105.010 YTD peak. Pound undermined by negative UK GDP and output prints plus NI protocol jitters, Cable perilously close to 1.2200 and EUR/GBP tops 0.8575. Aussie hit by heightened Chinese Covid concerns and demand implication for commodities, Kiwi feeling contagion and Loonie lurching as oil prices retreat; AUD/USD sub-0.7000, NZD/USD near 0.6300 and USD/CAD just shy of 1.2850. Euro and Franc make way for outperforming Buck, but Yen claws back losses on risk dynamics allied to technical retracement; EUR/USD under 1.0500, USD/CHF above 0.9900 and USD/JPY below 134.50 vs 135.20 apex overnight. Yuan falls as Beijing suffers ferocious and explosive virus outbreak and Shanghai reimposes restrictions in most districts, USD/CNH pivots 6.7500 and USD/CNY straddles 6.7350. Commodities WTI & Brent are hampered amid the broader market pressure; though, did experience a fleeting move off lows during a break in the newsflow. Currently, the benchmarks are lower by circa. USD 2.00/bbl given Friday's CPI, China COVID, geopolitics around US-China-Taiwan and Iran-IAEA developments (or lack of) following last week's camera removal. Iraq set July Basrah medium crude OSP to Asia at a premium of USD 3.30/bbl vs Oman/Dubai average and set OSP to Europe at a discount of USD 7.60/bbl vs dated Brent, while it set OSP to North and South America at a discount of USD 1.70/bbl vs ASCI, according to Reuters citing Iraq’s SOMO. Libya’s Minister of Oil and Gas Aoun said Libya is currently losing more than 1.1mln bpd of oil production and that most oil fields are closed except for the Hamada field and the Mellitah complex, while the Al-Wafa field continues operations from time to time, according to The Libya Observer. QatarEnegy signed an agreement with TotalEnergies (TTE FP) for the North Field East expansion project, while it will announce subsequent signings with partners in the gas field expansion in the near future and possibly at the end of next week, according to Reuters. Norwegian Oil and Gas Association reached an agreement in principle with three unions of offshore workers to avert a strike although two of the unions will ask members before signing a deal, according to Reuters. Spot gold is pressured by circa. USD 15/oz amid a stronger USD and pronounced yield action; however, the yellow metal is yet to drop below USD 1850/oz and the 10-, 21- & 200-DMAs at USD 1852, 1847 & 1842 respectively. Fixed Income Bond bears still in control and pushing futures down to fresh troughs, at 145.85 for Bunds, 112.33 for Gilts and 115-30+ for 10 year T-note. Cash yields test or breach psychological levels, like 1.50%, 2.5% and 3.25%, while 2-10 year US spread inverts briefly on rising recession risk. Monday agenda very light, but big week ahead including top tier data and multiple Central Bank policy meetings. Central Banks BoJ announces new offer for bond buying programme in which it is to purchase JPY 500bln in 5yr-10yr JGBs tomorrow and will increase amount of offers for its bond buying as needed. BoJ fixed-rate bond purchases exceed JPY 1tln, at their highest since 2018, via Bloomberg; Further reported that the BoJ accepts JPY 1.5tln of bids for the daily offers to purchase 10yr bonds. BoJ Governor Kuroda says they must support the economy with monetary easing to achieve higher wages; adding, the domestic economy is still in the midst of a COVID recovery. Increasing raw material costs are increasing downward pressure, recent sharp JPY dalls are undesirable. Additionally, Japan's Finance Minister says a weak JPY has both merits and demerits. BoJ buys JPY 70.1bln in ETF, according to a disclosure. DB's Jim Reid concludes the overnight wrap This week is squarely and firmly all about the FOMC meeting on Wednesday. We go into it with the 2yr US note up +25bps on Friday and another c.+10bps this morning in Asia. The 2s10s curve has flattened around 20bps since Friday morning to c.2bps as we type. So some dramatic moves. The problem as we enter the next couple of Fed and ECB meetings is that the central banks haven't quite been able to let go of forward guidance and are a little trapped. To recap, forward guidance has prevented the Fed and the ECB from hiking as early as they needed to, largely because both saw the need to gradually wind down asset purchases over several months first as promised. However this hasn't deterred them, and they have continued to try to flag their intentions to the market in advance with the Fed having previously all but signalled a 50bps this Wednesday, as well as in July, with the ECB now signalling 25bps in July and a strong possibility of 50bps in September. Providing clarity is admirable but in the wake of another shocking US CPI print on Friday, should a 75bps hike not be a serious consideration? It seems strange that most think policy needs to be restrictive but that it's going to take several meetings to get there from a still highly accommodative position. Without the recent Fed guidance, 75bps would be firmly on the table for Wednesday. This is highly unlikely this week, but our economists think they could break cover from their own guidance and leave the door open for 75bps in July. DB Research has long been at the hawkish end on inflation and the Fed, and on Friday our US economists further raised their hiking expectations. In addition to 50bps at the next two meetings they have now added 50bps in September and November, before a return to 25bps in December (to 3.125%). They now see the peak at 4.125% in mid-2023. This is closer to the 5% view in the "Why the upcoming recession will be worse than expected" (link here) that David Folkerts-Landau, Peter Hooper and myself published back in April. If we do have a terminal Fed rate approaching a 5-handle it does raise the question as to where 10yr yields top out. My guess would be a slightly inverted curve but it would likely mean the 4.5-5% range discussed in the note from April, mentioned above, is within reason. We'll recap details of the big US CPI print in last week's recap in the second half of this piece, but it wasn't just this that was the problem on Friday, as the University of Michigan long-term inflation expectations series hit 3.3% (3.0% last month) which was the highest since 2008. This series first hit 3% last May so has actually been range trading for a year, which has been a hope for the doves. However it now risks breaking out to the upside. It's not just the Fed this week as the BoE (Thursday) and the BoJ (Friday) will also meet. For the UK, a preview from our UK economists can be found here. The team expects a +25bps hike this week and have updated their terminal rate forecast from 1.75% to 2.5%. Staying in the UK, labour market data releases will be out tomorrow with retail sales on Friday. The week will conclude with a decision from the BoJ and how they address pressures from the yen hovering around a 20-year low, as well as the growing monetary policy divergence between Japan and other G7 economies. Our chief Japan economist previews the meeting here. He expects a shortening or even the abandonment of yield curve control in H2 2023. In data terms we go back to the US for the main highlights, with PPI (tomorrow) and retail sales (Friday) the main events. China's key May indicators on Wednesday will also have global implications as we await industrial production, retail sales and property investment numbers. Elsewhere in the US, we have June's Philadelphia Fed business outlook (Wednesday), and May industrial production and capacity utilisation (Friday) numbers. April business inventories will be out on Wednesday and provide markets with a check on corporate stockpiling after Target's renewed warning last week. Finally, a slew of housing market data is due. This includes the June NAHB housing market index (Wednesday) and May building permits and housing starts (Thursday). The impact of rising mortgage rates will be in focus. In Europe, Germany's ZEW survey for June (tomorrow) is among the key data highlights. We will also see April industrial production and trade balance data for the Eurozone on Wednesday and Eurozone construction output and April trade balance data for Italy on Friday. ECB speakers will also be on the radar for investors as they tend to start to break the party line on the Monday after the ECB meeting. A lengthy line up includes ECB President Lagarde on Wednesday and six other speakers. Asian stock markets have started the week on a weaker footing with all the major indices trading deep in the red after a rough week on Wall Street. The Hang Seng (-2.81%) is leading losses across the region in early trade amid a tech sell-off whilst the Shanghai Composite (-1.20%) and CSI (-1.07%) are both sliding as a resurgence of Covid cases in China is threating global growth. Elsewhere, the Nikkei (-2.64%) is also sharply down this morning, with the Kospi declining as much as -2.50%, hitting its lowest level since November 2020. As discussed at the top, 10yr USTs (+2.81 bps) have moved higher to 3.18% while the 2yr yield (+9.8 bps) has exploded higher to 3.16%. Will we see a fresh inversion in the hours and days ahead? Oil prices are lower with Brent futures -1.36% to $120.35/bbl and WTI futures -1.48%, falling below the $120/bbl mark. On the FX side, there is no respite for the Japanese yen from rising Treasury yields as the currency hit a fresh 24yr low, declining -0.50% to 135.08 versus the dollar. DMs equity futures point to further losses with contracts on the S&P 500 (-1.33%), NASDAQ 100 (-1.87%) and DAX (-1.37%) all trading in negative territory. Moving on to the French legislative elections. In the first round, exit polls indicate that President Emmanuel Macron is at risk of losing his outright majority after a strong showing by the left-wing alliance in the first round of the country’s parliamentary election. According to the official results, Jean-Luc Mélenchon's left-wing NUPES alliance (+25.61%) finished neck and neck with Mr Macron's Ensemble (+25.71%), in terms of votes cast in Sunday's first round. An average of 5 pollsters expect Macron to win 262-301 seats, with 289 needed to keep his majority. So a nervy wait ahead of the second round. Turning back to review last week now. The business end of the week had two huge macro events that sent markets into some degree of upheaval. On Thursday, the ECB met, confirming the end of net APP purchases this month, paving the way for liftoff in July. Beyond July they opened the door for 50 basis point hikes if inflation persists or deteriorates. Judging by their upgraded forecasts, they are now in the ‘persists’ camp. President Lagarde in the press conference took great pains to commit to fighting inflation in a hawkish tone shift. The bigger market reaction was on the apparent lack of progress on any implementation tool designed to avoid fragmentation. President Lagarde tried to downplay the lack of new tool, leaning on PEPP reinvestment flexibility, but the market wasn’t comfortable that this would be enough. All told, 2yr bunds increased +30.9bps (+13.6bps Friday) on the tighter expected policy path, with the end-2022 policy rate implied by OIS markets ending the week at 0.99%, a new high and in line with our Euro economists updated call (their full review and new call here). The lack of an immediate anti-fragmentation tool saw peripheral spreads underperform, moving to new post-Covid wides, as 10yr BTPs increased +35.9bps (+16.0bps Friday) with 10yr Spanish bonds increasing +34.0bps (+15.6bps Friday), versus a 10yr bund increase of +24.3bps (+8.6bps Friday). The Friday moves above were given a further boost by yet another above consensus US CPI report, with YoY inflation gaining +8.6% in May versus expectations it would stay consistent with the prior month’s +8.3% reading. FOMC officials have consistently cited deceleration in MoM readings as necessary to find clear and convincing evidence that inflation was stabilising and returning to target, evidence which they surely didn’t get on Friday, as MoM inflation increased +1.0% from +0.3% in April, beating lofty expectations of +0.7%. The dramatic beats drove the expected path of Fed tightening sharply higher, with 2yr Treasury yields increasing +40.9bps on the week after a +25.0bp gain Friday, it’s largest one-day move since June 2009. The expected fed funds rate by the end of the year reached a new high of 3.22%. The curve aggressively bear flattened, as the reality that the Fed will have to induce slower growth to tame inflation set in; 10yr yields gained +22.0bps on the week and +11.2bps on Friday, with almost all of the increase coming in real yields. That brings 2s10s to 8.8bps, its flattest since its early-April rebound after its brief inversion. The sharp global policy repricing weighed on equity indices. All major transatlantic indices fell, including the STOXX 600 (-3.95% week, -2.69% Friday), DAX (-4.83%, -3.08%), CAC (-4.60%, -2.69%), S&P 500 (-5.05%, -2.91%), NASDAQ (-5.60%, -3.52%), FANG+ (-2.87%, -3.37%), and Russell 200 (-4.26%, -2.60%). That brings the STOXX 600 -14.49% below its YTD highs reached in the first days of the year, with the S&P 500 -18.40% below the same corresponding metric. Both indices ended the week hovering just above YTD lows. US CDX HY and Euro Crossover were +58bps and +47bps on the week and around +30bps and +25bps wider on Friday. Both are now at their post covid wides. Tyler Durden Mon, 06/13/2022 - 07:57.....»»

Category: blogSource: zerohedgeJun 13th, 2022

Slow-Motion Crash Drags Futures Below 3,900; Yields, Cryptos Tumble

Slow-Motion Crash Drags Futures Below 3,900; Yields, Cryptos Tumble The relentless slow-motion crash sparked by the Biden Fed (which is hoping that a market collapse will halt inflation) that has sent stocks lower for the past 6 weeks continued overnight, and Wall Street’s main equity indexes were set for more declines after losing $6.3 trillion in value since their late-March high as stubborn inflation in the world’s biggest economy bolstered the case for more aggressive monetary tightening by the Federal Reserve. Nasdaq 100 futures were down 0.7% at 730am in New York, a day after the underlying gauge sank to its lowest since November 2020 on concerns that higher-than-expected inflation in April would lead to an even more aggressive pace of policy tightening by the Fed. S&P 500 were last down -1% and dropping below 3,900, the level. And with eminis trading around 3,900 means that stocks are now at bearish Morgan Stanley's year-end base case price target of 3900, and 100 points away from Michael Hartnett's Fed put of 3,800. The dollar continues its relentless ascent, sending the euro to a five-year low while the yen also perked up, as investors took a cue from a rally in bonds and ploughed into “safe-haven” currencies on concerns about inflation risks to global economic growth. Meanwhile, bonds around the globe are surging as fears mount over an economic slowdown and traders start pricing in the next recession, sending the yield on 10-year German bunds and US Treasuries down more than 10 basis points to about 2.82%. Among notable premarket moves, Disney shares dropped after the media giant said growth in the second half of the year may not be as fast as previously expected, while Beyond Meat slumped 24% as Barclays downgraded the stock and analysts slashed their price targets following underwhelming results. Bank stocks slump in premarket trading Thursday, set for a sixth straight day of losses. In corporate news, Carlyle Group is set to buy Chinese packaging firm HCP for about $1 billion. Meanwhile, Brookfield Asset Management said it plans to list 25% of its asset-management business in a transaction that would value the new entity at $80 billion. Economic data due late today include initial jobless claims. Here are all the notable premarket movers: Disney (DIS US) shares drop 4.8% in premarket trading after the media giant said growth in the second half of the year may not be as fast as previously expected. Apple (AAPL US) shares fall as much as 1.4% in premarket trading Thursday, putting them on course to open more than 20% below their January peak. Beyond Meat (BYND US) shares slump 24% in US premarket trading as analysts slashed their targets on the plant-based food company following underwhelming results. Riot Blockchain (RIOT US) -6.1% in premarket trading, Marathon Digital (MARA US) -5.8%, MicroStrategy (MSTR US)-10% and Coinbase (COIN US) -7.3% Zoom (ZM US) shares decline as much as 4.5% in US premarket as Piper Sandler analyst James Fish cut the recommendation on the stock to neutral as he sees limited upside to paid video service. Dutch Bros (BROS US) slumps 42% in premarket trading after the drive-thru coffee chain’s guidance lagged analyst estimates, though some analysts see the dip in shares as a buying opportunity. Lordstown Motors (RIDE US) shares jump as much as 27% in U.S. premarket trading after the electric truck maker completed the sale of its factory to Foxconn. Rivian (RIVN US) gains 2.9% in premarket trading after the electric vehicle startup reaffirmed its annual production guidance, even as it navigates through supply chain snarls. Coupang (CPNG US) shares jump as much as 18% in US premarket trading after the Korean e- commerce firm reported a first-quarter loss per share that was narrower than analysts’ expectations. Bumble (BMBL US) shares rise 8.3% in premarket after the company reported first-quarter results that beat expectations, despite currency risks and those related to the war in Ukraine. Cryptocurrency-exposed stocks also fell as digital tokens resumed declines after the collapse of the TerraUSD stablecoin, overnight the largest stablecoin, Tether, broke the buck spooking markets further that the contagion is spreading. The hotter-than-expected inflation reading for April raised concern the Fed’s hikes aren’t bringing down prices fast enough and policy makers may have to resort to a 75bps move, rather than the half-point pace markets have come to grips with. Worries such a shift would crimp economic growth, combined with Russia’s war in Ukraine and China’s struggles with Covid, are battering risk assets. The data halted a minor rebound in US equities, which are set for their longest weekly streak of losses since 2011, as investors worried that hawkish moves by central banks at a time of surging commodity prices and slowing earnings growth would spark a recession. While some strategists have said the rout has now made stock valuations attractive, others including Michael Wilson at Morgan Stanley warned of a bigger selloff. “What these wild market moves are telling us is that investors have very little idea of whether we’re near a short-term base, or whether we’ve got further to fall,” said Michael Hewson, chief market analyst at CMC Markets UK. “The higher-than-expected CPI figure may further fuel fears that the Fed will take policy higher than expected for longer than expected, draining precious liquidity from markets, which have until late been awash with it,” said Russ Mould, investment director at AJ Bell.  “Until we get a meaningful move lower in inflation, not only one print, but a consistent two, three, four prints moving in the right direction, this market may remain range bound,” Mona Mahajan, senior investment strategist at Edward Jones & Co., said on Bloomberg Television. Citigroup Inc. strategists said growth stocks, including the battered tech sector, will likely remain under pressure as central banks tighten monetary policy, driving yields higher.  “Now that central banks are unwinding monetary support, growth stocks’ valuations have further to fall,” strategists including Robert Buckland wrote in a note. They are especially wary of growth stocks in the US, where the Nasdaq 100 is down 27% this year. In Europe, the Stoxx 600 was down 2.2% with mining and consumer-products stocks leading declines. The Euro Stoxx 50 drops as much as 2.8%, Haven currencies perform well. The Stoxx 600 Basic Resources sub-index erased all YTD gains as a slide in metal prices and concerns about inflation fueled a selloff in the sector. Miners are the biggest laggard in the broader European equity benchmark on Thursday as major miners and steelmakers slip along with copper and iron ore prices. The basic resources sector (the sector is still second-best performing in Europe this year so far) fell as much as 5.6%, briefly erasing all YTD losses, and down to the lowest since January 3. Morgan Stanley strategists had downgraded miners to neutral on Wednesday, saying it’s time to take profits in the sector amid concerns inflation will lead to demand destruction. Here are the biggest movers: Telefonica shares rise as much as 4.5% after the Spanish carrier reported what analysts said was a solid set of quarterly earnings. STMicroelectronics gains as much as 4.1% as the chipmaker projects annual revenue of more than $20 billion for 2025-2027 period. Compass Group climbs as much as 2.5%, adding to Wednesday’s 7.4% advance, with Morgan Stanley lifting its price target to a Street-high. JD Sports rises as much as 3% after the UK sportswear chain said like-for-like sales for the 14-week period to May 7 were more than 5% higher than a year earlier. AS Roma advances as much as 15% after US billionaire Dan Friedkin made a tender offer for the roughly 13% of the Italian football team he doesn’t already own. The Stoxx 600 Basic Resources sub- index erases all YTD gains as a slide in metal prices and concerns about inflation fuel a selloff. Rio Tinto declines as much as 6%, Glencore -7.3%, Anglo American -6.9%, ArcelorMittal -4.8%, Antofagasta -7.9% Luxury stocks resume their declines after high US inflation bolstered the case for aggressive monetary tightening, deepening fears of an economic slowdown. Kering slides as much as 5.6%, Hermes -5.5% and Swatch -3.7% SalMar falls as much as 8.2% after the Norwegian salmon farmer published its latest quarterly earnings, which included a miss on operating Ebit. Earlier in the session, Asian stocks resumed their slide after Wednesday’s modest gains, as US inflation topped estimates and new Covid-19 community cases in Shanghai damped prospects for a reopening.  The MSCI Asia Pacific Index fell as much as 2%, with tech giants Alibaba and TSMC weighing the most on the gauge. Chinese shares snapped a two-day advance after Shanghai found two infections outside of isolation centers, pushing back the timeline for a relaxation of growth-sapping lockdowns.  US inflation remained above 8% in April, keeping the Federal Reserve on the path of aggressive tightening. That prospect weighed on shares in Asia, as investors also factored in growth implications from continued lockdowns in the world’s second-largest economy. Markets appeared to be unimpressed by China’s Premier Li Keqiang’s comments urging officials to use fiscal and monetary policies to stabilize employment and the economy. Valuations for the MSCI Asia Pacific Index are hurtling toward pandemic lows as the index records a 29% decline from its 2021 peak, posting declines in all but one of the trading sessions so far this month. “We’ve seen nearly the same amount of foreign investor selling in Asia as we saw during the global financial crisis, even though operating conditions aren’t as bad,” Timothy Moe, chief Asia-Pacific equity strategist at Goldman Sachs, told Bloomberg Television. “On our expected conditions over the next year, somewhere around 13 times should be a fair and appropriate valuation for Asian markets,” he added. Benchmarks in Indonesia and Taiwan were among the biggest decliners in the region, with the Jakarta Composite Index on the cusp of erasing gains for the year. Hong Kong shares also fell as the city intervened to defend its currency for the first time since 2019 In FX, the Bloomberg Dollar Spot Index rose to a fresh two-year high as the greenback climbed versus all of its Group-of-10 peers apart from the yen. The demand for havens sent the yield on 10-year German bunds and US Treasuries down more than 10 basis points. Stops were triggered in the euro below $1.0490 and 1.0450, weighed by EUR/CHF selling and yen buying across the board, according to traders. The yen rose by as much as 1.2% against the greenback as selling in stocks hurt risk sentiment. The BOJ indicated its lack of appetite for changing policy to help address a slide in the yen to a two-decade low during discussions at a meeting last month, according to a summary of opinions from the gathering. The Australian and New Zealand dollars fell on concern that lockdowns in China’s financial capital will extend, dragging economic growth in the world’s biggest buyer of commodities. In rates, Treasuries extended Wednesday’s rally with yields richer by 6bp to 9bp across the curve, supported by risk-aversion as stocks extend losses. US 10-year yields around 2.82%, down 10bps on the session, and trailing gilts and bunds by 2.2bp and 3bp in the sector; intermediates lead the US curve, richening the 2s5s30s fly by 4bp on the day to tightest levels since March 23. Eurodollars are bid as well with the strip flattening out to early 2024 as rate-hike premium continues to erode. European fixed income extends gains. German and US curves bull-steepen; bunds outperform, richening ~12bps across the belly. Gilts bull-flatten, focusing on soft March GDP data over hawkish comments from BOE’s Ramsden.  STIRs are similarly well bid with red pack euribor, eurodollar and sonia futures all up over 10 ticks. The US auction cycle concludes with $22b 30-year bond sale at 1pm ET; Wednesday’s 10-year is trading more than 10bp lower in yield after 1.4bp auction tail. WI 30-year around 2.965% is above auction stops since March 2019 and ~15bp cheaper than April stop-out. Super-long sectors led gains in Japanese bonds even as the 30-year sale was seen sluggish. In commodities, base metals were under pressure; LME tin slumps over 8%, zinc down over 3.5%. European natural gas surged as much as 13% on supply concerns. Crude futures drop, fading roughly half of Wednesday’s rally. WTI is down over 2% near $103.50. Spot gold trades a narrow range near $1,850/oz. European natural gas prices jumped as disruptions to a key transit route through Ukraine and a move by Moscow to retaliate against sanctions ramped up the risk of supply cuts. Shanghai found two Covid cases outside government-run isolation centers on Wednesday, according to state-run CCTV, dampening prospects for potential easing of lockdowns. Prices of iron ore, the biggest commodity export from Australia, also fell on the news. Looking at the day, data releases include the US PPI reading for April, the weekly initial jobless claims, and UK GDP for Q1. Central bank speakers include the ECB’s De Cos and Makhlouf. And in the political sphere, US President Biden will be hosting ASEAN leaders at the White House, whilst G7 foreign ministers are meeting in Germany. Market Snapshot S&P 500 futures down 0.6% to 3,907.50 STOXX Europe 600 down 1.9% to 419.41 MXAP down 1.7% to 157.21 MXAPJ down 2.5% to 512.05 Nikkei down 1.8% to 25,748.72 Topix down 1.2% to 1,829.18 Hang Seng Index down 2.2% to 19,380.34 Shanghai Composite down 0.1% to 3,054.99 Sensex down 2.1% to 52,935.64 Australia S&P/ASX 200 down 1.8% to 6,941.03 Kospi down 1.6% to 2,550.08 Gold spot down 0.1% to $1,849.85 U.S. Dollar Index up 0.48% to 104.34 German 10Y yield little changed at 0.89% Euro down 0.6% to $1.0449 Brent Futures down 2.0% to $105.32/bbl Top Overnight News from Bloomberg The EU is looking at creating bond futures and repurchase agreements to bolster its pandemic-era debt program The BOE will have to raise interest rates further to control surging prices, and there’s a risk that the UK’s worst inflation crisis in decades will take longer to ease fully, according to Deputy Governor Dave Ramsden The UK economy unexpectedly contracted in March. Gross domestic product fell 0.1% from February, when growth was flat. It meant the economy expanded just 0.8% in the first quarter, less than the 1% forecast by economists UK Prime Minister Boris Johnson will spend the next few days considering whether the UK will introduce legislation to override its post- Brexit settlement with the EU, a move that risks sparking a trade war A massive sell-off in cryptocurrencies wiped over $200 billion of wealth from the market in just 24 hours, according to estimates from price-tracking website CoinMarketCap Finland’s highest-ranking policy makers President Sauli Niinisto and Prime Minister Sanna Marin threw their weight behind an application and Sweden’s government is likely to do so in the coming days Sweden’s Riksbank’s target measure, CPIF, accelerated to 6.4% on an annual basis in April, the highest level since 1991, according to data released on Thursday. Economists surveyed by Bloomberg expected prices to rise by 6.2% A more detailed look at global markets courtesy of Newsquawk Asia-Pc stocks were pressured after the losses on Wall St where the major indices whipsawed in the aftermath of the firmer than expected CPI data and the DJIA posted a fifth consecutive losing streak. ASX 200 was lower amid heavy losses in tech and with financials subdued after flat earnings from Australia’s largest lender CBA. Nikkei 225 weakened with attention on earnings updates and with SoftBank amongst the worst performers ahead of its results later with the Co. anticipated to have suffered a record quarterly loss. Hang Seng and Shanghai Comp were subdued with early pressure from default concerns after developer Sunac China missed its grace period deadline and warned there was no assurance that the group will be able to meet financial obligations, although the mainland bourse recovered its earlier losses after further policy support pledges by Chinese authorities. SoftBank (9984 JT) - FY revenue JPY 6.2trln (prev. 5.6trln Y/Y). FY net profits -1.7trln (prev. +4.99trln). Foxconn (2317 TT) Q1 net profit TWD 29.45bln (exp. 29.76bln); sees Q2 revenue flat Y/Y, sees smart consumer electronics slightly declining Y/Y. Top Asian News Rupee Tumbles to a Record Low, Stocks Slump on Inflation Woes SoftBank Vision Fund Posts a Record Loss as Son’s Bets Fail Yen Rebound Tipped as Recession Fears Push Down Treasury Yields More Defaults Seen Following Sunac’s Failure: Evergrande Update European bourses are pressured as overnight risk sentiment reverberated into the region, in a continuation of the post-CPI Wall St. move; Euro Stoxx 50 -2.5%. US futures are lower across the board though the magnitude is less extreme, ES -0.6%; NQ fails to benefit from the yield pullback as participants focus on the normalisation's impact on tech. Walt Disney Co (DIS) - Q2 2022 (USD): Adj. EPS 1.08 (exp. 1.19), Revenue 19.25bln (exp. 20.03bln). Disney+ subscribers 137.7mln (exp. 134.4mln). ESPN+ subscribers 22.3mln (exp. 22.5mln) -5.0% in the pre-market. Top European News UK Retailers Sue Truckmakers Over Alleged Price Fixing Rokos Raising $1 Billion as He Joins Macro Hedge Fund Surge Siemens Abandons Russian Market After 170-Year Relationship Hargreaves Tumbles as Peel Notes Macro, Geopolitical Impacts FX DXY tops 104.500 to set new 2022 peak as risk aversion intensifies. Yen regains safe haven premium to buck broadly weak trend vs Dollar, USD/JPY sub-128.50 vs top just over 130.00. Aussie and Kiwi flounder as commodities tumble on demand dynamics'; AUD/USD under 0.6900 and NZD/USD below 0.6250. Euro and Sterling give up big figure levels with the Pound also undermined by worse than forecast UK data; EUR/USD down through 1.0500 then 1.0450, Cable beneath 1.2200 and eyeing 1.2150 next. Swedish Crown holds up in wake of stronger than expected CPI and CPIF metrics; EUR/SEK straddles 10.6000. Yuan crushed as PBoC and Chinese Government reaffirm commitment to provide economic support; USD/CNY 6.7900+, USD/CNH just shy of 6.8300. Forint falls as NBH Deputy Governor contends that aggressive tightening period is over and future hikes likely more incremental. HKMA picks up pace of intervention to defend HKD peg, CNB steps in to support CZK. Fixed Income Debt revival gathers pace amidst risk-off positioning elsewhere. Bunds probe 155.00, Gilts reach 120.71 and 10 year T-note nudges 120-00. BTP supply encounters few demand issues, unlike second US Quarterly Refunding leg ahead of USD 22bln long bond auction. Commodities WTI and Brent are pressured in what has been a grinding move lower during European hours; however, benchmarks were lifted amid Kremlin/N. Korea updates. Currently, the benchmarks are lower by around USD 1.50/bbl. IEA OMR: Revises down oil demand growth projections for 2022 by 70k BPD, amid China lockdowns and elevated prices. Overall decline of Russian supply by 1.6mln BPD in May and 2mln BPD in June; could expand to circa. 3mln BPD from July onwards. Click here for more detail. OPEC MOMR to be released at 13:00BST/08:00EDT. Indian refineries purchased 25-30mln barrels of Russian oil at a discount for delivery in May-June, according to Interfax. Spot gold/silver are pressured amid the USD's revival, but, the yellow metal remains in relatively contained parameters around USD 1850/oz. US Event Calendar 08:30: May Initial Jobless Claims, est. 192,000, prior 200,000 08:30: April Continuing Claims, est. 1.37m, prior 1.38m 08:30: April PPI Final Demand MoM, est. 0.5%, prior 1.4%; YoY, est. 10.7%, prior 11.2% 08:30: April PPI Ex Food and Energy MoM, est. 0.6%, prior 1.0%; YoY, est. 8.9%, prior 9.2% DB's Jim Reid concludes the overnight wrap It was all about the higher than expected US CPI report yesterday which added to Fed rate expectations, as well as hard landing expectations as revealed through the curve flattening that took place through the rest of the day. Longer dated Treasury yields fell (after initially spiking much higher) and equities fell sharply (S&P 500 -1.65%) after actually being higher for the first half of the US session. So a topsy-turvy day that kept the Vix above 30 for a fifth straight session. In terms of the details of that report, headline monthly CPI surprised to the upside with a +0.3% gain (vs. +0.2% expected), whilst monthly core CPI also surprised to the upside at +0.6% (vs. +0.4% expected). Thanks to base effects from last year, the year-on-year numbers managed to decline in spite of the upside monthly surprises, but they were also higher than expected with headline CPI at +8.3% (vs. +8.1% expected), and core CPI at +6.2% (vs. +6.0% expected). Looking at the components, what will concern the Fed is that there are plenty of signs that inflation pressures remain broad and can’t be pinned on transitory shocks like the spike in energy prices of late. For instance, owners’ equivalent rent (which makes up nearly a quarter of the inflation basket) was up +0.45%, which is its fastest monthly pace since June 2006. Rents also remained strong with a +0.56% increase, which is just shy of its February increase and still the second-highest since December 1987. Food prices (+0.9%) also continued to move higher in April, bringing their year-on-year gain to a 41-year high of +9.4%. One consolation might be that the Cleveland Fed’s trimmed mean (which removes the outliers in either direction) saw its smallest monthly increase since last August at +0.45%, even if it’s still increasing well above rates seen throughout the 2010s. The fact the release surprised on the upside saw an immediate reaction across asset classes, with 10yr Treasury yields bouncing by more than +14bps intraday during the half hour following the report to 3.07%, before reversing all of this to end the day down -7.0bps to 2.92%. Ultimately the decline in real rates (-14.7bps) offset expectations of higher inflation (+8.1bps), but it was a different story at the front-end of the curve, where 2yr yields rose +2.5bps since the report was seen to raise the likelihood of larger hikes at the coming meetings, with the futures-implied rate for the December meeting rising +4.5bps on the day. In Asia, US 10 year yields are another -3.3bps lower with 2yrs flats. This has left the 2s10s curve at 24.3bps after trading as high as 48.5bps on Monday. In terms of the reaction from Fed officials themselves, Atlanta Fed President Bostic said he would support +50bp hikes until policy reaches neutral, which suggests more +50bp hikes than just the next two meetings, which has been the common line from Fed speakers of late. Markets are placing a 58% chance on a +50bp hike at September, up from 49% the day before. Markets also increased the chance they place on the Fed being forced into a +75bp hike even at the June meeting, pricing a 14% chance versus 10% yesterday. We will also get the May CPI release ahead of the next FOMC meeting in June, but by that point they’ll be in their blackout period, so this is the last print they’ll be able to comment on ahead of their next decision, and will frame the chatter around whether 75bps might be back on the table at some point given inflation looks to be proving stickier than many had expected. For equities, the CPI print drove indices lower at the open, but they bounced around all day as volatility remained elevated, ultimately closing near the lows. The S&P 500 fell -1.65%, led by tech and mega cap shares, while the Vix ended above 30 for the fifth straight session for the first time since the post-invasion bout of volatility gripped equity markets. As mentioned, tech stocks were the main underperformer, with the NASDAQ down by -3.18% as investors priced in faster hikes from the Fed this year. Separately in Europe, equities outperformed their US counterparts for a 3rd consecutive day, with the STOXX 600 posting a +1.74% advance but closing well before the US slump. Whilst the main focus yesterday was on the US CPI report, there was significant central bank news in Europe as well after ECB President Lagarde put out a strong signal that July would be when the ECB starts hiking rates for the first time in over a decade. In her remarks, she said that the first hike “will take place some time after the end of net asset purchases”, and that “this could mean a period of only a few weeks”. A July hike would be in line with the call from our own European economists here at DB (link here), who see four consecutive quarter point hikes from July, taking the deposit rate up to +0.50% by year-end. That was then echoed by a separate Bloomberg report later in the session, which said that ECB officials were “increasingly embracing a scenario” where interest rates moved into positive territory by year-end. ECB policy pricing by the end of the year actually fell -1.3bps to 26.5bps, as a broader sovereign bond rally overpowered this. With other ECB speakers having already been signalling their openness to a July hike, European sovereign bonds reacted more to the US CPI report than Lagarde’s remarks. So we ended up with a similar pattern to Treasuries, whereby yields surged following the US release before falling back to end the day lower on growth fears. Ultimately, that meant yields on 10yr bunds were down -1.5bps at 0.98%, and there was a significant narrowing in peripheral spreads too, with the gap between 10yr Italian yields and bunds down -9.9bps. Asian equity markets are weaker overnight. The Hang Seng (-0.94%) is the largest underperformer across the region this morning after the Hong Kong Monetary Authority (HKMA) intervened into the currency markets for the first time since 2019 to defend the local dollar from capital outflows. The authority bought about HK$1.589 billion from the market to bolster the exchange rate in order to bring it back within the trading band i.e., between 7.75 and 7.85 versus the US dollar. Elsewhere, the Nikkei (-0.84%), Kospi (-0.56%) are also trading lower. Mainland Chinese stocks are showing a more mixed performance with the Shanghai Composite (+0.17%) higher while the CSI 300 (-0.07%) is a tad lower. Outside of Asia, US stock futures are flat but Euro Stoxx futures are catching down with the late US move last night and are around -2%. According to the BOJ’s summary of opinions from the April 27-28 meeting, the board brushed aside the idea of countering sharp yen falls with interest rate hikes with several board members arguing in favour of maintaining the central bank’s massive stimulus programme. Oil prices are lower in early Asian trade, taking a pause after Brent crude futures closed +4.93% higher last night. This morning, the contract is -1.15% down at $106.27/bbl as I type. Elsewhere in markets, a significant story over the last 24 hours has been the significant price declines in a number of major cryptocurrencies. Bitcoin is at $27,617 as I type, a level not seen since December 2020. Coinbase’s share price was down a further -26.40% yesterday, bringing its losses over the last week alone to almost -60%. A few other headlines worth highlighting. The Dallas Fed announced that Lorie Logan, the current manager of the Fed’s portfolio, would assume the role of President, which makes her a voter on the FOMC next year. Given her remit has been to manage the balance sheet, little is known about her views about monetary policy as of yet. Finally on the Brexit front, there was a further ratcheting up in the comments between the UK and the EU over the Northern Ireland Protocol yesterday. UK PM Johnson said that “we need to sort it out”, and Levelling Up Secretary Gove said that “no option is off the table”. From the EU side however, Irish Foreign Minister Coveney said that the EU would need to react if the UK breached international law, and Bloomberg reported that the EU would likely suspend their trade deal with the UK if the UK were to revoke its commitments. To the day ahead now, and data releases include the US PPI reading for April, the weekly initial jobless claims, and UK GDP for Q1. Central bank speakers include the ECB’s De Cos and Makhlouf. And in the political sphere, US President Biden will be hosting ASEAN leaders at the White House, whilst G7 foreign ministers are meeting in Germany. Tyler Durden Thu, 05/12/2022 - 07:57.....»»

Category: blogSource: zerohedgeMay 12th, 2022

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

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

Category: personnelSource: nytApr 29th, 2022

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

3 reasons why the Omicron variant will hurt the economy less than past waves, according to JPMorgan

Omicron brought new risks to the world economy, but its rapid spread and reduced severity mean it probably won't derail the recovery, JPMorgan said. A passenger who arrived from Italy administers a self-collected nasal swab at Los Angeles International Airport on December 3, 2021.Mario Tama/Getty Images The Omicron variant won't slam the global economy like past waves have, JPMorgan said Thursday. The variant's rapid spread and reduced severity should fuel a faster and less dire wave of infections. Omicron is also "unlikely" to disrupt the supply-chain recovery in 2022, the bank's economists said. The Omicron variant roiled holiday get-togethers, travel plans, and gift deliveries. But it won't be enough to derail the world's economic rebound, JPMorgan economists said Thursday.The Omicron variant grew from a fledgling story to the world's predominant health crisis in a matter of weeks, raising new concerns that the pandemic — and its economic fallout — will linger well into the new year. With Americans already lamenting high inflation and supply-chain problems, the variant's rapid spread placed new pressure on recovery hopes.That quick transmission might be what makes Omicron less problematic than the last two coronavirus waves, JPMorgan economists led by Bruce Kasman said in a note to clients. The latest surge of infections "is expected to look very different than earlier ones," mostly because of its contagion and reduced severity. Taken with the strong pace of global recovery, the Omicron wave will form several unique trends in early 2022, the team added.Here are the three reasons the Omicron variant won't pose the same economic threat as previous virus waves, according to JPMorgan.1. Every country is facing Omicron at onceThe first coronavirus wave emerged in China and traveled west. The Delta wave showed up in India and the UK before spreading to the US and throughout Europe. The Omicron wave, however, is hitting everyone at once."Omicron's rapid spread and reduced virulence point to a more synchronized wave across the globe," the economists said. "While case counts are currently concentrated in the US and Europe, controls are not stringent enough to prevent the virus from spreading worldwide before the end of the next quarter."If the resurgence takes a path similar to the Delta variant's, it's possible the whole world gets through the Omicron variant at around the same time. Early signs indicate the latest wave could already be cooling off. The South African government said Thursday that the country is likely past the peak of the Omicron wave and that the variant didn't bring a large jump in virus deaths. The note suggests other countries' waves could soon crest, and that the pain won't be nearly as bad as the Delta wave's summer fallout.2. The slowdown won't hit any area too hardOmicron's rapid proliferation also seems to avert the kind of geographical damage that curbed growth in 2020 and 2021, the bank said."A more synchronized wave may place broader downward pressure on global growth, but it is unlikely to generate the concentrated regional weakness of earlier COVID waves," the team added.When COVID cases rebounded last winter, the damage was acute enough to send some European countries back into recession. The Delta wave similarly slammed the Asia Pacific region and exacerbated the global supply-chain crisis. Since more of the world's population is now vaccinated and the Omicron variant is less virulent, the current wave isn't likely to fuel the same kind of regional slump, JPMorgan said.3. Supply chain recovery expected to continueThe supply-chain harm powered by prior waves is also unlikely to emerge as Omicron spreads, the JPMorgan team said in its memo.Previous variants entangled global trade and drove shipping costs sharply higher. Manufacturers are better prepared now to weather the blow, and the supply-chain recovery will probably continue even if Omicron slows its pace, the bank said."We believe this wave is likely to primarily damp service-sector demand and is unlikely to disrupt the path of global industry," the economists said.Omicron will make for a more volatile recovery in early 2022, but as the wave peaks around the world, people can rest assured the variant won't be as disastrous as those that came before it, according to JPMorgan.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderJan 1st, 2022

A Screaming Dislocation - "We Must Raise Cash" On Any Rally From Here

A Screaming Dislocation - "We Must Raise Cash" On Any Rally From Here Excerpted from Larry McDonald's Bear Traps Report, A Colossal Rotation Has Begun... Into Value As we can see below, Value has been out-performing Growth for more than 16 months on an equal-weight basis. It is the highest compliment when the Street picks up on an investment thesis months after we started to walk down this trail. This week - Goldman Sachs and Bank of America focused on the carnage inside long duration (Nasdaq) equities. Goldman´s Tony Pasquariello noted:  “a screaming dislocation has emerged between long-duration equities (which have been falling apart - ARK Names, Software, long duration cash flows) and long duration itself (the yield on the 30 year long bond is near YTD lows). Elements of capitulation are starting to accumulate and there are clear footprints of major risk reduction.” We have seen two 80% + surges in the VIX since September 1, immense volume on intraday selloffs punctuated with a string of MOC sell imbalances. Pasquariello notes Goldman´s PB (prime broker) data reveals the largest net selling over any 10-day period since April of 2020. Likewise - insider selling looks to be 2 standard deviations greater than any quarter looking back over the last 6 years. In November, insiders unloaded a collective $15.59 billion - an all-time record). Furthermore - Private Equity insiders - the best sellers on earth - are unloading stock in size. Over the last two quarters, PE deals and exits have been completed deals at their highest levels relative to trends in at least the last 20 years. Although the current torrid pace is unsustainable, the bulls claim near-record-high dry powder and corporate cash balances and a red-hot IPO market—as well as an ample and cheap supply of debt financing—highlight a supportive backdrop for completing PE deals and exits (even with a Fed singing the 3-rate hike tune for 2022). Interesting with all the upside still left of the table - insiders are selling PE equity with both hands with the famous names leading the way. This is so reminiscent of the summer of 2007; at Lehman - the talk of the trading desk was private equity players exiting not only their longs but their personal equity holdings. This is a screaming sell signal. In the vol space, implied-realized spreads approached all-time wides with put-call skew was very stressed and UX2 (front month VIX futures) recently traded at a premium to UX8. Bulls say, there have been nine times in market history when S&P was down in November, but still up > 10% YTD on the follow, and December was positive all nine times, for an average gain of 4.3%. They also note - US nominal GDP growth in Q4 will likely be north of 13% - backward looking indeed. After three years where the S&P has averaged a 25% net return, one should lower their expectations of the REAL returns that asset markets can generate on a going forward basis. Just four stocks in S&P 500 account for around 1/3 of total returns this year (MSFT, AAPL, NVDA and GOOGL). In fact, over the past six months, their attribution is approaching around 70%. This further reveals the fact that a lot of the market – as a whole - peaked in Q1 and never looked back (CLOU Software,TAN Solar, XBI Biotech, ARK, etc). We have seen VERY consistent deterioration, month after month further contagion – one more victim after the next with the FAANGMT starting to take some pain (TSLA and FB 20% drawdowns). Use year-end market rips as priceless opportunities to SELL top heavy indexes (QQQs, SPY) and accumulate value plays. With the HIGHEST Conviction, this is the trade for the first half of 2022. Long INTC, T, KWEB, MSOS, XLE, RIO XME, EWU, XBI, IMPUY, GDX vs. Short or Underweight Large Cap – obnoxiously crowded – growth. If the market moves higher, this will just give Fed Chair Powell further confidence to threaten MORE aggressive accommodation withdrawal. We MUST raise CASH on any market rally moving forward – the risk – reward for the Major Indexes is as poor as we have ever seen it. Tyler Durden Fri, 12/17/2021 - 17:15.....»»

Category: blogSource: zerohedgeDec 17th, 2021

Bitcoin Is The Perfect Option, And Central Banks Will Have To Buy In

Bitcoin Is The Perfect Option, And Central Banks Will Have To Buy In Authored by Greg Foss and Seb Bunney via, What happens if the market realizes that kicking the can down the road is delaying the inevitable? A sustainable form of insurance in this event would have to be bitcoin... In “part one” of this article, we provide a high-level overview on options, the components that make them valuable and how these components are priced in order to come up with a comprehensive value for any particular option. Readers who are not familiar with options and option pricing are encouraged to read “part one” before moving on to the rest of the article. For more option-savvy readers, you may jump immediately to “part two,” where we will explore why we believe bitcoin (BTC) is a long volatility position. Since most other assets in a diversified investment portfolio are in fact short volatility positions, bitcoin can offer portfolio hedges in the event of increased volatility in tangential markets. We then extend the analysis to determine why bitcoin is in fact a very valuable “exotic” option. Moreover, as an exotic option with no term, there is no time decay on your long volatility position. Finally, in a world where exotic options generally require a contract with a defined counterparty (they are not generic, thus don’t trade on exchanges per se), the fact that bitcoin has no counterparty risk leads to the conclusion that bitcoin is the perfect option that, over time, will come to be embraced by investors as a hedge to a short volatility-biased investing world. *Don’t fret if this introduction went over your head, instead just start with “part one” below. PART ONE: AN INTRODUCTION TO OPTIONS Before we can truly comprehend why bitcoin may be the “perfect” option instrument, we must first go over a little options theory. This will help us more easily grasp the concept of bitcoin as a long put option on the fiat ponzi. What is an option? In the most simplistic form, an option is a derivative that derives its price from its underlying asset. An insurance contract is very similar to an options contract and is a great starting point for understanding options. With any options/insurance contract, you have two parties looking to achieve different outcomes. For instance, with house insurance, you have: The buyer, who is looking to pay a premium upfront to obtain monetary protection in the event of a fire, flood or any other adverse event The seller, who is looking to obtain cash flow upfront and believes that the probability of payout due to an adverse event is less than the premium received from the buyer As a buyer of an option, you would say that you are long the option, and as a seller, you would say that you are short the option. Now, it should be noted that this article isn’t intended to be about teaching options 101, and therefore moving forward, we will focus on bitcoin as a long put option. With that being said, we will circle back once or twice to the house insurance example, as it’s a good analogy for trying to grasp the mechanics of a long put option. You may have noticed that the term “underlying” is mentioned above. We don’t blame you if you don’t know what this jargon means… you’re not alone. Essentially, with an option being a derivative, the option’s value is based upon several factors relating to its underlying assets. In the house insurance example, the underlying assets would be the house and the premium paid for the insurance is based upon, as well as things like: How long you are looking to insure your house Where your house is situated (flood plain, landslide zone, etc.) The condition of your house How is bitcoin a long put option?  Although bitcoin isn’t technically an option, one of the main narratives behind its rapid growth since inception is that bitcoin is effectively an insurance contract in the event that the fiat currency system were to become immersed in a credit deterioration that includes many eventual failures. With that in mind, you could liken buying bitcoin to buying a put option on the fiat system. If we were to see a failure of the fiat system, bitcoin will most likely disproportionately benefit. However, bitcoin is unique as it comes with many of the upsides of an option without some of the traditional downsides, which we will get into. Let us delve deeper. When analyzing an option, different options provide benefits under different conditions. You can determine what conditions impact an option’s price by studying what are called the “option greeks.” These metrics help you determine an option’s sensitivity to a multitude of factors such as time, volatility, interest rates, etc. With that said, we will dig into four of the more well-known greeks: theta, vega, gamma and rho. THE GREEKS Theta: measures an options change in price as we pass through time. Bitcoin is theta neutral. One of the major downsides to being an option buyer (long the option) is that you are confined by a time limit. When you initiate an options contract, you set an expiration date for when this contract will expire. At this pre-defined expiration date, you no longer have insurance/protection against the adverse event you initially paid for. In the options world, this creates something called “theta decay,” which means that, as time moves closer to expiration, your option decays in value as there is a decreased amount of time for an adverse event to happen. This is why the longer you are looking to insure something, the more costly it’ll be. Although bitcoin has many of the same benefits as a long option, bitcoin is unique in that it is not a time-constrained contract; it is its own asset. Ultimately, as bitcoin is not time-constrained, there is no loss of value over time due to theta decay. By owning and holding bitcoin, you have an indefinite immutable insurance contract that will reward you greatly in the event of a significant collapse of the fiat system. Vega: measures an option’s sensitivity to an increase or decrease in volatility. Bitcoin is long vega. If someone says they are long an option, that means they benefit from disorder and increased volatility. In our house example, if our house were to burn down, our insurance policy would pay out — we are benefiting from increased disorder and volatility. How does this relate to bitcoin? With bitcoin being a long put option on fiat, which is built upon debt, being long bitcoin means you are essentially short credit and benefit from disorder and volatility in the credit markets. With greater monetary and fiscal intervention causing an increase in the money supply and debt burden while decreasing the dollar’s purchasing power, we see greater economic instability. With greater instability comes greater uncertainty for the security of the dollar and the looming debt burden. This uncertainty leads to greater volatility and disorder. As bitcoin is a long put option on fiat and credit, it benefits from increased volatility and uncertainty. Gamma: measures the rate of change of delta. Bitcoin is long gamma. In the options world, gamma is a measure of something called “convexity.” More specifically, when you are long an option, you are exposed to something magical called positive convexity. In financial jargon, this is the non-linear return profile of the option. Let’s do some simple math to explain this: If we were to see continued inflation and the suppression of rates push 25% of bond holders to exit the $120 trillion credit market and step into bitcoin, valued at $1 trillion, most would expect to see a 25% rise in the value of bitcoin due to the 25% drop in the notional value of bonds. However, we would instead see the value of bitcoin increase by $30 trillion ($120 trillion * 25%) (this simplified equation doesn’t consider the non-linear effect that $1 flowing into bitcoin usually equates to greater than $1 of value creation). In percentage terms, this is a 3,000% increase. This non-linear return profile or asymmetry in upside potential is called “positive convexity.” It is a risk manager’s dream as you can hedge your portfolio with a small allocation to bitcoin while also gaining exposure to outsized returns. Over time, as we see further monetary expansion and the suppression of interest rates in order to quell the looming debt burden, more and more assets will start to lag inflation. Rough estimates put global assets excluding derivatives at $532 trillion ($12 trillion gold, $100 trillion equities, $120 trillion bond market, $300 trillion real estate). As investors look to exit these poorly performing assets and move to greener pastures, bitcoin is in prime position to benefit, and due to the long gamma exposure explained above, the upside potential is unchallenged. Rho: measures an option’s sensitivity to a change in interest rates. Bitcoin is both long and short rho. Bitcoin is unique in that it is one of the few assets that can benefit regardless of the direction interest rates move. Due to the excessive debt burden in most countries, if interest rates start to rise, people will no longer be able to service their debt payments, contagion will increase, leading to a quickening of the collapse of the current financial system. This will increase the number of traditional asset holders looking to exit their positions in search of assets that offer them protection with no counterparty risk, such as bitcoin. On the other hand, if rates start to decrease, borrowing costs decrease, which encourages debt consumption and spending, increasing inflation and the availability of capital in the economy. In this event, we would see the purchasing power of the dollar collapse. This would push smart money out of the risk curve into positions that hedge their portfolios against this collapse of purchasing power. Where better to protect purchasing power than in bitcoin? Bringing it back to the greeks, as rho measures an option’s sensitivity to interest rates, bitcoin benefits regardless of the direction that rates move. Now that we have the option greeks out of the way, and we have laid out the framework for bitcoin as a long put option, what should be evident is bitcoin’s unique properties as an exotic option. In “part two” we will look at why bitcoin may be the perfect option instrument. PART TWO: BITCOIN IS THE “PERFECT” OPTION INSTRUMENT BITCOIN IS A LONG VOLATILITY POSITION Foss has stated in previous research that bitcoin is akin to owning credit insurance on a basket of sovereign issuers. He has calculated an intrinsic value for BTC using sovereign credit default swap (CDS) spreads and shared it with Bitcoin Magazine here. It is important for readers to understand that when you own credit insurance, you are “short” credit and thus you are “long” volatility. It is easy to appreciate this relationship as described below. When credit conditions are worsening — reflected by increasing credit spreads and reduced lending confidence — the knock-on effects always result in equity markets being dragged lower, and at a faster pace. This results in a reach for equity option “insurance” or “protection” and as such, the VIX index increases in lockstep. If credit conditions continue to deteriorate, and the VIX exceeds 25% annualized volatility for an extended period of time, it has been Foss’ experience that new issue markets shut down and financial conditions worsen. In other words, the contagion continues to bleed into other markets. Remember, credit is the dog, and equity is the tail. Due to the priority of claim in credit relative to equities, if the creditworthiness of the debt becomes a concern, a credit trader can always hedge their risk using a short position in the subordinate claim — the equity. Credit markets are also far larger than equity markets. Any equity investor who is not aware of the trading value of the senior claim (the debt) has only done partial research and is potentially flying blind to the signs coming from the credit market evaluation of the company. There is no question that the current level of understanding of most bitcoin investors is that bitcoin performance is directly correlated to equity markets. Accordingly — today — in a “risk-off” move in equities, the price of bitcoin likely falls in sympathy. However, as the level of sophistication of investors increases over time, and those investors come to appreciate the true beauty of the long volatility characteristic of bitcoin, we believe there will come a time when bitcoin price will be inversely correlated to equity market and credit market moves. BITCOIN AS A “PUT” OPTION ON THE FED PUT When Alan Greenspan was chairman of the Federal Reserve, he openly monitored the performance of the equity markets as an indicator of the performance of monetary policy. If equity markets were to fall by 20%, it became widely accepted that the Fed would step in to stabilize the markets and return the market to being open to new issuance of debt and equity. Hence the term, “the Fed put.” Since we argue that bitcoin can also be considered a long put option on the stability of the financial system, Bitcoin becomes a “put on a put.” This is an exciting angle that further increases the optionality of bitcoin. In essence, it has heretofore been assumed that the Fed would always be there to rescue markets. The tool chest includes quantitative easing, asset purchases and interest rate relief. But what happens if these tools do not work in the future? What happens if the market loses all confidence that continuously kicking the can down the road is only delaying an inevitable collapse, and that collapse starts to happen and cannot be stopped by any of the Fed’s tools? A suitable form of insurance in this catastrophic event would have to be an asset that is not fiat based. It would be an asset that is “short” credit on all fiat currencies, that is not centralized, and that is portable and transferable over time and space on payment rails that are not controlled by the legacy financial system. Enter stage left: bitcoin. A “put on a put” becomes a second derivative position. The Fed has essentially sold a put to the market. As the seller of a put, the Fed would use a technique called “delta hedging” in order to manage risk. If you recall from the explanation of “gamma” in “part one,” if the Fed is exposed to the gamma squeeze, in the event that the tools of the conventional Fed put do not work, and investors rush to exit traditional assets, what is the Fed to do? We argue that the Fed would have to buy the “put on the put,” i.e., the Fed would have to buy bitcoin. This opens an interesting game theory conundrum. When the global markets (finally) figure out that all central banks are also counting on the Fed put, and since all other global central banks will fail before the Federal Reserve fails, then shouldn’t all other central banks commence buying bitcoin as soon as possible? Moreover, when the Fed does the same exercise and realizes it could be forced to buy bitcoin in a catastrophic leverage unwind — gamma squeeze — that cannot be stopped by any Fed fiat action, perhaps it would be wise to start buying bitcoin in the here and now, too. BITCOIN, THE PERFECT EXOTIC OPTION In general, standardized option contracts trade on an exchange where the exchange will guarantee the settlement of the contract as an intermediary. This ensures that individual counterparty risk between the various buyers and sellers of the contracts is non-existent. The players would still be exposed to the failure of the exchange, but this is a much-reduced exposure. Generally, exotic options are individual contracts struck between buyer and seller. Since these options are not standardized, there is no exchange, and thus the players are exposed to counterparty risk. Since bitcoin possesses all of the attributes that are desired in a Fed put gamma squeeze, and since bitcoin has no counterparty risk and there is no time restriction (no theta) on the contract, it can reasonably be concluded that bitcoin is the perfect exotic option and the perfect insurance against an unravelling of the global fiat system. If you own zero bitcoin, you are exposed to insurance risks that are huge relative to the costs of the insurance. Every investor with exposure to short volatility biased assets, as well as all investors who require the ultimate in insurance protection against a global fiat collapse, need to hold a portion of their portfolio in bitcoin. Tyler Durden Fri, 12/17/2021 - 16:25.....»»

Category: blogSource: zerohedgeDec 17th, 2021

Futures Surge After Powell-Driven Rout Proves To Be "Transitory"

Futures Surge After Powell-Driven Rout Proves To Be "Transitory" Heading into yesterday's painful close to one of the ugliest months since March 2020, which saw a huge forced liquidation rebalance with more than $8 billion in Market on Close orders, we said that while we are seeing "forced selling dump into the close today" this would be followed by "forced Dec 1 buying frontrunning after the close." Forced selling dump into the close today. Forced Dec 1 buying frontrunning after the close — zerohedge (@zerohedge) November 30, 2021 And just as expected, despite yesterday's dramatic hawkish pivot by Powell, who said it was time to retire the word transitory in describing the inflation outlook (the same word the Fed used hundreds of times earlier in 2021 sparking relentless mockery from this website for being clueless as usual) while also saying the U.S. central bank would consider bringing forward plans for tapering its bond buying program at its next meeting in two weeks, the frontrunning of new monthly inflows is in full force with S&P futures rising over 1.2%, Nasdaq futures up 1.3%, and Dow futures up 0.9%, recovering almost all of Tuesday’s decline. The seemingly 'hawkish' comments served as a double whammy for markets, which were already nervous about the spread of the Omicron coronavirus variant and its potential to hinder a global economic recovery. "At this point, COVID does not appear to be the biggest long-term Street fear, although it could have the largest impact if the new (or next) variant turns out to be worse than expected," Howard Silverblatt, senior index analyst for S&P and Dow Jones indices, said in a note. "That honor goes to inflation, which continues to be fed by supply shortages, labor costs, worker shortages, as well as consumers, who have not pulled back." However, new month fund flows proved too powerful to sustain yesterday's month-end dump and with futures rising - and panic receding - safe havens were sold and the 10-year Treasury yield jumped almost 6bps, approaching 1.50%. The gap between yields on 5-year and 30-year Treasuries was around the narrowest since March last year. Crude oil and commodity-linked currencies rebounded. Gold remained just under $1,800 and bitcoin traded just over $57,000. There was more good news on the covid front with a WHO official saying some of the early indications are that most Omicron cases are mild with no severe cases. Separately Merck gained 3.8% in premarket trade after a panel of advisers to the U.S. Food and Drug Administration narrowly voted to recommend the agency authorize the drugmaker's antiviral pill to treat COVID-19. Travel and leisure stocks also rebounded, with cruiseliners Norwegian, Carnival, Royal Caribbean rising more than 2.5% each. Easing of covid fears also pushed airlines and travel stocks higher in premarket trading: Southwest +2.9%, Delta +2.5%, Spirit +2.3%, American +2.2%, United +1.9%, JetBlue +1.3%. Vaccine makers traded modestly lower in pre-market trading after soaring in recent days as Wall Street weighs the widening spread of the omicron variant. Merck & Co. bucked the trend after its Covid-19 pill narrowly gained a key recommendation from advisers to U.S. regulators. Moderna slips 2.1%, BioNTech dips 1.3% and Pfizer is down 0.2%. Elsewhere, Occidental Petroleum led gains among the energy stocks, up 3.2% as oil prices climbed over 4% ahead of OPEC's meeting. Shares of major Wall Street lenders also moved higher after steep falls on Tuesday. Here are some of the other biggest U.S. movers today: Salesforce (CRM US) drops 5.9% in premarket trading after results and guidance missed estimates, with analysts highlighting currency-related headwinds and plateauing growth at the MuleSoft integration software business. Hewlett Packard Enterprise (HPE US) falls 1.3% in premarket after the computer equipment maker’s quarterly results showed the impact of the global supply chain crunch. Analysts noted solid order trends. Merck (MRK US) shares rise 5.8% in premarket after the company’s Covid-19 pill narrowly wins backing from FDA advisers, which analysts say is a sign of progress despite lingering challenges. Chinese electric vehicle makers were higher in premarket, leading U.S. peers up, after Nio, Li and XPeng reported strong deliveries for November; Nio (NIO US) +4%, Li (LI US ) +6%, XPeng (XPEV US) +4.3%. Ardelyx (ARDX US) shares gain as much as 34% in premarket, extending the biotech’s bounce after announcing plans to launch its irritable bowel syndrome treatment Ibsrela in the second quarter. CTI BioPharma (CTIC US) shares sink 18% in premarket after the company said the FDA extended the review period for a new drug application for pacritinib. Allbirds (BIRD US) fell 7.5% postmarket after the low end of the shoe retailer’s 2021 revenue forecast missed the average analyst estimate. Zscaler (ZS US) posted “yet another impressive quarter,” according to BMO. Several analysts increased their price targets for the security software company. Shares rose 4.6% in postmarket. Ambarella (AMBA US) rose 14% in postmarket after forecasting revenue for the fourth quarter that beat the average analyst estimate. Emcore (EMKR US) fell 9% postmarket after the aerospace and communications supplier reported fiscal fourth-quarter Ebitda that missed the average analyst estimate. Box (BOX US) shares gained as much as 10% in postmarket trading after the cloud company raised its revenue forecast for the full year. Meanwhile, the omicron variant continues to spread around the globe, though symptoms so far appear to be relatively mild. The Biden administration plans to tighten rules on travel to the U.S., and Japan said it would bar foreign residents returning from 10 southern African nations. As Bloomberg notes, volatility is buffeting markets as investors scrutinize whether the pandemic recovery can weather diminishing monetary policy support and potential risks from the omicron virus variant. Global manufacturing activity stabilized last month, purchasing managers’ gauges showed Wednesday, and while central banks are scaling back ultra-loose settings, financial conditions remain favorable in key economies. “The reality is hotter inflation coupled with a strong economic backdrop could end the Fed’s bond buying program as early as the first quarter of next year,” Charlie Ripley, senior investment strategist at Allianz Investment Management, said in emailed comments. “With potential changes in policy on the horizon, market participants should expect additional market volatility in this uncharted territory.” Looking ahead, Powell is back on the Hill for day 2, and is due to testify before a House Financial Services Committee hybrid hearing at 10 a.m. ET. On the economic data front, November readings on U.S. private payrolls and manufacturing activity will be closely watched later in the day to gauge the health of the American economy. Investors are also awaiting the Fed's latest "Beige Book" due at 2:00 p.m. ET. On the economic data front, November readings on U.S. private payrolls and manufacturing activity will be closely watched later in the day to gauge the health of the American economy. European equities soared more than 1.2%, with travel stocks and carmakers leading broad-based gain in the Stoxx Europe 600 index, all but wiping out Tuesday’s decline that capped only the third monthly loss for the benchmark this year.  Travel, miners and autos are the strongest sectors. Here are some of the biggest European movers today: Proximus shares rise as much as 6.5% after the company said it’s started preliminary talks regarding a potential deal involving TeleSign, with a SPAC merger among options under consideration. Dr. Martens gains as much as 4.6% to the highest since Sept. 8 after being upgraded to overweight from equal- weight at Barclays, which says the stock’s de-rating is overdone. Husqvarna advances as much as 5.3% after the company upgraded financial targets ahead of its capital markets day, including raising the profit margin target to 13% from 10%. Wizz Air, Lufthansa and other travel shares were among the biggest gainers as the sector rebounded after Tuesday’s losses; at a conference Wizz Air’s CEO reiterated expansion plans. Wizz Air gains as much as 7.5%, Lufthansa as much as 6.8% Elis, Accor and other stocks in the French travel and hospitality sector also rise after the country’s government pledged to support an industry that’s starting to get hit by the latest Covid-19 wave. Pendragon climbs as much as 6.5% after the car dealer boosted its outlook after the company said a supply crunch in the new vehicle market wasn’t as bad as it had anticipated. UniCredit rises as much as 3.6%, outperforming the Stoxx 600 Banks Index, after Deutsche Bank added the stock to its “top picks” list alongside UBS, and Bank of Ireland, Erste, Lloyds and Societe Generale. Earlier in the session, Asian stocks also soared, snapping a three-day losing streak, led by energy and technology shares, as traders assessed the potential impact from the omicron coronavirus variant and U.S. Federal Reserve Chair Jerome Powell’s hawkish pivot. The MSCI Asia Pacific Index rose as much as 1.3% Wednesday. South Korea led regional gains after reporting strong export figures, which bolsters growth prospects despite record domestic Covid-19 cases. Hong Kong stocks also bounced back after falling Tuesday to their lowest level since September 2020. Asia’s stock benchmark rebounded from a one-year low, though sentiment remained clouded by lingering concerns on the omicron strain and Fed’s potentially faster tapering pace. Powell earlier hinted that the U.S. central bank will accelerate its asset purchases at its meeting later this month.  “A faster taper in the U.S. is still dependent on omicron not causing a big setback to the outlook in the next few weeks,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital, adding that he expects the Fed’s policy rate “will still be low through next year, which should still enable good global growth which will benefit Asia.” Chinese equities edged up after the latest economic data showed manufacturing activity remained at relatively weak levels in November, missing economists’ expectations. Earlier, Chinese Vice Premier Liu He said he’s fully confident in the nation’s economic growth in 2022 Japanese stocks rose, overcoming early volatility as traders parsed hawkish comments from Federal Reserve Chair Jerome Powell. Electronics and auto makers were the biggest boosts to the Topix, which closed 0.4% higher after swinging between a gain of 0.9% and loss of 0.7% in the morning session. Daikin and Fanuc were the largest contributors to a 0.4% rise in the Nikkei 225, which similarly fluctuated. The Topix had dropped 4.8% over the previous three sessions due to concerns over the omicron virus variant. The benchmark fell 3.6% in November, its worst month since July 2020. “The market’s tolerance to risk is quite low at the moment, with people responding in a big way to the smallest bit of negative news,” said Tomo Kinoshita, a global market strategist at Invesco Asset Management in Tokyo. “But the decline in Japanese equities was far worse than those of other developed markets, so today’s market may find a bit of calm.” U.S. shares tumbled Tuesday after Powell said officials should weigh removing pandemic support at a faster pace and retired the word “transitory” to describe stubbornly high inflation In rates, bonds trade heavy, as yield curves bear-flatten. Treasuries extended declines with belly of the curve cheapening vs wings as traders continue to price in additional rate-hike premium over the next two years. Treasury yields were cheaper by up to 5bp across belly of the curve, cheapening 2s5s30s spread by ~5.5bp on the day; 10-year yields around 1.48%, cheaper by ~4bp, while gilts lag by additional 2bp in the sector. The short-end of the gilt curve markedly underperforms bunds and Treasuries with 2y yields rising ~11bps near 0.568%. Peripheral spreads widen with belly of the Italian curve lagging. The flattening Treasury yield curve “doesn’t suggest imminent doom for the equity market in and of itself,” Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., said on Bloomberg Television. “Alarm bells go off in terms of recession” when the curve gets closer to inverting, she said. In FX, the Turkish lira had a wild session, offered in early London trade before fading. USD/TRY dropped sharply to lows of 12.4267 on reports of central bank FX intervention due to “unhealthy price formations” before, once again, fading TRY strength after comments from Erdogan. The rest of G-10 FX is choppy; commodity currencies retain Asia’s bid tone, havens are sold: the Bloomberg Dollar Spot Index inched lower, as the greenback traded mixed versus its Group-of-10 peers. The euro moved in a narrow range and Bund yields followed U.S. yields higher. The pound advanced as risk sentiment stabilized with focus still on news about the omicron variant. The U.K. 10-, 30-year curve flirted with inversion as gilts flattened, with money markets betting on 10bps of BOE tightening this month for the first time since Friday. The Australian and New Zealand dollars advanced as rising commodity prices fuel demand from exporters and leveraged funds. Better-than-expected growth data also aided the Aussie, with GDP expanding by 3.9% in the third quarter from a year earlier, beating the 3% estimated by economists. Austrian lawmakers extended a nationwide lockdown for a second 10-day period to suppress the latest wave of coronavirus infections before the Christmas holiday period.  The yen declined by the most among the Group-of-10 currencies as Powell’s comments renewed focus on yield differentials. 10-year yields rose ahead of Thursday’s debt auction In commodities, crude futures rally. WTI adds over 4% to trade on a $69-handle, Brent recovers near $72.40 after Goldman said overnight that oil had gotten extremely oversold. Spot gold fades a pop higher to trade near $1,785/oz. Base metals trade well with LME copper and nickel outperforming. Looking at the day ahead, once again we’ll have Fed Chair Powell and Treasury Secretary Yellen appearing, this time before the House Financial Services Committee. In addition to that, the Fed will be releasing their Beige Book, and BoE Governor Bailey is also speaking. On the data front, the main release will be the manufacturing PMIs from around the world, but there’s also the ADP’s report of private payrolls for November in the US, the ISM manufacturing reading in the US as well for November, and German retail sales for October. Market Snapshot S&P 500 futures up 1.2% to 4,620.75 STOXX Europe 600 up 1.0% to 467.58 MXAP up 0.9% to 191.52 MXAPJ up 1.1% to 626.09 Nikkei up 0.4% to 27,935.62 Topix up 0.4% to 1,936.74 Hang Seng Index up 0.8% to 23,658.92 Shanghai Composite up 0.4% to 3,576.89 Sensex up 1.0% to 57,656.51 Australia S&P/ASX 200 down 0.3% to 7,235.85 Kospi up 2.1% to 2,899.72 Brent Futures up 4.2% to $72.15/bbl Gold spot up 0.2% to $1,778.93 U.S. Dollar Index little changed at 95.98 German 10Y yield little changed at -0.31% Euro down 0.1% to $1.1326 Top Overnight News from Bloomberg U.S. Secretary of State Antony Blinken will meet Russian Foreign Minister Sergei Lavrov Thursday, the first direct contact between officials of the two countries in weeks as tensions grow amid western fears Russia may be planning to invade Ukraine Oil rebounded from a sharp drop on speculation that recent deep losses were excessive and OPEC+ may on Thursday decide to pause hikes in production, with the abrupt reversal fanning already- elevated volatility The EU is set to recommend that member states review essential travel restrictions on a daily basis in the wake of the omicron variant, according to a draft EU document seen by Bloomberg China is planning to ban companies from going public on foreign stock markets through variable interest entities, according to people familiar with the matter, closing a loophole long used by the country’s technology industry to raise capital from overseas investors Manufacturing activity in Asia outside China stabilized last month amid easing lockdown and border restrictions, setting the sector on course to face a possible new challenge from the omicron variant of the coronavirus Germany urgently needs stricter measures to check a surge in Covid-19 infections and protect hospitals from a “particularly dangerous situation,” according to the head of the country’s DIVI intensive-care medicine lobby. A more detailed breakdown of global markets courtesy of Newsquawk Asian equity markets traded mostly positive as regional bourses atoned for the prior day’s losses that were triggered by Omicron concerns, but with some of the momentum tempered by recent comments from Fed Chair Powell and mixed data releases including the miss on Chinese Caixin Manufacturing PMI. ASX 200 (-0.3%) was led lower by underperformance in consumer stocks and with utilities also pressured as reports noted that Shell and Telstra’s entrance in the domestic electricity market is set to ignite fierce competition and force existing players to overhaul their operations, although the losses in the index were cushioned following the latest GDP data which showed a narrower than feared quarterly contraction in Australia’s economy. Nikkei 225 (+0.4%) was on the mend after yesterday’s sell-off with the index helped by favourable currency flows and following a jump in company profits for Q3, while the KOSPI (+2.1%) was also boosted by strong trade data. Hang Seng (+0.8%) and Shanghai Comp. (+0.4%) were somewhat varied as a tech resurgence in Hong Kong overcompensated for the continued weakness in casinos stocks amid ongoing SunCity woes which closed all VIP gaming rooms in Macau after its Chairman's recent arrest, while the mood in the mainland was more reserved after a PBoC liquidity drain and disappointing Chinese Caixin Manufacturing PMI data which fell short of estimates and slipped back into contraction territory. Finally, 10yr JGBs were lower amid the gains in Japanese stocks and after the pullback in global fixed income peers in the aftermath of Fed Chair Powell’s hawkish comments, while a lack of BoJ purchases further contributed to the subdued demand for JGBs. Top Asian News Asia Stocks Bounce Back from One-Year Low Despite Looming Risks Gold Swings on Omicron’s Widening Spread, Inflation Worries Shell Sees Hedge Funds Moving to LNG, Supporting Higher Prices Abe Warns China Invading Taiwan Would Be ‘Economic Suicide’ Bourses in Europe are firmer across the board (Euro Stoxx 50 +1.6%; Stoxx 600 +1.1%) as the positive APAC sentiment reverberated into European markets. US equity futures are also on the front foot with the cyclical RTY (+2.0%) outpacing its peers: ES (+1.2%), NQ (+1.5%), YM (+0.8%). COVID remains a central theme for the time being as the Omicron variant is observed for any effects of concern – which thus far have not been reported. Analysts at UBS expect market focus to shift away from the variant and more towards growth and earnings. The analysts expect Omicron to fuse into the ongoing Delta outbreak that economies have already been tackling. Under this scenario, the desk expects some of the more cyclical markets and sectors to outperform. The desk also flags two tails risks, including an evasive variant and central bank tightening – particularly after Fed chair Powell’s commentary yesterday. Meanwhile, BofA looks for an over-10% fall in European stocks next year. Sticking with macro updates, the OECD, in their latest economic outlook, cut US, China, Eurozone growth forecasts for 2021 and 2022, with Omicron cited as a factor. Back to trade, broad-based gains are seen across European cash markets. Sectors hold a clear cyclical bias which consists of Travel & Leisure, Basic Resources, Autos, Retail and Oil & Gas as the top performers – with the former bolstered by the seemingly low appetite for coordination on restrictions and measures at an EU level – Deutsche Lufthansa (+6%) and IAG (+5.1%) now reside at the top of the Stoxx 600. The other side of the spectrum sees the defensive sectors – with Healthcare, Household Goods, Food & Beverages as the straddlers. In terms of induvial movers, German-listed Adler Group (+22%) following a divestment, whilst Blue Prism (+1.7%) is firmer after SS&C raised its offer for the Co. Top European News Wizz Says Travelers Are Booking at Shorter and Shorter Notice Turkey Central Bank Intervenes in FX Markets to Stabilize Lira Gold Swings on Omicron’s Widening Spread, Inflation Worries Former ABG Sundal Collier Partner Starts Advisory Firm In FX, the Dollar remains mixed against majors, but well off highs prompted by Fed chair Powell ditching transitory from the list of adjectives used to describe inflation and flagging that a faster pace of tapering will be on the agenda at December’s FOMC. However, the index is keeping tabs on the 96.000 handle and has retrenched into a tighter 95.774-96.138 range, for the time being, as trade remains very choppy and volatility elevated awaiting clearer medical data and analysis on Omicron to gauge its impact compared to the Delta strain and earlier COVID-19 variants. In the interim, US macro fundamentals might have some bearing, but the bar is high before NFP on Friday unless ADP or ISM really deviate from consensus or outside the forecast range. Instead, Fed chair Powell part II may be more pivotal if he opts to manage hawkish market expectations, while the Beige Book prepared for next month’s policy meeting could also add some additional insight. NZD/AUD/CAD/GBP - Broad risk sentiment continues to swing from side to side, and currently back in favour of the high beta, commodity and cyclical types, so the Kiwi has bounced firmly from worst levels on Tuesday ahead of NZ terms of trade, the Aussie has pared a chunk of its declines with some assistance from a smaller than anticipated GDP contraction and the Loonie is licking wounds alongside WTI in advance of Canadian building permits and Markit’s manufacturing PMI. Similarly, Sterling has regained some poise irrespective of relatively dovish remarks from BoE’s Mann and a slender downward revision to the final UK manufacturing PMI. Nzd/Usd is firmly back above 0.6800, Aud/Usd close to 0.7150 again, Usd/Cad straddling 1.2750 and Cable hovering on the 1.3300 handle compared to circa 0.6772, 0.7063, 1.2837 and 1.3195 respectively at various fairly adjacent stages yesterday. JPY/EUR/CHF - All undermined by the aforementioned latest upturn in risk appetite or less angst about coronavirus contagion, albeit to varying degrees, as the Yen retreats to retest support sub-113.50, Euro treads water above 1.1300 and Franc straddles 0.9200 after firmer than forecast Swiss CPI data vs a dip in the manufacturing PMI. In commodities, WTI and Brent front month futures are recovering following yesterday’s COVID and Powell-induced declines in the run-up to the OPEC meetings later today. The complex has also been underpinned by the reduced prospects of coordinated EU-wide restrictions, as per the abandonment of the COVID video conference between EU leaders. However, OPEC+ will take centre stage over the next couple of days, with a deluge of source reports likely as OPEC tests the waters. The case for OPEC+ to pause the planned monthly relaxation of output curbs by 400k BPD has been strengthening. There have been major supply and demand developments since the prior meeting. The recent emergence of the Omicron COVID variant and coordinated release of oil reserves have shifted the balance of expectations relative to earlier in the month (full Newsquawk preview available in the Research Suite). In terms of the schedule, the OPEC meeting is slated for 13:00GMT/08:00EST followed by the JTC meeting at 15:00GMT/10:00EST, whilst tomorrow sees the JMMC meeting at 12:00GMT/07:00EST; OPEC+ meeting at 13:00GMT/08:00EST. WTI Jan has reclaimed a USD 69/bbl handle (vs USD 66.20/bbl low) while Brent Feb hovers around USD 72.50/bbl (vs low USD 69.38/bbl) at the time of writing. Elsewhere, spot gold and silver trade with modest gains and largely in tandem with the Buck. Spot gold failed to sustain gains above the cluster of DMAs under USD 1,800/oz (100 DMA at USD 1,792/oz, 200 DMA at USD 1,791/oz, and 50 DMA at USD 1,790/oz) – trader should be aware of the potential for a technical Golden Cross (50 DMA > 200 DMA). Turning to base metals, copper is supported by the overall risk appetite, with the LME contract back above USD 9,500/t. Overnight, Chinese coking coal and coke futures rose over 5% apiece, with traders citing disrupted supply from Mongolia amid the COVID outbreak in the region. US Event Calendar 7am: Nov. MBA Mortgage Applications, prior 1.8% 8:15am: Nov. ADP Employment Change, est. 525,000, prior 571,000 9:45am: Nov. Markit US Manufacturing PMI, est. 59.1, prior 59.1 10am: Oct. Construction Spending MoM, est. 0.4%, prior -0.5% 10am: Nov. ISM Manufacturing, est. 61.2, prior 60.8 2pm: U.S. Federal Reserve Releases Beige Book Nov. Wards Total Vehicle Sales, est. 13.4m, prior 13m Central Banks 10am: Powell, Yellen Testify Before House Panel on CARES Act Relief DB's Jim Reid concludes the overnight wrap If you’re under 10 and reading this there’s a spoiler alert today in this first para so please skip beyond and onto the second. Yes my heart broke a little last night as my little 6-year old Maisie said to me at bedtime that “Santa isn’t real is he Daddy?”. I lied (I think it’s a lie) and said yes he was. I made up an elaborate story about how when we renovated our 100 year old house we deliberately kept the chimney purely to let Santa come down it once a year. Otherwise why would we have kept it? She then asked what about her friend who lives in a flat? I tried to bluff my way through it but maybe my answer sounded a bit like my answers as to what will happen with Omicron. I’ll test both out on clients later to see which is more convincing. Before we get to the latest on the virus, given it’s the start of the month, we’ll shortly be publishing our November performance review looking at how different assets fared over the month just gone and YTD. It arrived late on but Omicron was obviously the dominant story and led to some of the biggest swings of the year so far. It meant that oil (which is still the top performer on a YTD basis) was the worst performer in our monthly sample, with WTI and Brent seeing their worst monthly performances since the initial wave of market turmoil over Covid back in March 2020. And at the other end, sovereign bonds outperformed in November as Omicron’s emergence saw investors push back the likelihood of imminent rate hikes from central banks. So what was shaping up to be a good month for risk and a bad one for bonds flipped around in injury time. Watch out for the report soon from Henry. Back to yesterday now, and frankly the main takeaway was that markets were desperate for any piece of news they could get their hands on about the Omicron variant, particularly given the lack of proper hard data at the moment. The morning started with a sharp selloff as we discussed at the top yesterday, as some of the more optimistic noises from Monday were outweighed by that FT interview, whereby Moderna’s chief executive had said that the existing vaccines wouldn’t be as effective against the new variant. Then we had some further negative news from Regeneron, who said that analysis and modelling of the Omicron mutations indicated that its antibody drug may not be as effective, but that they were doing further analysis to confirm this. However, we later got some comments from a University of Oxford spokesperson, who said that there wasn’t any evidence so far that vaccinations wouldn’t provide high levels of protection against severe disease, which coincided with a shift in sentiment early in the European afternoon as equities begun to pare back their losses. The CEO of BioNTech and the Israeli health minister expressed similar sentiments, noting that vaccines were still likely to protect against severe disease even among those infected by Omicron, joining other officials encouraging people to get vaccinated or get booster shots. Another reassuring sign came in an update from the EU’s ECDC yesterday, who said that all of the 44 confirmed cases where information was available on severity “were either asymptomatic or had mild symptoms.” After the close, the FDA endorsed Merck’s antiviral Covid pill. While it’s not clear how the pill interacts with Omicron, the proliferation of more Covid treatments is still good news as we head into another winter. The other big piece of news came from Fed Chair Powell’s testimony to the Senate Banking Committee, where the main headline was his tapering comment that “It is appropriate to consider wrapping up a few months sooner.” So that would indicate an acceleration in the pace, which would be consistent with the view from our US economists that we’ll see a doubling in the pace of reductions at the December meeting that’s only two weeks from today. The Fed Chair made a forceful case for a faster taper despite lingering Omicron uncertainties, noting inflation is likely to stay elevated, the labour market has improved without a commensurate increase in labour supply (those sidelined because of Covid are likely to stay there), spending has remained strong, and that tapering was a removal of accommodation (which the economy doesn’t need more of given the first three points). Powell took pains to stress the risk of higher inflation, going so far as to ‘retire’ the use of the term ‘transitory’ when describing the current inflation outlook. So team transitory have seemingly had the pitch taken away from them mid match. The Chair left an exit clause that this outlook would be informed by incoming inflation, employment, and Omicron data before the December FOMC meeting. A faster taper ostensibly opens the door to earlier rate hikes and Powell’s comment led to a sharp move higher in shorter-dated Treasury yields, with the 2yr yield up +8.1bps on the day, having actually been more than -4bps lower when Powell began speaking. They were as low as 0.44% then and got as high as 0.57% before closing at 0.56%. 2yr yields have taken another leg higher overnight, increasing +2.5bps to 0.592%. Long-end yields moved lower though and failed to back up the early day moves even after Powell, leading to a major flattening in the yield curve on the back of those remarks, with the 2s10s down -13.7bps to 87.3bps, which is its flattest level since early January. Overnight 10yr yields are back up +3bps but the curve is only a touch steeper. My 2 cents on the yield curve are that the 2s10s continues to be my favourite US recession indicator. It’s worked over more cycles through history than any other. No recession since the early 1950s has occurred without the 2s10s inverting. But it takes on average 12-18 months from inversion to recession. The shortest was the covid recession at around 7 months which clearly doesn’t count but I think we were very late cycle in early 2020 and the probability of recession in the not too distant future was quite high but we will never know.The shortest outside of that was around 9 months. So with the curve still at c.+90bps we are moving in a more worrying direction but I would still say 2023-24 is the very earliest a recession is likely to occur (outside of a unexpected shock) and we’ll need a rapid flattening in 22 to encourage that. History also suggests markets tend to ignore the YC until it’s too late. So I wouldn’t base my market views in 22 on the yield curve and recession signal yet. However its something to look at as the Fed seemingly embarks on a tightening cycle in the months ahead. Onto markets and those remarks from Powell (along with the additional earlier pessimism about Omicron) proved incredibly unhelpful for equities yesterday, with the S&P 500 (-1.90%) giving up the previous day’s gains to close at its lowest level in over a month. It’s hard to overstate how broad-based this decline was, as just 7 companies in the entire S&P moved higher yesterday, which is the lowest number of the entire year so far and the lowest since June 11th, 2020, when 1 company ended in the green. Over in Europe it was much the same story, although they were relatively less affected by Powell’s remarks, and the STOXX 600 (-0.92%) moved lower on the day as well. Overnight in Asia, stocks are trading higher though with the KOSPI (+2.02%), Hang Seng (+1.40%), the Nikkei (+0.37%), Shanghai Composite (+0.11%) and CSI (+0.09%) all in the green. Australia’s Q3 GDP contracted (-1.9% qoq) less than -2.7% consensus while India’s Q3 GDP grew at a firm +8.4% year-on-year beating the +8.3% consensus. In China the Caixin Manufacturing PMI for November came in at 49.9 against a 50.6 consensus. Futures markets are indicating a positive start to markets in US & Europe with the S&P 500 (+0.73%) and DAX (+0.44%) trading higher again. Back in Europe, there was a significant inflation story amidst the other headlines above, since Euro Area inflation rose to its highest level since the creation of the single currency, with the flash estimate for November up to +4.9% (vs. +4.5% expected). That exceeded every economist’s estimate on Bloomberg, and core inflation also surpassed expectations at +2.6% (vs. +2.3% expected), again surpassing the all-time high since the single currency began. That’s only going to add to the pressure on the ECB, and yesterday saw Germany’s incoming Chancellor Scholz say that “we have to do something” if inflation doesn’t ease. European sovereign bonds rallied in spite of the inflation reading, with those on 10yr bunds (-3.1bps), OATs (-3.5bps) and BTPs (-0.9bps) all moving lower. Peripheral spreads widened once again though, and the gap between Italian and German 10yr yields closed at its highest level in just over a year. Meanwhile governments continued to move towards further action as the Omicron variant spreads, and Greece said that vaccinations would be mandatory for everyone over 60 soon, with those refusing having to pay a monthly €100 fine. Separately in Germany, incoming Chancellor Scholz said that there would be a parliamentary vote on the question of compulsory vaccinations, saying to the Bild newspaper in an interview that “My recommendation is that we don’t do this as a government, because it’s an issue of conscience”. In terms of other data yesterday, German unemployment fell by -34k in November (vs. -25k expected). Separately, the November CPI readings from France at +3.4% (vs. +3.2% expected) and Italy at +4.0% (vs. +3.3% expected) surprised to the upside as well. In the US, however, the Conference Board’s consumer confidence measure in November fell to its lowest since February at 109.5 (vs. 110.9 expected), and the MNI Chicago PMI for November fell to 61.8 9vs. 67.0 expected). To the day ahead now, and once again we’ll have Fed Chair Powell and Treasury Secretary Yellen appearing, this time before the House Financial Services Committee. In addition to that, the Fed will be releasing their Beige Book, and BoE Governor Bailey is also speaking. On the data front, the main release will be the manufacturing PMIs from around the world, but there’s also the ADP’s report of private payrolls for November in the US, the ISM manufacturing reading in the US as well for November, and German retail sales for October. Tyler Durden Wed, 12/01/2021 - 07:47.....»»

Category: blogSource: zerohedgeDec 1st, 2021

Black Friday Turns Red On "Terrible News" - Global Markets Crater On "Nu Variant" Panic

Black Friday Turns Red On "Terrible News" - Global Markets Crater On "Nu Variant" Panic The Friday after thanksgiving is called black Friday because that's when retailers finally turn profitable for the year. Not so much for market, however, because this morning it's red as far as the eye can see. The culprit: the same one we discussed late last night - the emergence of a new coronavirus strain detected in South Africa, known as B.1.1.529, which reportedly carries an "extremely high number" of mutations and is “clearly very different” from previous incarnations, which may drive further waves of disease by evading the body’s defenses according to South African scientists, and soon, Anthony Fauci. British authorities think it is the most significant variant to date and have hurried to impose travel restrictions on southern Africa, as did Japan, the Czech Republic and Italy on Friday. The European Union also said it aimed to halt air travel from the region. "Markets have been quite complacent about the pandemic for a while, partly because economies have been able to withstand the impact of selective lockdown measures. But we can see from the new emergency brakes on air travel that there will be ramifications for the price of oil," said Chris Scicluna, head of economic research at Daiwa. As a result, what was initially just a 1% drop in US index futures, has since escalated to a plunge of as much as 2% with eminis dropping the most since September, at one point dropping below 4,600 after closing on Wednesday above 4,700 as a post-Thanksgiving selloff spread across global markets amid mounting concerns the new B.1.1.529 coronavirus variant - which today will be officially called by the Greek lettter Nu - could derail the global economic recovery.  Russell 2000 contracts sank as much as 5.4%. Technology shares may be caught in the net too as Nasdaq 100 futures slid. The VIX increased as much as 9.4 vols to 28, it's biggest jump since January. It was last seen up 7.4 points, or the biggest increase since February. Adding to the pain, there is nothing on today's macro calendar and the US market closes early which will reduce already dismal liquidity even more, exacerbating some of the moves throughout the session. Headlines are likely to center on various nations preventing travel from South Africa whilst potentially imposing more stringent COVID measures domestically, as well as which countries "find" the Nu variant. Amid the panicked flight to safety, 10Y TSY yields tumbled as traders slashed bets on monetary tightening by the Federal Reserve (just hours after Goldman predicted that the Fed would double the pace of its taper and hike 3 times in 2022, oops) ... ... as did oil amid fears new covid lockdowns will lead to a collapse in crude demand (they will also certainly force OPEC+ to put on pause their plans to keep hiking output by 400K every month). Paradoxically, even cryptos are tumbling, which is surprising since even the dumbest algos should realize by now that a new covid outbreak means more dovish central banks, no tightening, and if nothing else, more QE and more liquidity which is precisely what cryptos need to break out to new all time highs. Cruise ship operator Carnival slumped 9.1% in premarket trading and Boeing slid 5.8% as travel companies tumbled worldwide. Stay-at-home stocks such as Zoom Video rallied.  Didi Global shares fell after Chinese regulators reportedly asked the ride-hailing giant to delist from U.S. bourses. Here are some of the other big premarket movers: Airlines and other travel stocks slumped in premarket trading on growing concern about a new Covid-19 variant identified in southern Africa. The European Union is proposing to halt air travel from several countries in the area and the U.K. will temporarily ban flights from the region. United Airlines (UAL US) fell 8.9%, Delta Air (DAL US) -7.9%, American Airlines (AAL US) -6.7%; cruiseline-operator Carnival (CCL US) -12%; hotelier Marriott (MAR US) -6.1%; lodging company Airbnb (ABNB US) -6.9%. Stay-at-home stocks that benefit from higher demand in lockdowns rose in premarket, with Zoom Video (ZM US) gaining 8.5% and fitness equipment group Peloton (PTON US) +4.7%. Vaccine stocks surged in premarket, while Pfizer and BioNTech got an added boost after their coronavirus shot won European Union backing for expanded use in children. Moderna (MRNA US) rose 8.8%, Novavax (NVAX US) +6.2%, Pfizer (PFE US) +5.1%, BioNTech (BNTX US) +6.4%. Small biotech stocks gained in premarket as investors sought havens. Ocugen (OCGN US) added 22%, Vir Biotechnology (VIR US) +7.8%, Sorrento Therapeutics (SRNE US) +5%. Cryptocurrency-exposed stocks fell as Bitcoin dropped as investors dumped risk assets. Marathon Digital (MARA US) declined 9%, Riot Blockchain (RIOT US) -8.8%, Coinbase (COIN US) -4.6%. Didi Global (DIDI US) declined 6% in premarket after Chinese regulators were said to have asked the ride-hailing giant to delist from U.S. bourses. Selecta Biosciences (SELB US) dropped 13% in Wednesday’s postmarket ahead of Thursday’s Thanksgiving closure, after saying the U.S. FDA placed a clinical hold on a trial. Quotient Technology (QUOT US) gained 3.9% in Wednesday’s postmarket on news that a board member bought $150,000 of shares. What happens next will matter and so, all eyes are on the opening bell for the U.S. markets, set to return from the holiday for a shortened trading session. Tumbling futures and a soaring VIX signaled that the rout in Asia and Europe won’t spare New York equities, while lack of liquidity will only make the pain worse. The Japanese yen emerged as the main haven currency of the day, with the dollar languishing. “Every trader in New York will be rushing to the office now,” said Salm-Salm & Partner portfolio manager Frederik Hildner, adding that news of the new variant could mean the end of the inflation and tapering debate. The worsening pandemic poses a dilemma for central banks that are preparing to tighten monetary policy to curb elevated price pressures, according to Ipek Ozkardeskaya, senior analyst at Swissquote. “It’s terrible news,” Ipek Ozkardeskaya, a senior analyst at Swissquote, said in emailed comments. “The new Covid variant could hit the economic recovery, but this time, the central banks won’t have enough margin to act. They can’t fight inflation and boost growth at the same time. They have to choose.” “We now have a new Covid variant that’s ‘very’ different from the ones we knew so far, a rising inflation, and a market bubble,” she said.  “The only encouraging news is the easing oil prices, which could tame the inflationary pressures and give more time to the central banks before pulling back support.” In the meantime, the World Health Organization and scientists in South Africa were said to be working “at lightning speed” to ascertain how quickly the B.1.1.529 variant can spread and whether it’s resistant to vaccines. The new threat adds to the wall of worry investors are already contending with in the form of elevated inflation, monetary tightening and slowing growth. In Europe, the Stoxx 600 index headed for the biggest drop in 13 months plunging 2.7%; travel and banking industries led the Stoxx Europe 600 Index down as much as 3.7%, the biggest intraday drop since June 2020. Airbus slumped 8.6% in Paris and British Airways owner IAG tumbled 12% in London, while food-delivery stocks gained.  Here are some of the biggest European movers today: Stay-at-home stocks and Covid testing firms such as TeamViewer and DiaSorin are among the biggest gainers as worries over a new Covid variant send the Stoxx 600 tumbling on lockdown fears TeamViewer and DiaSorin rise as much as 6% and 7%, respectively On the down side, travel and leisure stocks plunge, with the likes of IAG, Lufthansa and Carnival posting double- digit falls IAG drops as much as 21% Software AG shares rise as much as 9.5% after Bloomberg reported that the firm is exploring strategic options, including a potential sale, with Morgan Stanley saying the company’s biggest headwinds are behind it. Evolution gains as much as 4.6%, recouping part of Thursday’s 16% plunge, with Bank of America saying the share price’s “crazy time” amounts to a good buying opportunity. Skistar rises as much as 3.7%, bucking steep declines for travel and leisure stocks, after Handelsbanken upgraded the stock, saying bookings for the Scandinavian ski resort operator are “set to surge.” Telecom Italia climbs as much as 2.8% following a Bloomberg report that private equity firms KKR and CVC are considering teaming up on a bid for the company. ING Groep falls as much as 11% after Goldman Sachs analyst Jean-Francois Neuez cut his recommendation to neutral from buy. Getlink drops as much as 6% as French fishermen start protests aimed at stepping up pressure on the U.K. in a post-Brexit fishing dispute. Earlier in the session, MSCI's index of Asian shares outside Japan fell 2.2%, its sharpest drop since August. Casino and beverage shares were hammered in Hong Kong, while travel stocks dropped in Sydney and Tokyo. Japan's Nikkei skidded 2.5% and S&P 500 futures were last down 1.8%. Giles Coghlan, chief currency analyst at HYCM, a brokerage, said the closure of the U.S. market for the Thanksgiving holiday on Thursday had exacerbated moves. "We need to see how transmissible this variant is, is it able to evade the vaccines - this is crucial," Coghlan said. "I expect this story to drag on for a few days until scientists have a better understanding of it." Indian stocks plunged as the detection of a new coronavirus strain rattled investor sentiment globally, raising concerns over a likely setback to the nascent economic recovery.  The S&P BSE Sensex lost 2.9%, the most since mid-April, to 57,107.15 in Mumbai, taking its loss this week to 4.2%, the biggest weekly drop since January. The NSE Nifty 50 Index declined by a similar magnitude on Friday. Reliance Industries was the biggest drag on both measures and declined 3.2%.  “There is fear of this new variant spreading to other countries which might again derail the global economy,” said Hemang Jani, head of equity strategy at Motilal Oswal Financial Services Ltd.   Of the 30 shares in the Sensex index, 26 fell and 4 gained. All but one of 19 sub-indexes compiled by BSE Ltd. retreated, led by a index of realty companies. The S&P BSE Healthcare index was the only sub-index to gain, surging 1.2%. While researchers are yet to determine whether the new virus variant is more transmissible or lethal than previous ones, authorities around the world have been quick to act. The European Union, U.K., Israel, and Singapore placed emergency curbs on passengers from South Africa and the surrounding region. Travel stocks were among the hardest hit. InterGlobe Aviation Ltd. fell 8.9%, Spicejet Ltd. slipped 6.7% and Indian Hotels Co. Ltd. plunged 11.2%, the most since March 2020.  “Nervousness on the new variant of coronavirus and expectations of the U.S. Fed increasing the pace of tapering have led to recent market weakness,” Amit Gupta, fund manager for portfolio management services at ICICI Securities Ltd. said. “This trend may take some time to recover as the WHO meeting on the new mutant variant impact and hospitalization rates in US and Europe will be watched by the market very closely.” Crude oil to emerging markets completed this picture of mayhem. In rates, fixed income was firmly bid as Treasuries extended their advance led by the belly of the curve, outperforming bunds, while money markets pared rate-hike bets amid fears that a new coronavirus strain may spread globally, slowing economic growth. Cash Treasuries outperformed, richening 12-14bps across the short end, with Thursday’s closure exacerbating the optics. As shown above, 10Y Treasury yields shed as much as 10 basis points while the Japanese yen jumped the most since investors’ March 2020 rush for safety. Yields across the curve are lower by more than 8bp at long end, 13bp-15bp out to the 7-year point, moves that if sustained would be the largest since at least March 2020 and in some cases since 2009. Short-term interest rate futures downgraded the odds of Fed rate increases. Gilts richened 10-11bps across the curve, outperforming bunds by 4-5bps. Peripheral and semi-core spreads widen. In FX, JPY and CHF top the G-10 scoreboard with havens typically bid. In FX, the Bloomberg Dollar Spot Index was little changed after earlier touching a fresh cycle high, and the greenback was mixed versus its Group-of-10 peers as the yen and the Swiss franc led gains while the Canadian dollar and Norwegian krone were the worst performers as commodity prices plunged. Traders pushed back the timing of a 25-basis-point rate increase by the Federal Reserve to July from June, with only one further hike expected for the remainder of 2022. It’s a similar story in the U.K. where the Bank of England is now expected to tighten policy in February instead of next month. Wagers that the ECB will raise its deposit rate by the end of next year have also been slashed, with only a six basis-point increase priced in, half of that seen earlier this week. The European Union is proposing to follow the U.K. in halting air travel from southern Africa after the new Covid-19 variant was identified there. The yen is at the epicenter of skyrocketing currency volatility as the new virus variant shakes markets. The cost of hedging against swings in the Japanese currency over the next week, which captures the release of the next U.S. payrolls report, is the most expensive in more than a year. In commodities, crude futures are hit hard. WTI drops over 7% before finding support near $73, Brent drops over 5% before recovering near $78. Spot gold grinds higher, adding $21 to trade near $1,809/oz. Base metals are sharply offered with much of the complex off as much as 3%. Looking at the otherwise quiet day ahead, data releases include French and Italian consumer confidence for November, as well as the Euro Area M3 money supply for October. Otherwise, central bank speakers include ECB President Lagarde, Vice President de Guindos, and the ECB’s Visco, Schnabel, Centeno, Panetta and Lane, and BoE chief economist Pill. Market Snapshot S&P 500 futures down 1.9% to 4,607.50 STOXX Europe 600 down 2.8% to 468.04 MXAP down 1.8% to 193.33 MXAPJ down 2.2% to 628.97 Nikkei down 2.5% to 28,751.62 Topix down 2.0% to 1,984.98 Hang Seng Index down 2.7% to 24,080.52 Shanghai Composite down 0.6% to 3,564.09 Sensex down 2.7% to 57,234.83 Australia S&P/ASX 200 down 1.7% to 7,279.35 Kospi down 1.5% to 2,936.44 Brent Futures down 5.8% to $77.46/bbl Gold spot up 0.9% to $1,805.13 U.S. Dollar Index down 0.33% to 96.46 German 10Y yield little changed at -0.31% Euro up 0.4% to $1.1259 Top Overnight News from Bloomberg The European Union is proposing to halt air travel from southern Africa over growing concern about a new Covid-19 variant that’s spreading there, as the U.K. said it will also temporarily ban flights from the region Those close to the Kremlin say the Russian president doesn’t want to start another war in Ukraine. Still, he must show he’s ready to fight if necessary in order to stop what he sees as an existential security threat: the creeping expansion of the North Atlantic Treaty Organization in a country that for centuries had been part of Russia Bitcoin tumbled 20% from record highs notched earlier this month as a new variant of the coronavirus spurred traders to dump risk assets across the globe Germany’s Greens tapped their two co- leaders to run the foreign ministry and take charge of an influential portfolio overseeing economy and climate protection in the country’s next government under Social Democrat Olaf Scholz A more detailed breakdown of global markets courtesy of Newsquawk Asian equity markets declined and US equity futures were also on the backfoot on reopen from the prior day’s Thanksgiving lull with markets spooked by new COVID variant concerns related to the B.1.1.529 variant in South Africa that was first detected in Botswana. The new variant showed a high number of mutations and was said to be the most evolved strain ever which spurred fears it could be worse than Delta and is prompting both the UK and Israel to halt flights from several African nations. ASX 200 (-1.7%) was negative with heavy losses in energy and broad underperformance in cyclicals leading the downturn across all sectors, while the much better than expected Australian Retail Sales data was largely ignored. Nikkei 225 (-2.5%) underperformed and gave up the 29k status as selling was exacerbated by detrimental currency inflows and with SoftBank shares among the worst hit on reports that China is said to have asked Didi to delist from US exchanges on security fears, which doesn't bode well for SoftBank given that its Vision Fund is the top shareholder in the Chinese ride hailing group with a stake of more than 20%. Hang Seng (-2.5%) and Shanghai Comp. (-0.7%) conformed to the risk aversion with the mood not helped by ongoing geopolitical concerns after a Chinese Defense Ministry spokesperson noted they are ready to crush Taiwan independence bid "at any time”, while China also said it opposes US sanctions on its companies and will take all necessary measures to firmly defend the rights of Chinese companies. Beijing interference further contributed to the headwinds amid the request by China for Didi to delist from US which reports stated regulators could backtrack on and with Tencent subdued after some Chinese state-run companies restricted the use of Tencent's messaging app. Top Asian News Stocks in Asia Set for Worst Day Since March on Virus Woes Mizuho CEO Steps Down After Regulator Hit on System Issues Meituan 3Q Revenue Meets Estimates Japan’s Kishida Delivers $316 billion Extra Budget for Recovery European equities are trading markedly lower (Stoxx 600 -2.9%) with losses in the Stoxx 600 extending to 3.8% WTD. Sentiment throughout the week has been hampered by various lockdown measures imposed across the region with the latest leg lower accelerated by new COVID variant concerns related to the B.1.1.529 variant in South Africa. The new variant has shown a high number of mutations and is said to be the most evolved strain so far. This has spurred fears it could be worse than Delta and has prompted multiple nations to halt flights from several African nations.The handover from the overnight session was an equally downbeat one with the Nikkei 225 (-2.5%) dealt a hammer blow by the risk environment and unfavourable currency flows. Stateside, futures are lower across the board with the RTY the clear laggard with losses of 4.2% compared to the ES -1.8%, whilst the tech-heavy NQ is faring better than peers but ultimately still lower on the session to the tune of 1.6%. Note, early closures in the US and subsequent liquidity conditions could exacerbate some of the moves throughout the session. With the macro calendar light, focus for the session is likely to centre on various nations preventing travel from South Africa whilst potentially imposing more stringent COVID measures domestically. Any further clarity on the spread of the variant and its potential to evade vaccines will be of great interest to the market and likely be the main driving force of price action today. Sectors in Europe are lower across the board with the Stoxx 600 Banking (-5.1%) sector bottom of the pile amid the declines seen in global bond yields as markets scale back expectations of central bank tightening (e.g. pricing now assigns a 63% chance of a 15bps hike by the BoE next month vs. 93% a week ago). Oil & Gas names (-4.8%) are suffering on account of the declines in the crude space with WTI crude in freefall with losses of 6.7% given the potential impact of travel restrictions on demand. Travel restrictions on South Africa (from UK, Israel, EU et al) and the potential for further announcements has crushed the Travel & Leisure sector (-5.7%) with airline names dealt a hammer blow; IAG (-13.5%), easyJet (-11%), Deutsche Lufthansa (-12%), Air France (-9.5%). Elsewhere, there are a whole raft of other laggards which are very much in-fitting with the March 2020 playbook but there are simply too many to list for the purpose of this report. Defensives and Tech are faring better than peers but ultimately still lower on the session to the tune of 1% and 1.9% respectively. Finally, for anyone wanting some positivity from today’s session, the potential for further lockdowns has proved to be beneficial for the likes of HelloFresh (+3.2%), Ocado (+2.1%) and Delivery Hero (+1.9%). Top European News Airlines Skid on South Africa Travel Bans Tied to Variant German Coalition Proposes a Combustion-Car Ban Without Saying So Putin Pushes Confrontation With NATO as Hardliners Prevail Siemens Is Said to Kick Off Sale of Postal Logistics Business In FX, the index has been under pressure in the risk-averse environment amid a slump in yields and gains in its basket components – namely the JPY, CHF, EUR (see below) – and with liquidity also thinned by Thanksgiving. From a technical perspective, the index has declined from its 96.787 overnight high, through the 96.500 mark, to a low of 96.332 – with the weekly trough at 96.035. Ahead, the US calendar is once again light, with the US also poised for an early Thanksgiving closure; thus, impulses will likely be derived from the macro environment. JPY, CHF, EUR - Haven FX JPY and CHF are the clear outperformers as a function of risk-related inflows. USD/JPY has retreated from a 115.37 peak and fell through its 21 DMA (114.15) to a base around 113.66 - with the current weekly low around 113.64. USD/CHF retreated from 0.9360 to 0.9260 – with the 50 and 100 DMAs seen at 0.9234 and 0.9219, respectively, ahead of 0.9200. EUR/USD meanwhile gains on what is seemingly an unwind of the carry trade amid a spike in volatility. EUR/USD found support near 1.1200 before rebounding to a current 1.1288 peak. AUD, NZD, CAD, GBP - The non-US Dollar risk currencies bear the brunt of the latest market downturn, with losses across industrial commodities not helping. The Loonie has taken the spot as the biggest G10 loser as hefty COVID-induced losses in the oil complex keep the currency suppressed. USD/CAD trades towards the top of a current 1.2647-2774 range. AUD is also weighed on by softer base metal prices – AUD/USD fell from a 0.7200 overnight high to a current low at 0.7110. On that note, Westpac sees AUD/USD pushed down to 0.7000 by Jun 2022 (prev. 0.7700) amid rate differentials with the US; Westpac made significant changes to its FOMC policy forecast and now expect consecutive increases in the fed funds rate in Jun, Sept, and Dec 2022. NZD/USD is slightly more cushioned amid smaller exposure to commodities, and as the AUD/NZD cross takes aim at 1.0450 to the downside. GBP, meanwhile, was initially among the losers amid its high-beta status but thereafter nursed losses in a move that coincided with EUR/GBP rejecting an upside breach of its 21 DMA at 0.8475. EM - The ZAR is the standout laggard given the new South African COVID variant - B.1.1.529 COVID-19 variant (expected to be named Nu) – which is said to be the most evolved strain so far and thus prompted several countries to halt travel to the country of origin. USD/ZAR currently trades within a 15.9375-16.3630 intraday band. Meanwhile, the downturn oil sees USD/RUB north of 75.00 and closer to 76.00 from a 74.2690 base. The Lira also feels some contagion despite the lower oil prices (Turkey being a large net oil importer) – USD/TRY is back on a 12.00 handle and within 11.92-1226 parameters at the time of writing. In commodities, the crude complex has been hit by compounding COVID fears which in turn triggered various travel restrictions and subsequently took its toll on global crude demand prospects. The new and more evolved South African variant prompted the UK, Singapore, and Israel to expand their travel red lists to include some African nations (Israel reported its first case of the new COVID-19 variant known as B.1.1.529). Japan also imposed tighter border restrictions. China’s Shanghai city see flights impacted by its own outbreak. Europe also tackles its surge in daily cases - German Green Party's Baerbock (incoming Foreign Minister) does not rule out a German lockdown, according to Spiegel. EU Commission President von der Leyen is also to propose activation of the emergency air brake, to halt travel from southern Africa due to the B.1.1.529 COVID-19 variant. Losses in oil have exacerbated - with WTI Jan and Brent Feb now under USD 74/bbl (vs high 78.65/bbl) and USD 77/bbl (vs high 80.42/bbl), -6.0% and -5.0% respectively. This comes ahead of the OPEC+ confab next week, whereby OPEC watchers have suggested that oil prices will be a large contributor to the final decision. It is difficult to see how OPEC+ will increase output to the levels the US et al. will be content with, with the latest COVID downturn building the case for a pause in planned output hikes. Elsewhere, haven demand sees spot gold extend on gains above USD 1,800/oz after topping the 100 DMA (1,792.95/oz), 200 DMA (1,791.38/oz), 50 DMA (1,790.13/oz) overnight. Base metals are softer across the board amid the risk aversion. LME copper posts losses of around 3% at the time of writing, as prices threaten a more convincing downside breach of USD 9,500/t. US Event Calendar Nothing major scheduled DB's Jim Reid concludes the overnight wrap Things have escalated on the covid front quite rapidly over the last 12 hours. Yesterday new covid variant B.1.1.529 was slowly starting to gather increasing attention but overnight it has begun to dominate markets and has caused a notable flight to quality with 10 year USTs -8bps lower. It was originally identified in Botswana and is starting to spread rapidly in Africa. The South African Health Minister has said it is "of serious concern". Almost 100 cases have already been identified in South Africa and the UK moved to put the country back (along with 5 other African nations) on a reinstated red travel list last night with others following this morning. The variant is said to be the most heavily mutated version yet and the WHO will meet today to decide if it is a variant of interest or a variant of concern. So a lot of eyes will be on how severe it is and whether it completely evades vaccines. At this stage very little is known. Mutations are often less severe so we shouldn’t jump to conclusions but there is clearly a lot of concern about this one. Also South Africa is one of the world leaders in sequencing so we are more likely to see this sort of news originate from there than many countries. Suffice to say at this stage no one in markets will have any idea which way this will go. Overnight in Asia all benchmarks are trading lower on the news with the Shanghai Composite (-0.50%), CSI (-0.64%), KOSPI (-1.27%), Hang Seng (-2.13%) and the Nikkei (-2.90%) all lower. Airlines and other travel stocks have obviously fallen heavily. Hong Kong has detected two confirmed cases of the new variant just as Hong Kong and China were considering quarantine-free travel. S&P 500 (-0.93%) and DAX (-1.82%) futures are also much weaker. Elsewhere, in Japan, CPI rose +0.5% year-on-year (+0.4% consensus and +0.1% previously), on the back of 16-month high fuel prices. With the US out on holiday for Thanksgiving, there wasn’t much going on yesterday after a very quiet day in markets. The variant news was only slowly creeping into the news flow so it hardly impacted trading. But in keeping with the theme of recent days, both inflation and the latest covid wave in Europe remained very much in the picture as jitters continue to increase that we could see further lockdowns as we move towards Christmas. Starting with the headline moves, European equities did actually show signs of stabilising yesterday, with the STOXX 600 up +0.42% thanks to a broad-based advance across the continent. In fact that’s actually the index’s best daily performance in over three weeks, although that’s not reflecting any particular strength, but instead the fact the index inched steadily but persistently towards a record high before selling off again a week ago. Other indices moved higher across the continent too, with the FTSE 100 (+0.33%), the CAC 40 (+0.48%) and the DAX (+0.25%) all posting similar advances. These will all likely reverse this morning. One piece of news we did get came from the ECB, who released the account of their monetary policy meeting for October. Something the minutes stressed was the importance that the Governing Council maintain optionality in their policy settings, with one part acknowledging the growing upside risks to inflation, but also saying “it was deemed important for the Governing Council to avoid an overreaction as well as unwarranted inaction, and to keep sufficient optionality in calibrating its monetary policy measures to address all inflation scenarios that might unfold.” Against this backdrop, 10yr bond yields moved lower across multiple countries, with those on bunds (-2.3ps), OATs (-2.3bps) and BTPs (-1.9bps) all declining. There was also a flattening in all 3 yield curves as well, with the 2s10s slope in Germany (-3.0bps), France (-3.7bps) and Italy (-2.8bps) shifting lower. And the moves also coincided with a continued widening in peripheral spreads, with both the Spanish and the Greek spreads over 10yr bund yields widening to their biggest levels in over a year. Of course, one of the biggest concerns in Europe right now remains the pandemic, and yesterday saw a number of fresh measures announced as policymakers seek to get a grip on the latest wave. In France, health minister Veran announced various measures, including the expansion of the booster rollout to all adults, and a reduction in the length of time between the initial vaccination and the booster shot to 5 months from 6. Meanwhile in the Czech Republic, the government declared a state of emergency and approved tighter social distancing measures, including the closure of restaurants and bars at 10pm. And in Finland, the government have said that bars and restaurants not using Covid certificates will not be able to serve alcohol after 5pm. All this came as the European Medicines Agency recommended that the Pfizer vaccine be approved for children aged 5-11, which follows the decision to approve the vaccine in the US. Their recommendation will now go to the European Commission for a final decision. There wasn’t much in the way of data at all yesterday, though German GDP growth in Q3 was revised down to show a +1.7% expansion (vs. +1.8% previous estimate). Looking at the details, private consumption was the only driver of growth (+6.2%), with government consumption (-2.2%), machinery and equipment (-3.7%) and construction (-2.3%) all declining over the quarter. To the day ahead now, and data releases include French and Italian consumer confidence for November, as well as the Euro Area M3 money supply for October. Otherwise, central bank speakers include ECB President Lagarde, Vice President de Guindos, and the ECB’s Visco, Schnabel, Centeno, Panetta and Lane, and BoE chief economist Pill. Tyler Durden Fri, 11/26/2021 - 08:12.....»»

Category: blogSource: zerohedgeNov 26th, 2021

Futures Trade Near All Time High As Traders Shrug At Inflation, Covid Concerns

Futures Trade Near All Time High As Traders Shrug At Inflation, Covid Concerns US equity futures and European markets started the Thanksgiving week on an upbeat note as investors set aside fear of surging inflation and focused on a pickup in M&A activity while China signaled possible easing measures. The euphoria which lifted S&P futures up some 0.5% overnight and just shy of all time highs ended abruptly and futures reversed after German Chancellor Angela Merkel said the Covid situation in the country is worse than anything so far and tighter curbs are needed. At 730 a.m. ET, Dow e-minis were up 95 points, or 0.26%. S&P 500 e-minis were up 12.25 points, or 0.26% and Nasdaq 100 e-minis were up 58.75 points, or 0.357%. U.S. stocks trade near record levels, outpacing the rest of the world, as investors see few alternatives amid rising inflation and a persistent pandemic that undermines global recovery. Concerns about high valuations and the potential for the economy to run too hot on the back of loose monetary and fiscal policies have interrupted, but not stopped the rally. In other words, as Bloomberg puts it "bears are winning the argument, bulls are winning in the market" while Nasdaq futures hit another record high as demand for technology stocks remained strong. “Based on historical data, the Thanksgiving week is a strong week for U.S. equities,” Ipek Ozkardeskaya, a senior analyst at Swissquote, wrote in a note. “Black Friday sales will be closely watched. The good news is, people still have money to spend, even though they get less goods and services in exchange of what’s spent.” In premarket moves, heavyweights, including most FAANG majors, rose in premarket trade. Vonage Holdings Corp. jumped 26% in premarket trading after Ericsson agreed to buy it. Telecom Italia SpA jumped as much as 30% in Europe after KKR offered to buy it for $12 billion. Energy stocks recovered slightly from last week's losses, although anticipation of several economic readings this week kept gains in check. Bank stocks rose in premarket trading as the U.S. 10-year Treasury yield climbed for the first time in three sessions to about 1.58%. S&P 500 futures gain as much as 0.5% on Monday morning. Tesla gained 2.8% after Chief Executive Elon Musk tweeted that Model S Plaid will "probably" be coming to China around March. Activision Blizzard (ATVI.O) slipped 1.1% after a media report that the video game publisher's top boss, Bobby Kotick, would consider leaving if he cannot quickly fix culture problems. Travel and energy stocks, which were among the worst performers last week, also marked small gains before the open. Here is a list of the other notable premarket movers: Astra Space (ASTR US) shares surge 33% in premarket trading after the company said its rocket reached orbit. Aurora Innovation (AUR US) falls 8% in premarket, after soaring 71% last week amid a surge in popularity for self-driving technology companies among retail traders. Chinese electric-carmaker Xpeng (XPEV US) rises as much as 2.8% premarket after co. unveils a large sports-utility vehicle pitted more directly against Tesla’s Model Y and Nio’s ES series. Stocks of other EV makers are mixed. Monster Beverage (MNST US)., the maker of energy drinks, is exploring a combination with Corona brewer Constellation Brands (STZ US), according to people familiar with the matter. CASI Pharma (CASI US) jumped 17% in postmarket trading after CEO Wei-Wu He disclosed the purchase of 400,000 shares in a regulatory filing. Along with an eye on the Fed's plans for tightening policy, investors are also watching for an announcement from Joe Biden on his pick for the next Fed chair. Powell was supposed to make his decision by the weekend but has since delayed it repeatedly. Investors expect current chair Jerome Powell to stay on for another term, although Fed Governor Lael Brainard is also seen as a candidate for the position. “Bringing the most dovish of the doves wouldn’t guarantee a longer period of zero rates,” Ozkardeskaya wrote. “If the decisions are based on economic fundamentals, the economy is calling for a rate hike. And it’s calling for it quite soon.” The Stoxx 600 trimmed gains after German Chancellor Angela Merkel called for tighter Covid-19 restrictions. European telecom shares surged after KKR’s offer to buy Telecom Italia for about $12 billion, which boosted sentiment about M&A in the sector. The Stoxx 600 Telecommunications Index gained as much as 1.6%, the best-performing sector gauge for the region: Telefonica +4.8%, Infrastrutture Wireless Italiane +4%, KPN +2.7%. Meanwhile, telecom equipment stock Ericsson underperforms the rest of the SXKP index, falling as much as 4.9% after a deal to buy U.S. cloud communication provider Vonage; Danske Bank says the price is “quite steep”. Earlier in the session, Asian stocks fell as Covid-19 resurgences in Europe triggered risk-off sentiment across markets amid weaker oil prices, a strong U.S. dollar and higher bond yields. The MSCI Asia Pacific Index declined 0.3%, with India’s Sensex measure slumping the most since April as Paytm’s IPO weighed on sentiment. The country’s oil giant Reliance dragged down the Asian index after scrapping a deal with Saudi Aramco, and energy and financials were the biggest sector losers in the region. Asian markets have turned softer after capping their first weekly retreat this month, following lackluster moves from economically sensitive sectors in the U.S., while investors continue to monitor earnings reports of big Chinese technology firms this week. “Some impact from the regulatory risks and dull macroeconomic conditions have shown up in several Chinese big-tech earnings and that may put investors on the sidelines as earnings season continues,” Jun Rong Yeap, a market strategist at IG Asia Pte., wrote in a note. China’s equity gauge posted a second straight day of gains after the central bank’s quarterly report indicated a shift toward easing measures to bolster the economic recovery. South Korea led gains in the region, with the Kospi adding more than 1%, helped by chipmakers Samsung Electronics and SK Hynix. Asia’s chip-related shares rose after comments from Micron Technology CEO Sanjay Mehrotra added to optimism the global shortage of semiconductors is easing. Reports of Japan earmarking $6.8 billion to bolster domestic chipmaking and Samsung planning to announce the location of its new chip plant in the U.S. also aided sentiment. Japanese stocks fluctuated after U.S. shares retreated on Friday following hawkish remarks from Federal Reserve officials. The Topix index was virtually unchanged at 2,044.16 as of 2:21 p.m. Tokyo time, while the Nikkei 225 advanced 0.1% to 29,783.92. Out of 2,180 shares in the index, 1,107 rose and 948 fell, while 125 were unchanged. “There are uncertainties surrounding the direction of U.S. monetary policy,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Institute Co. “The latest comments from FRB members are spurring talk that steps to taper could accelerate.” Australian stocks sunk as banks tumbled to almost a 4-month low. The S&P/ASX 200 index fell 0.6% to close at 7,353.10, weighed down by banks and technology stocks as the measure for financial shares finished at the lowest level since July 30.  Nickel Mines was the top performer after agreeing to expand its strategic partnership with Shanghai Decent. Flight Centre fell for a second session, ending at its lowest close since Sept. 20, as the Covid-19 situation worsens in Europe. In New Zealand, the S&P/NZX 50 index fell 1% to 12,607.64. In FX, the Bloomberg dollar index holds Asia’s narrow range, trading little changed on the day. AUD outperforms G-10 peers, extending Asia’s modest gains. SEK and JPY are the weakest. RUB lags in EMFX, dropping as much as 1% versus the dollar with USD/RUB on a 74-handle. According to Bloomberg, hedge funds’ bullishness toward the dollar is starting to evaporate amid speculation the U.S. currency has risen too much given the Federal Reserve remains adamant it’s in no rush to raise interest rates. Meanwhile, the euro pared modest Asia session losses to trade below $1.13, while European bond yields edged higher, led by bunds and gilts. The pound dipped after comments from Bank of England policy makers raised questions about the certainty of an interest-rate increase in December. Governor Andrew Bailey said that the risks to the U.K. economy are “two-sided” in a weekend interview. Australian dollar advanced against the kiwi on position tweaking ahead of Wednesday’s RBNZ’s rate decision, and after China’s central bank removed sticking with “normal monetary policy” from its policy outlook. Yen declines as speculation China will steer toward more accommodative policy damps the currency’s haven appeal. Hungary’s forint tumbled to a record low against the euro as back-to-back interest rate increases failed to shield it during a rapidly deteriorating pandemic and a flight to safer assets. In commodities, crude futures drifted higher. WTI rises 0.3% near $76.20, Brent regains at $79-handle. Spot gold has a quiet session trading near $1,844/oz. Base metal are mixed: LME copper, tin and zinc post small losses; lead and nickel are in the green Looking at today's calendar, we get the October Chicago Fed national activity index, existing home sales data, and the Euro Area advance November consumer confidence. Zoom is among the companies reporting earnings. Market Snapshot S&P 500 futures up 0.3% to 4,710.75 STOXX Europe 600 up 0.3% to 487.45 German 10Y yield little changed at -0.34% Euro little changed at $1.1283 MXAP down 0.2% to 198.88 MXAPJ down 0.2% to 647.20 Nikkei little changed at 29,774.11 Topix little changed at 2,042.82 Hang Seng Index down 0.4% to 24,951.34 Shanghai Composite up 0.6% to 3,582.08 Sensex down 2.0% to 58,450.84 Australia S&P/ASX 200 down 0.6% to 7,353.08 Kospi up 1.4% to 3,013.25 Brent Futures up 0.4% to $79.22/bbl Gold spot little changed at $1,846.10 U.S. Dollar Index also little changed at 96.08 Top Overnight News from Bloomberg Negotiators hammering out details of a transformative new global corporate tax regime are shaping the deal to maximize its chance of winning acceptance in the U.S., whose companies face the biggest impact from the overhaul The U.S. has shared intelligence including maps with European allies that shows a buildup of Russian troops and artillery to prepare for a rapid, large-scale push into Ukraine from multiple locations if President Vladimir Putin decided to invade, according to people familiar with the conversations. The ruble slid to the weakest since August and the hryvnia fell With investors ramping up expectations for the Federal Reserve and other developed-market central banks to tighten policy, the likes of the Brazilian real and Hungarian forint have been weighed down by inflation and political concerns even as local officials pushed up borrowing costs. The Chinese yuan, Taiwanese dollar and Russian ruble have been among the few to stand their ground An organization formed by key participants in China’s currency market urged banks to limit speculative foreign-exchange trading after the yuan climbed to a six-year high versus peers The Avalanche cryptocurrency has surged in the past several days, taking it briefly into the top 10 by market value and surpassing Dogecoin and Shiba Inu, after a deal related to improvement of U.S. disaster-relief funding A more detailed breakdown of overnight news courtesy of Newsquawk Asia-Pac stocks traded mixed following last Friday's mostly negative performance stateside, where risk appetite was dampened by concerns of a fourth COVID wave in Europe and recent hawkish Fed rhetoric. Weekend newsflow was light and the mood was tentative heading into this week's risk events including FOMC minutes and US GDP data before the Thanksgiving holiday. The ASX 200 (-0.6%) was subdued with declines led by weakness in gold miners and the energy sector. The Nikkei 225 (+0.1%) was lacklustre after last week’s inflows into the JPY but with downside eventually reversed as the currency faded some of the gains and following the recent cabinet approval of the stimulus spending. The KOSPI (+1.4%) outperformed and reclaimed the 3k level with shares in index heavyweight Samsung Electronics rallying as its de facto leader tours the US which spurred hopes the Co. could deploy its USD 100bln cash pile. The Hang Seng (-0.4%) and Shanghai Comp. (+0.6%) diverged with the mainland kept afloat after the PBoC conducted a mild liquidity injection and maintained its Loan Prime Rate for a 19th consecutive month as expected, although Hong Kong was pressured by losses in energy and cautiousness among developers, as well as the recent announcement of increased constituents in the local benchmark. Finally, 10yr JGBs eked marginal gains amid the cautious risk tone in Asia and following firmer demand at the enhanced liquidity auction for 2yr-20yr JGBs, but with upside capped as T-note futures continued to fade Friday’s early gains that were fuelled by the COVID-19 concerns in Europe before the advances were later halted by hawkish Fed rhetoric calling for a discussion on speeding up the tapering at next month’s meeting. Top Asian News China Blocks Peng Shuai News as It Seeks to Reassure World China FX Panel Urges Banks to Cap Speculation as Yuan Surges Paytm Founder Compares Himself to Musk After Historic IPO Flop China Tech Stocks Are Nearing Inflection Point, UBS GWM Says European cash bourses kicked off the new trading week with mild gains (Euro Stoxx 50 +0.3%; Stoxx 600 +0.3%) following a mixed APAC handover. Some have been attributing the mild gains across Europe in the context of the different approaches of the Fed and ECB, with the latter expected to remain dovish as the former moves tighter, while COVID lockdowns will restrict economic activity. News flow in the European morning has however been sparse, as participants look ahead to FOMC Minutes, Flash PMIs and US GDP ahead of the Thanksgiving holiday (full Newsquawk Desk Schedule on the headline feed) alongside the Fed Chair update from President Biden and a speech from him on the economy. US equity futures see modestly more pronounced gains, with the more cyclically-exposed RTY (+0.6%) performing better than then NQ (+0.4%), ES (+0.4%) and YM (+0.4%). Since the European cash open, the initial mildly positive momentum has somewhat waned across European cash and futures, with the region now conforming to a more mixed picture. Spain's IBEX (+0.7%) is the clear regional outperforming, aided by index heavyweight Telefonica (+5.0%), which benefits from the sectorial boost received by a couple of major M&A updates. Firstly, Telecom Italia (+22%) gapped higher at the open after KKR presented a EUR 0.505/shr offer for Telecom Italia. The offer presents a ~45% premium on Friday's close. Second, Ericsson (-3.5%) made a bid to acquire American publicly held business cloud communications provider Vonage in a deal worth USD 6.2bln. As things stand, the Telecom sector is the clear outperformer, closely followed by banks amid a revival in yields. The other end of the spectrum sees Travel & Leisure back at the foot of the bunch as COVID fears in Europe mount. In terms of individual movers, Vestas Wind Systems (-2.0%) was hit as a cyber incident that impacted parts of its internal IT structure and data has been compromised. Looking ahead, it’s worth noting that volume will likely be more muted towards the latter half of the week on account of the Thanksgiving holiday. Top European News Scholz Closer to German Chancellery as Cabinet Takes Shape Austria Back in Lockdown Ahead of Mandatory Vaccine Policy Energy Crunch Drives Carbon to Record as Europe Burns More Coal BP Goes on Hydrogen Hiring Spree in Bid for 10% Market Share In FX, the Antipodean Dollars are outperforming at the start of the new week on specific supportive factors, like a bounce in the price of iron ore and a further re-opening from pandemic restrictions in both Australia and New Zealand, while the REINZ shadow board is ‘overwhelmingly’ behind another RBNZ rate hike this week. Aud/Usd is holding around 0.7250 and Nzd/Usd is hovering circa 0.7000 as the Aud/Nzd cross pivots 1.0350 in the run up to flash Aussie PMIs and NZ retail sales. DXY - Aussie and Kiwi strength aside, the Greenback retains a solid underlying bid on safe haven and increasingly hawkish Fed grounds after a run of recent much better than expected US data. In index terms, a base just above 96.000 provides a platform to retest last week’s peaks at 96.245 and 96.266 vs 96.223 so far, but Monday’s agenda may not give bulls much in the way of encouragement via data with only existing home sales scheduled. Instead, the Buck could derive more impetus from Treasuries given front-loaded supply ahead of Thanksgiving in the form of Usd 58 bn 2 year and Usd 59 bn 5 year notes. CHF/CAD/EUR/GBP/JPY - All narrowly mixed against their US rival, as the Franc keeps its head above 0.9300 and meanders between 1.0485-61 vs the Euro amidst some signs of official intervention from a rise in weekly Swiss sight deposits at domestic banks. Meanwhile, the Loonie has some leverage from a mild rebound in crude prices to pare declines from sub-1.2650 and should glean support into 1.2700 from 1 bn option expiries at 1.2685 on any further risk aversion or fallout in WTI. Conversely, 1 bn option expiry interest from 1.1300-05 could scupper Euro recoveries from Friday’s new y-t-d low around 1.1250 against the backdrop of ongoing COVID-19 contagion and pre-ECB speakers plus preliminary Eurozone consumer confidence. Elsewhere, the Pound is weighing up BoE tightening prospects and the impact of no breakthrough between the UK and EU on NI Protocol as Cable and Eur/Gbp straddle the 1.3435-40 zone and 0.8400 respectively, while the Yen has unwound more of its safe haven premium within a 114.27-113.91 range eyeing UST yields in relation to JGBs alongside overall risk sentiment. SCANDI/EM - The Nok is deriving some traction from Brent back over Usd 79/brl, but geopolitical concerns are preventing the Rub from benefiting and the Mxn is also on a weaker footing along with most EM currencies. However, the Try is striving to draw a line in the sand irrespective of a marked deterioration in Turkish consumer sentiment and the Cnh/Cny are holding up well regardless of a softer PBoC fix for the onshore unit as LPRs were unchanged yet again and China’s FX regulator told banks to limit Yuan spec trades. In CEE, the Pln has plunged on diplomatic strains between Poland and the EU, the Huf has depreciated to all time lows on virus fears and the Czk has been hampered by CNB’s Holub downplaying the chances of more big tightening surprises such as the aggressive hike last time. In commodities, WTI and Brent front month futures see some consolidation following Friday’s slide in prices. In terms of the fundamentals, the demand side of the equations continues to be threatened by the fourth wave of COVID, namely in the European nations that have not had a successful vaccine rollout. As a reminder, Austria is in a 20-day nationwide lockdown as of today, whilst Germany, Belgium and the Netherlands see tighter restrictions, with the latter two also experiencing COVID-related social unrest over the weekend. The European Commission will on Wednesday issue a set of new recommendations to its member states on non-essential travel, a senior EU diplomat said, which will be watched for activity and jet fuel demand. Over to the supply side, There were weekend reports that Japan and the US are planning a joint announcement regarding the SPR release, although a key Japanese official later noted there was no fixed plan yet on releasing reserves. Japanese PM Kishida confirmed that they are considering releasing oil reserves to curb prices. Meanwhile, Iranian nuclear talks are regaining focus as negotiations are poised to resume on the 29th of November – it is likely we’ll see officials telegraph their stances heading into the meeting. Eyes will be on whether the US offers an olive branch as Tehran stands firm. Elsewhere, the next OPEC+ meeting is also looming, but against the backdrop of lower prices, COVID risk and SPR releases, it is difficult to see a scenario where OPEC+ will be more hawkish than dovish. WTI and Brent Jan trade on either side of USD 76/bbl and USD 79/bbl respectively and within relatively narrow bands. Spot gold and silver meanwhile see a mild divergence, with the yellow metal constrained by resistance in the USD 1,850/oz area, whilst spot silver rebounded off support at USD 24.50/oz. Finally, base metals are relatively mixed with no standout performers to point out. LME copper is flat but holds onto USD 9,500+/t status. US Event Calendar 8:30am: Oct. Chicago Fed Nat Activity Index, est. 0.10, prior -0.13 10am: Oct. Existing Home Sales MoM, est. -1.8%, prior 7.0% 10am: Oct. Home Resales with Condos, est. 6.18m, prior 6.29m DB's Jim Reid concludes the overnight wrap This morning we’ve just published our 2022 credit strategy outlook. 2021 has been one of the lowest vol years for credit on record but we think this is unlikely to last and spreads will sell-off at some point in H1 when markets reappraise how far behind the curve the Fed is. Even with covid restrictions mounting again in Europe as we go to print, we think it’s more likely that we’ll be in a “growthflationary” environment for 2022 and think overheating risks are more acute than the stagflation risk, especially in the US. Strong growth and high liquidity should mean that full year 2022 is a reasonable year for credit overall but if we’re correct there’ll be regular pockets of inflationary/interest rate concerns in the market, which we think is more likely to happen in H1. At the H1 wides, we could see spreads widen as much as 30-40bps in IG and 120-160bps in HY which is consistent with typical mid-cycle ranges through history. We do expect this to mostly retrace in H2 as markets recover from the shock and growth remains decent and liquidity still high. However, with the potential for a shift in the narrative to potential late-cycle dynamics, we think spreads will close 2022 slightly wider than they are today. We will be watching the yield curve closely through the year for clues as to how the cycle will evolve into 2023. This has the ability to move our YE 22 forecasts in both directions as the year progresses. This week will be heavily compressed given Thanksgiving on Thursday. The highlight though will be a likely choice of Fed governor before this, assuming the timetable doesn’t slip again. Overnight it’s been announced that Biden will give a speech to the American people tomorrow on the economy and prices. It’s possible the Fed Chair gets announced here and perhaps plans to release oil from the strategic reserve. We will see. Following that, Wednesday is especially busy as a pre-holiday US data dump descends upon us. We’ll see the minutes of the November 3rd FOMC meeting and earlier that day the core PCE deflator (the Fed's preferred inflation metric), Durable Goods, the UoM sentiment index (including latest inflation expectations), new home sales and jobless claims amongst a few other releases. More internationally, covid will be focus, especially in Europe as Austria enters lockdown today after the shock announcement on Friday. Germany is probably the swing factor here for sentiment in Europe so case numbers will be watched closely. Staying with Germany, there’s anticipation that a coalition agreement could be reached in Germany between the SPD, Greens and the FDP, almost two months after their federal election. Otherwise, the flash PMIs for November will be in focus, with the ECB following the Fed and releasing the minutes from their recent meeting on Thursday. As discussed at the top the most important market event this week is likely to be on the future leadership of the Federal Reserve, as it’s been widely reported that President Biden is expected to announce his choice on who’ll be the next Fed Chair by Thanksgiving on Thursday. Previous deadlines have slipped on this announcement, but time is becoming increasingly limited given the need for Senate confirmation ahead of Chair Powell’s current four-year term expiring in early February. The two names that are quite obviously in the frame are incumbent Chair Powell and Governor Brainard, but there are also a number of other positions to fill at the Fed in the coming months, with Vice Chair Clarida’s term as an FOMC governor expiring in January, Randal Quarles set to leave the Board by the end of this year, and another vacant post still unfilled. So a significant opportunity for the Biden administration to reshape the top positions at the Fed. In spite of all the speculation over the position of the Fed Chair, our US economists write in their latest Fed update (link here), that the decision is unlikely to have a material impact on the broad policy trajectory. Inflation in 2022 is likely to remain at levels that make most Fed officials uncomfortable, whilst the regional Fed presidents rotating as voters lean more hawkish next year, so there’ll be constraints to how policy could shift in a dovish direction, even if an incoming chair wanted to move things that way. Another unconfirmed but much anticipated announcement this week could come from Germany, where there’s hope that the centre-left SPD, the Greens and the liberal FDP will finally reach a coalition agreement. The general secretaries of all three parties have recently said that they hope next week will be when a deal is reached, and a deal would pave the way for the SPD’s Olaf Scholz to become chancellor at the head of a 3-party coalition. Nevertheless, there are still some hurdles to clear before then, since an agreement would mark the start of internal party approval processes. The FDP and the SPD are set to hold a party convention, whilst the Greens have announced that their members will vote on the agreement. On the virus, there is no doubt things are getting worse in Europe but it’s worth putting some of the vaccine numbers in some context. Austria (64% of total population) has a double vaccination rate that is somewhat lower than the likes of Spain (79%), Italy (74%), France (69%), the UK (69%) and Germany (68%). The UK for all its pandemic fighting faults is probably as well placed as any due to it being more advanced on the booster campaign due to an earlier vaccine start date and also due to higher natural infections. It was also a conscious decision back in the summer in the UK to flatten the peak to take load off the winter wave. So this is an area where scientists and the government may have made a calculated decision that pays off. Europe is a bit behind on boosters versus the UK but perhaps these will accelerate as more people get 6 months from their second jab, albeit a bit too late to stop some kind of winter wave. There may also be notable divergence within Europe. Countries like Italy and Spain (and to a slightly lesser extent France) that were hit hard in the initial waves have a high vaccination rate so it seems less likely they will suffer the dramatic escalation that Austria has seen. Germany is in the balance as they have had lower infection rates which unfortunately may have encouraged slightly lower vaccination rates. The irony here is that there is some correlation between early success/lower infections and lower subsequent vaccination rates. The opposite is also true - i.e. early bad outcomes but high vaccination rates. The US is another contradiction as it’s vaccination rate of 58% is very low in the developed world but it has had high levels of natural infections and has a higher intolerance for lockdowns. So tough to model all the above. Overall given that last winter we had no vaccines and this year we have very high levels of protection it seems unfathomable that we’ll have an outcome anywhere near as bad. Yes there will be selected countries where the virus will have a more severe impact but most developed countries will likely get by without lockdowns in my opinion even if the headlines aren’t always going to be pleasant. Famous last words but those are my thoughts. In light of the rising caseloads, the November flash PMIs should provide some context for how the global economy has performed into the month. We’ve already seen a deceleration in the composite PMIs for the Euro Area since the summer, so it’ll be interesting to see if that’s maintained. If anything the US data has reaccelerated in Q4 with the Atlanta Fed GDPNow series at 8.2% for the quarter after what will likely be a revised 2.2% print on Wednesday for Q3. Time will tell if Covid temporarily dampens this again. Elsewhere datawise, we’ll also get the Ifo’s latest business climate indicator for Germany on Wednesday, which has experienced a similar deceleration to other European data since the summer. The rest of the week ahead appears as usual in the day-by-day calendar at the end. Overnight in Asia stocks are mixed with the KOSPI (+1.31%) leading the pack followed by the Shanghai Composite (+0.65%) and CSI (+0.53%), while the Nikkei (-0.18%) and Hang Seng (-0.35%) are lower. Stocks in China are being boosted by optimism that the PBOC would be easing its policy stance after its quarterly monetary policy report on Friday dropped a few hints to that effect. Futures are pointing towards a positive start in the US and Europe with S&P 500 futures (+0.31%) and DAX futures (+0.14%) both in the green. Turning to last week now, rising Covid cases prompted renewed lockdown measures to varying degrees and hit risk sentiment. Countries across Europe implemented new lockdown measures and vaccine requirements to combat the latest rise in Covid cases. The standouts included Austria and Germany. Austria will start a nationwide lockdown starting today and will implement a compulsory Covid vaccine mandate from February. Germany will restrict leisure activities and access to public transportation for unvaccinated citizens and announced a plan to improve vaccination efforts. DM ten-year yields decreased following the headline. Treasury, bund, and gilt yields declined -3.8bps, -6.7bps, and -4.6bps on Friday, respectively, bringing the weekly totals to -1.3bps, -8.3bps, and -3.5bps, respectively. The broad dollar appreciated +0.54% Friday, and +0.98% over the week. Brent and WTI futures declined -2.89% and -3.68% on Friday following global demand fears, after drifting -4.27% and -5.79% lower throughout the week as headlines circulated that the US and allies were weighing whether to release strategic reserves. European equity indices declined late in the week as the renewed lockdown measures were publicized. The Stoxx 600, DAX, and CAC 40 declined -0.33%, -0.38%, and -0.42%, respectively on Friday, bringing their weekly totals to -0.14%, +0.41%, and +0.29%. The S&P 500 index was also hit ending the week +0.32% higher after declining -0.14% Friday, though weekly gains were concentrated in big technology and consumer discretionary stocks. U.S. risk markets were likely supported by the U.S. House of Representatives passing the Biden Administration’s climate and social spending bill. The bill will proceed to the Senate, where its fate lays with a few key moderate Democrats. This follows President Biden signing a physical infrastructure bill into law on Monday. On the Fed, communications from officials took a decidedly more hawkish turn on inflation dynamics, especially from dovish members. Whether the Fed decides to accelerate its asset purchase taper at the December FOMC will likely be the key focus in markets heading into the meeting. Ending the weekly wrap up with some positive Covid news: the U.S. Food and Drug Administration cleared Pfizer and Moderna booster shots for all adults. Additionally, the US will order 10 million doses of Pfizer’s Covid pill. Tyler Durden Mon, 11/22/2021 - 07:49.....»»

Category: blogSource: zerohedgeNov 22nd, 2021

Futures Tumble, Oil And Treasury Yields Plunge As Lockdowns Return

Futures Tumble, Oil And Treasury Yields Plunge As Lockdowns Return Having briefly touched new all time highs of 4,723.5 overnight, S&P futures tumbled shortly after Europe opened as a fourth wave of the pandemic in Europe resulted in a new lockdown in Austria and the prospect of similar action in Germany wiped out earlier gains and forced stock markets down close to 1% as it overshadowed optimism about corporate earnings and the economic recovery. Friday is also a major options-expiry day, which could trigger volatility in equities. Two progressive Democratic senators said they oppose the renomination of Federal Reserve Chair Jerome Powell to a second term, because he "refuses to recognize climate change" joining Elizabeth Warren in urging President Joe Biden to choose someone else. S&P and Dow futures fell tracking losses in banks, airlines, and other economically sensitive sectors. Uncertainty over rising inflation and the Federal Reserve's tightening also kept demand for value stocks low. At 745am Dow e-minis were down 218 points, or 0.609%. S&P 500 e-minis were down 12.25 points, or 0.26% and Nasdaq 100 e-minis were up 68 points, or 0.41%. With the lockdown trade storming back, Nasdaq futures hit a record high on Friday as investors sought economically stable sectors after a small delay in voting on President Joe Biden's $1.75 trillion spending bill, while fears of Europe-wide lockdowns sent yields plunging. The U.S. House of Representatives early on Friday delayed an anticipated vote on passage of Biden's social programs and climate change investment bill, and will instead reconvene at 8 a.m. EST (1300 GMT) to complete the legislation “Everyone is holding his and her breath to find out who will be the next Fed Chair,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “More or less dovish, will it really matter? The one that will take or keep the helm of the Fed will need to hike rates at some point.” Among major premarket movers, Intuit Inc jumped 10.3% as brokerages raised their price targets on the income tax software company after it beat quarterly estimates and raised forecast. The stock was the top S&P 500 gainer in premarket trade. Chipmaker Nvidia also boosted Nasdaq futures, rising 1.7% in heavy trade after posting strong quarterly results late Wednesday. On the other end, Applied Materials dropped 5.7% after the chipmaker forecast first-quarter sales and profit below market estimates on supply chain woes. Oil firms Exxon and Chevron slipped 2.1% and 1.8% as crude prices sank, while big banks including JPMorgan and Bank of America were down between 0.9% and 1.1%, tracking a fall in U.S. Treasury yields. Carriers Delta Air Lines, United Airlines and American Airlines and cruiseliners Norwegian Cruise Line and Carnival Corp fell between 1.4% and 2.3%. Here are all the other notable movers: Farfetch (FTCH US) shares drop 23% after the online apparel retailer reported 3Q revenue that missed estimates and trimmed its FY forecast for digital platform gross merchandise value growth. Analysts see scope for the shares to stay in the “penalty box” in the near term, but recommend buying on weakness. Workday (WDAY US) analysts say that the software firm’s strong quarterly results and guidance were not quite enough to meet high expectations. The stock dropped as much as 11% in extended trading on Thursday. Intuit (INTU US) climbed 9.7% in premarket as analysts said the tax software company posted strong results that were ahead of expectations and raised its outlook. Several increased their price targets for the stock, including a new Street high at Barclays. Palo Alto Networks (PANW US) shares rise 2.8% in U.S. premarket trading after the cyber- security firm reports results and hikes full-year sales guidance, with RBC saying co. saw a strong quarter. Tesla (TSLA US) shares dip 0.5% in premarket trading. The EV maker’s price target is raised to a joint Street-high at Wedbush, with the broker saying that the EV “revolution” presents a $5t market opportunity over the next decade. Datadog (DDOG US) rises 1.8% after it is upgraded to outperform from sector perform at RBC, with the broker saying that it has more conviction on the software firm following its TMIT conference. Mammoth Energy (TUSK US) jumps as much as 34% in U.S. premarket trading after the energy-services company said a subsidiary has been awarded a contract by a major utility to help build electric-vehicle charging station infrastructure. Ross Stores (ROST US) shares dropped 2.2% in postmarket trading on Thursday after its profit outlook for fourth quarter missed the average analyst estimate. In Europe, banks and carmakers led the Stoxx Europe 600 Index down 0.3%, reversing early gains. Fears of fresh lockdowns have hit travel stocks, but boosted the delivery sector and other pandemic winners, with German meal-kit company HelloFresh jumping as much as 7.1% to a record. Stoxx Europe 600 index tumbled after Germany’s health minister said he couldn’t rule out a lockdown as infections surge relentlessly in the region’s largest economy. That came after Austria said it would enter a nationwide lockdown from Monday. Here are some of the biggest European movers today: Ocado shares jump as much as 8.4%, the most intraday since November 2020, after a Deutsche Bank note on joint venture partner Marks & Spencer highlighted scope for a potential transaction. VGP shares gain as much as 7.7% to a record after KBC raised its rating to accumulate from hold, based on a “strong” 10-month trading update. HelloFresh shares surge as much as 7.1% and other lockdown beneficiaries including Delivery Hero, Logitech and Zalando gain after the German health minister says a lockdown can’t be ruled out. Mall landlords Unibail and Klepierre and duty-free retailer Dufry drop. Truecaller shares rise as much as 14% after it received its first analyst initiations after last month’s IPO. Analysts highlighted the company’s potential for continued strong growth. JPMorgan called current growth momentum “unparalleled.” Hermes shares jump as much as 5.2% to a fresh record, rising for a seventh day, amid optimism that the stock may be added to the Euro Stoxx 50 Index as soon as next month. Shares also rise after bullish current- trading comments of peer Prada. Kingfisher shares drop as much as 5.8%, even after the home-improvement retailer said it expects profit to be toward the higher end of its forecast. Investor focus has probably shifted to 2022, and Friday’s update doesn’t have any guidance for next year, according to Berenberg. GB Group shares tumble as much as 18%, the most since October 2016, after the identity-verification software company raised about GBP300m in a placing of new shares at a discount. Mode Global shares sink as much as 19%, reversing most of this week’s gains, after it said some brands had withdrawn the company as an affiliate. In Fx, the Bloomberg Dollar Spot Index jumped at the London open and the greenback was higher versus all of its Group-of-10 fears apart from yen. Norway’s krone was the biggest loser as energy prices prices dropped after Austria announced a nationwide lockdown starting on Monday, while Germany’s health minister refused to rule out closures in the country.  The pound fell on the back of a stronger dollar; data showed U.K. retail sales rose for the first time in six months as consumers snapped up toys, sports equipment and clothing, while the cost of servicing U.K. government debt more than tripled in October from a year earlier due to surging inflation The euro plunged by 1% to a new YTD low of $1.1255 as the repricing in the front-end of euro options suggests the common currency is settling within a new range. The euro is also falling at the end of the week following the announcement that Austria will begin a 20-day full Covid-19 lockdown from Monday in response to surging case numbers which have far surpassed last year's peak. While fatalities remains well below the peak, they are accelerating and the government is clearly keen to arrest it before the situation potentially becomes much worse. With Germany seeing a similar trend, the question now becomes whether the regions largest economy will follow the same path. Its Health Minister, Jens Spahn, today suggested nothing can be ruled out and that they are in a national emergency. In rates, Treasury yields fell by around 4bps across the board and the bunds yield curve bull flattened, with money markets pushing back bets on a 10bps ECB rate hike further into 2023. Treasury 10-year yields richer by 4.5bp on the day at around 1.54% and toward lows of the weekly range -- bunds, gilts outperform Treasuries by 1bp and 1.5bp in the sector as traders reassess impact of future ECB rate hikes. Treasuries rally across the curve, following wider gains across EGB’s and gilts as investors weigh the impact of further European lockdowns amid a fourth wave of Covid-19. Flight-to-quality pushes Treasury yields lower by up to 5bp across front- and belly of the curve, which slightly outperform.  Bunds and Treasury swap spreads widen, while gilts move tighter as risk assets mostly trade to the downside and demand for havens increases on news regarding coronavirus restrictions. German 10-year swap spreads climbed above 50bps for the first time since March 2020. In commodities, spot gold is little changed around $1,860/oz, while base metals are in the green, with LME copper and aluminum leading peers. Oil tumbled with WTI and Brent contracts down well over 2%.  Brent crudes brief dip below $80 was short-lived on Thursday and prices were continuing to recover on the final trading day of the week until Austria announced its lockdown. Brent crude quickly reversed course and trades almost 2% lower on the day as it takes another run at $80. Oil has been declining over the last week as demand forecasts have been pared back, OPEC and the IEA have warned of oversupply in the coming months and the US has attempted to coordinate an SPR release with China and others. The market still remains fundamentally in a good position but lockdowns are now an obvious risk to this if other countries follow Austria's lead. A move below $80 could deepen the correction, perhaps pulling the price back towards the mid-$70 region. This looks more likely now than it did a day ago and if Germany announces similar measures, it could be the catalyst for such a move. Perhaps OPEC+ knows what it's talking about after all. Looking at To the day ahead now, there is no macro news; central bank speakers include ECB President Lagarde, Bundesbank President Weidmann, Fed Vice Chair Clarida, the Fed’s Waller and BoE Chief Economist Pill. Separately, data highlights include UK retail sales and German PPI for October. Market Snapshot S&P 500 futures down 0.09% to 4,696.25 STOXX Europe 600 up 0.2% to 488.66 MXAP little changed at 199.11 MXAPJ down 0.2% to 648.18 Nikkei up 0.5% to 29,745.87 Topix up 0.4% to 2,044.53 Hang Seng Index down 1.1% to 25,049.97 Shanghai Composite up 1.1% to 3,560.37 Sensex down 0.6% to 59,636.01 Australia S&P/ASX 200 up 0.2% to 7,396.55 Kospi up 0.8% to 2,971.02 Brent Futures little changed at $81.17/bbl Gold spot up 0.1% to $1,860.34 U.S. Dollar Index up 0.43% to 95.96 German 10Y yield little changed at -0.32% Euro down 0.6% to $1.1304 Top Overnight News from Bloomberg Germany’s Covid crisis is about to go from bad to worse, setting the stage for a grim Christmas in Europe. With infections surging relentlessly and authorities slow to act amid a change in power, experts warn that serious cases and deaths will keep climbing Austria will enter a nationwide lockdown from Monday as a record spike in coronavirus cases threatens to overwhelm the country’s health care system The pundits are coming for the Fed and Chair Jerome Powell. Mohamed El-Erian, chief economic adviser to Allianz SE and a Bloomberg Opinion columnist, recently said the central bank has made one of the worst inflation calls in its history. Writing in the Financial Times, the economist Willem Buiter called on the Fed to abandon the more flexible inflation target it established last year Bitcoin continued its slide Thursday, falling for a fifth consecutive day as it slipped below $57,000 for the first time since October, in a retreat from record highs. The world’s largest cryptocurrency hasn’t slumped that long since the five days that ended May 16 House Democrats pushed expected passage of President Joe Biden’s $1.64 trillion economic agenda to Friday as Republican leader Kevin McCarthy delayed a vote with a lengthy floor speech that lasted into the early morning hours ECB President Christine Lagarde said policy makers “must not rush into a premature tightening when faced with passing or supply- driven inflation shocks” Markets are increasingly nervous about the common currency with the pandemic resurgent, geopolitical tensions rising and gas supply issues mounting A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mostly positive after the mixed performance stateside where the S&P 500 and Nasdaq notched fresh record closes, but cyclicals lagged as comments from Senator Manchin cast some uncertainty on the Build Back Better bill. The ASX 200 (+0.2%) was rangebound with upside in healthcare and consumer stocks offset by weakness in tech and a lacklustre mining sector. Crown Resorts (CWN AT) was the stellar performer after it received an unsolicited, non-binding takeover proposal from Blackstone (BX) valued at AUD 12.50/shr which boosted its shares by around 16%, although gains in the broader market were limited as COVID-19 concerns lingered following a further jump of cases in Victoria state. The Nikkei 225 (+0.5%) benefitted from a mostly weaker currency and after PM Kishida confirmed the details of the incoming stimulus package valued at a total JPY 79tln including JPY 56tln in fiscal spending. The KOSPI (+0.8%) was also positive but with gains initially capped as South Korean wholesale inflation surged to a 13-year high and further added to the case for the BoK to hike rates for the second time this year at next week’s meeting. The Hang Seng (-1.1%) and Shanghai Comp. (+1.1%) were mixed with the mainland kept afloat amid press reports that China is considering measures to reduce taxes and fees by up to CNY 500bln, although the mainland was initially slow to start after another liquidity drain by the PBoC and with stocks in Hong Kong spooked amid substantial losses in Alibaba following a miss on its earnings and Country Garden Services suffered on reopening from the announcement of a 150mln-share placement. Finally, 10yr JGBs were rangebound with mild gains seen after the modest bull flattening stateside, but with upside restricted amid the gains in Japanese stocks and lack of BoJ purchases, as well as the incoming fiscal spending and extra budget from the Kishida government. Top Asian News Bitcoin Falls Almost 20% Since Record as Crypto Bulls Retreat Singapore’s Insignia Ventures Intensifies Push Into Healthtech Binance Chief Zhao Buys His First Home in ‘Pro-Crypto’ Dubai Property Stocks Surge; Land Sale Rules Eased: Evergrande Update The earlier positive sentiment in Europe dissipated amid a string of back-to-back downbeat COVID updates – with Austria now resorting to a full-scale lockdown and Germany sounding alarms over their domestic COVID situation and not ruling out its own lockdown. European bourses flipped from the mostly positive trade at the open to a negative picture (Euro Stoxx 50 -0.5%; Stoxx 600 Unch), with headlines also flagging the European stock market volatility gauge jumping to three-week highs. It is also worth noting the monthly option expiries for stocks today, with desks pointing to the second-largest expiry day on record. US equity futures have also seen headwinds from the pullback in Europe, but US futures are mixed with the NQ (+0.4%) benefitting from the slide in yields. Back to Europe, Austria’s ATX (-1.0%) sit as the laggard after the Austrian Chancellor said a full domestic COVID lockdown will be imposed as of Monday for a maximum of 20 days with compulsory vaccination from 1st February 2022. Switzerland’s SMI (+0.2%) owes its gains to the defensive flows into healthcare propping up heavyweights Novartis (+0.5%) and Roche (+0.7%). Sectors overall are mostly negative with Healthcare the current winner, whilst Tech benefits from the yield slump and Basic Resources recover from yesterday’s slide as base metals rebound. The downside sees Banks on yield dynamics, whilst Oil & Gas lost the ranks as crude prices were spooked by the COVID headlines emanating from Europe. In terms of individual movers, Ocado (+6%) resides at the top of the FTSE 100 – with some citing a Deutsche Bank note which suggested shareholder Marks & Spencer could be mulling a buyout, although the note is seemingly speculation as opposed to chatter. Top European News Ryanair Drops London Listing Over Brexit Compliance Hassles ECB Mustn’t Tighten Despite ‘Painful’ Inflation, Lagarde Says Austria to Lock Down, Impose Compulsory Covid Vaccinations German Covid Measures May Bolster ECB Stimulus Stance: El-Erian In FX, it remains to be seen whether the Dollar can continue to climb having descended from the summit, and with no obvious fundamental drivers on the agenda in terms of US data that has been instrumental, if not quite wholly responsible for the recent bull run. However, external and technical factors may provide the Greenback and index with enough momentum to rebound further, as the COVID-19 situation continues to deteriorate in certain parts of Europe especially. Meanwhile, the mere fact that the DXY bounced off a shallower low and appears to have formed a base above 95.500 is encouraging from a chart perspective, and only the Yen as a safer haven is arguably capping the index ahead of the aforementioned w-t-d peak within 95.554-96.090 extremes. Ahead, more Fed rhetoric and this time via Waller and Clarida. EUR - The Euro has been hit hardest by the Greenback revival, but also the latest pandemic waves that have forced Austria into total lockdown and are threatening to see Germany follow suit. Moreover, EGBs are front-running the latest squeeze amidst risk-off trade in stocks, oil and other commodities to widen spreads vs Treasuries and the divergence between the ECB/Fed and other more hawkishly or less dovishly positioned. Hence, Eur/Usd has reversed further from circa 1.1374 through 1.1350 and 1.1300, while Eur/Yen is eyeing 128.50 vs almost 130.00 at one stage and Eur/Chf is probing fresh multi-year lows around 1.0450. NZD/GBP/AUD/CAD - All catching contagion due to their high beta, cyclical or activity currency stature, with the Kiwi back under 0.7000, Pound hovering fractionally above 1.3400, Aussie beneath 0.7250 and Loonie striving to contain declines beyond 1.2650 pre-Canadian retail sales against the backdrop of collapsing crude prices. JPY/CHF - As noted above, the Yen is offering a bit more protection than its US counterpart and clearly benefiting from the weakness in global bond yields until JGBs catch up, with Usd/Jpy down from 114.50+ towards 113.80, but the Franc is showing its allure as a port in the storm via the Euro cross rather than vs the Buck as Usd/Chf holds above 0.9250. In commodities, WTI and Brent front month futures retreated with the trigger point being back-to-back COVID updates – with Austria confirming a full-scale lockdown from Monday and Germany not ruling out its own lockdown. Crude futures reacted to the prospect of a slowdown in activity translating to softer demand. That being said, COVID only represents one factor in the supply/demand equation. Oil consuming nations are ramping up rhetoric and are urging OPEC+ to release oil. The White House confirmed the US discussed a possible joint release of oil from reserves with China and other countries, while it reiterated that it has raised the need for available oil supply in the market with OPEC. Meanwhile, the Japanese Cabinet said it will urge oil-producing nations to increase output and work closely with the IEA amid risks from energy costs. Further, energy journalists have also been flagging jitters of Chinese crude demand amid the likelihood of another tax probe into independent refiners. All in all, a day of compounding bearish updates (thus far) has prompted the contracts to erase all of their APAC gains, with WTI Dec just above USD 76/bbl (76.06-79.33/bbl range) and Brent Jan back under USD 79/bbl (78.75-82.24/bbl range). Elsewhere, spot gold saw a pop higher around the flurry of European COVID updates and despite a firmer Buck – pointing to haven flows into the yellow metal – which is nonetheless struggling to convincingly sustain a breach its overnight highs around USD 1,860/oz and we are attentive to a key fib at USD 1876/oz. Base metals prices are relatively mixed but have waned off best levels amid the risk aversion that crept into the markets, but LME copper holds onto a USD 9,500+/t status. US Event Calendar Nothing major scheduled Central Banks 10:45am: Fed’s Waller Discusses the Economic Outlook 12:15pm: Fed’s Clarida Discusses Global Monetary Policy Coordination DB's Jim Reid concludes the overnight wrap It was another mixed session for markets yesterday, with equities and other assets continuing to trade around their recent highs even as a number of risk factors were increasingly piling up on the horizon. By the close of trade, the S&P 500 had advanced +0.34% to put the index at its all-time high, whilst oil prices pared back their losses from earlier in the day to move higher. That said, there was more of a risk-off tone in Europe as the latest Covid wave continues to gather pace, with the STOXX 600 (-0.46%) snapping a run of 6 successive gains and being up on 17 out of the previous 19 days as it fell back from its all-time high the previous day, as haven assets including sovereign bonds were the beneficiaries. Starting with those equity moves, it was difficult to characterise yesterday’s session in some ways, since although the S&P advanced +0.34%, it was driven by a relatively narrow group of sectors, with only a third of the index’s components actually moving higher on the day. Indeed, to find a bigger increase in the S&P 500 on fewer advancing companies, one needs to go back to March 2000 (though it came close one day in August 2020, when the index advanced +0.32% on 153 advancing companies). Consumer discretionary (+1.49%) and tech (+1.02%) stocks were the only sectors to materially advance. Nvidia (+8.25%), the world’s largest chipmaker, was a key outperformer, and posted very strong third quarter earnings and revised higher fourth quarter guidance. Following the strong day, Nvidia jumped into the top ten S&P 500 companies by market cap, ending yesterday at number eight. The S&P gain may have been so narrow due to some negative chatter about President Biden’s build back better package, with CNN’s Manu Raju tweeting that Senator Joe Manchin “just told me he has NOT decided on whether to vote to proceed to the Build Back Better bill.” Manchin’s position in a 50-50 senate has given him an enormous amount of influence, and separate comments created another set of headlines yesterday on the Fed Chair decision, after The Hill reported Manchin saying that he’s “looking very favourably” at supporting Chair Powell if he were re-nominated, following a chat between the two about inflation. Mr Manchin is seemingly one of the most powerful people in the world at the moment. While the Senate still presents a hurdle for the President’s build back better bill, House Democrats are close to voting on the bill but couldn’t last night due to a three hour speech by House Republican leader McCarthy. It will probably happen this morning. This follows the Congressional Budget Office’s ‘score’ of the bill, which suggested the deficit would increase by $367bn as a result of the bill, higher figures than the White House suggested, but low enough to garner support from moderate House Democrats. Over in Europe there was a much weaker session yesterday, with the major equity indices falling across the continent amidst mounting concern over the Covid-19 pandemic. Germany is making another forceful push to combat the recent increase in cases, including expanded vaccination efforts, encouraging work from home, and restricting public transportation for unvaccinated individuals. Elsewhere, the Czech Republic’s government said that certain activities will be limited to those who’ve been vaccinated or had the virus in the last six months, including access to restaurants and hairdressers. Slovakia also agreed a similar move to prevent the unvaccinated accessing shopping malls, whilst Hungary is expanding its mask mandate to indoor spaces from Monday. Greece imposed further restrictions for its unvaccinated population. So a theme of placing more of the restrictions in Europe on the unvaccinated at the moment and trying to protect the freedoms of those jabbed for as long as possible. That risk-off tone supported sovereign bonds in Europe, with yields on 10yr bunds (-3.0bps), OATs (-4.1bps) and BTPs (-5.5bps) all moving lower. That was a larger decline relative to the US, where yields on 10yr Treasuries were only down -0.3bps to 1.59%, with lower real yields driving the decline. One asset class with some pretty sizeable moves yesterday was FX, where a bunch of separate headlines led to various currencies hitting multi-year records. Among the G10 currencies, the Swiss Franc hit its strongest level against the euro in over 6 years yesterday on an intraday basis. That came as the Covid wave has strengthened demand for haven assets, though it went on to weaken later in the day to close down -0.15%. Meanwhile, the Norwegian Krone was the weakest G10 performer (-0.72% vs USD) after the Norges Bank said it would be stopping its daily foreign exchange sales on behalf of the government for the rest of the month. Finally in EM there were some even bigger shifts, with the Turkish Lira falling to a record low against the US dollar, which follows the central bank’s decision to cut interest rates by 100bps, in line with expectations. And then in South Africa, the Rand also fell to its weakest in over a year, in spite of the central bank’s decision to hike rates, after the decision was interpreted dovishly. Overnight in Asia stocks are trading mostly higher led by the Nikkei (+0.45%), KOSPI (+0.43%), Shanghai Composite (+0.34%) and CSI (+0.18%). The Hang Seng (-1.76%) is sharply lower and fairly broad based but is being especially dragged down by Alibaba which dived -11% after it downgraded its outlook for fiscal year 2022 and missed sales estimate for the second quarter. Elsewhere in Japan headline CPI for October came in at +0.1% year-on-year (+0.2% consensus & +0.2% previous) while core CPI matched expectations at +0.1% year-on-year. The numbers reflect plunging mobile phone fees offsetting a 21% surge in gas prices. If the low mobile phone costs are stripped out, core inflation would be at 1.7% according to a Bloomberg calculation. Prime Minister Fumio Kishida is expected to deliver a bigger than expected stimulus package worth YEN 78.9 trillion ($690 bn) according to Bloomberg. We should know more tomorrow. Moving on futures are pointing to a positive start in US and Europe with S&P 500 (+0.42%) and DAX (+0.39%) futures both up. Turning to commodities, oil prices had been on track to move lower before paring back those losses, with Brent Crude (+1.20%) and WTI (+0.83%) both up by the close and edging up around half this amount again in Asia. That comes amidst continued chatter regarding strategic oil releases, and follows comments from a spokeswoman from China’s National Food and Strategic Reserves Administration, who Reuters reported as saying that they were releasing crude oil reserves. New York Fed President, and Vice Chair of the FOMC, John Williams, upgraded his assessment of inflation in public remarks yesterday. A heretofore stalwart member of team transitory, he noted that they wouldn’t want to see inflation expectations move much higher from here, and that recent price pressures have been broad-based, driving underlying inflation higher. Williams is one of the so-called core members of FOMC leadership, so his view carries some weight and is a useful barometer of momentum within the FOMC. Indeed, Chicago Fed President Evans, one of the most resolutely dovish Fed Presidents, expressed similar sentiment, recognising that rate hikes may need to come as early as 2022 given the circumstances. There wasn’t much in the way of data yesterday, though the weekly initial jobless claims from the US for the week through November 13 came in higher than expected at 268k (vs. 260k expected), and the previous week’s reading was also revised up +2k. That said, the 4-week moving average now stands at a post-pandemic low of 272.75k. Otherwise, the Philadelphia Fed’s manufacturing business outlook survey surprised to the upside at 39.0 in November (vs. 24.0 expected), the highest since April. That had signs of price pressures persisting, with prices paid up to 80.0, the highest since June, and prices received up to 62.9, the highest since June 1974. Finally, the Kansas City Fed’s manufacturing index for November fell to 24 (vs. 28 expected). To the day ahead now, and central bank speakers include ECB President Lagarde, Bundesbank President Weidmann, Fed Vice Chair Clarida, the Fed’s Waller and BoE Chief Economist Pill. Separately, data highlights include UK retail sales and German PPI for October. Tyler Durden Fri, 11/19/2021 - 08:11.....»»

Category: personnelSource: nytNov 19th, 2021

Burned After Reading

Burned After Reading By Michael Every of Rabobank Well, someone just got burned: and who is next? USTs yields continue to fall and the US curve to bull flatten, shouting “policy error!” at the Fed and those in bond markets expecting both the Fed and other central banks to be hiking ahead. Like the Fed’s Bullard, with his stated threat of two hikes next year(!) Getting ahead of that curve, USTesla slumped 12% and is now down $199bn in just a few days. So much for asking for personal financial advice from Twitter in-between toilet humour. That dip may put back Musk’s upcoming trip to Mars. More so if Michael Burry of “The Big Short” fame is right. US PPI yesterday stayed at a record high, if in line with market expectations, at 8.6% y/y. “Transitory.” Moreover, the NFIB survey’s ‘actual price changes’ sub-index hit 53, the highest since March 1980: it was 15 a year ago. Although below the peak of 67 seen in October 1974 following the oil-price spike after the Yom Kippur war, it means higher prices loom, just as high energy prices imply pricier food via fertilizers. It’s US CPI today, of course, where consensus is a 5.9% y/y print, the highest since December 1990. In response, the White House is again demanding OPEC+ pump more oil, which they refuse to do, and/or the US may release oil from its strategic reserve. Industry experts point out the issue is more of refining capacity, not physical supply constraints, which the strategic reserve is supposed to be for. Fear not: Yellen says the Fed, which she doesn’t run, will not allow 1970’s style inflation to return. The same Yellen who told us there will never be another financial crisis in her lifetime, just as the Fed warns of the risks of one building even as it aims to raise rates. ‘Helpfully’, the CBO says it won’t have finished looking at the deficit implications of the Build Back Better bill by 15 November, suggesting infrastructure may be the only Biden bill to pass. If so, Yellen will be right: high inflation well into 2022 will be followed by deflation as demand collapses. Indeed, the NFIB outlook was -37 in October, the joint lowest with November 2012. Equally, while global export values appear to be doing well, this is inflation: volumes are far weaker - which might solve the crisis at ports the hard way. Yet if the CBO nods and BBB passes, it’s inflation and logjams. A similar either/or plays out in China, where the “contained” Evergrande crisis --which even the Fed has noticed-- is seeing contagion. Junk bond yields are soaring and the trend is spreading to better quality credits and large banks, with investment grade yields up 8-10bp yesterday. As developers who have not crossed any debt redlines ‘mysteriously’ see their bonds plunge, Bloomberg reports the 10 largest developers carry debts of $1.7 trillion…on book. Off book and contingent liabilities are likely *far* higher. Worse, Chinese cities are now tightening the use of proceeds from presold properties, effectively forcing developers to use this cashflow to finish construction rather to repay debts. Can you guess what happens next? Yet Goldman is quoted saying: “It’s unlikely the government will tolerate the impact on growth that would come about if it were to allow such a large number of developers to fail,” and putting other people’s money where its mouth is by snapping up developers’ USD debts. The logic is that central banks bail us all out and common prosperity is just “regulatory change”. As Michael Pettis argues in a Godley/Minsky vein long echoed here, it is also that Beijing must U-turn, spend on infrastructure (which Simon Rabinovitch of The Economist shows is likely already overbuilt), or growth slumps and, as Bloomberg puts it, ‘China Looks a Lot Like Japan Did in the 1980s’. The official Securities Times now reports developers may be allowed to issue more domestic bonds, which Chinese banks will buy (lucky them!), according to “unnamed sources”, while the New York Times take is ‘As China’s property crisis spreads, Beijing says there’s nothing to see’. As such, there appears push-and-pull over policy (or a time lag at the Times). Yet there is another option, which we saw echoes of in the sudden excitement in educational shares yesterday on news they could start after-school tuition again….before seeing it was on a limited non-profit basis, with the only cashflow from adult exam courses. Common prosperity over equity, sorry. That option is this: don’t bail out all the developers; merge and nationalise the best; then use their physical capital to build social housing, not swanky apartments. Yes, there are still huge issues related to propping up property prices as de facto Chinese pensions, and massive lost tax revenues. But don’t rule it out: and imagine Wall Street backing the safe, low returns of an ‘ESG’ housing project it would never dream of financing in the US! In what may be a similar vein, China is also banning unlicensed firms and individuals from making product recommendations to its $3.7 trillion mutual funds industry. Is this a step towards funds being steered towards state goals? Have you looked at the trend in Western fund management? Today also saw Chinese CPI at 1.5% y/y vs. 1.4% consensus and 0.7% last month, and PPI at 13.5% y/y vs. 12.1% expected and 10.7% prior. For PPI, that is the highest level since June 1995. Clearly the consumer side of things is getting worse but is still being protected by Beijing, but the producer side is being walloped. Yes, China should slowly get this PPI surge under control vis-à-vis electricity now it is going all in on coal again, and as the PBOC offers discounted 1.75% loans on national green products,…which may also be the new stimulus to offset housing. Food prices are potentially a very different issue, however. Lastly, the White House is flexing its foreign policy muscles…over Bosnia, which should really be EU turf, and Nicaragua, calling its recent election “undemocratic” and threatening new sanctions. Nice to see that the big problems and big sanctions are being tackled head on at a time when China is building replicas of US navy vessels for target practice. Of course, Biden and Xi have an online summit next week, so there is that.   Tyler Durden Wed, 11/10/2021 - 10:25.....»»

Category: blogSource: zerohedgeNov 10th, 2021