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U.S. moves to cut Huawei off from global chip suppliers as China eyes retaliation

The Trump administration on Friday moved to block global chip supplies to blacklisted telecoms equipment giant Huawei Technologies [HWT.UL], spurring fears of Chinese retaliation and hammering shares of U.S. producers of chipmaking equipment......»»

Category: topSource: reutersMay 15th, 2020

Futures Rebound Fizzles On Slowing iPhone Demand, Omicron Fears

Futures Rebound Fizzles On Slowing iPhone Demand, Omicron Fears U.S. index futures regained some ground alongside Asian markets while European stocks slumped to session lows in a delayed response to yesterday's late Omicron-driven US selloff, as markets remained volatile following the biggest two-day plunge in more than a year, spurred by concern about the omicron coronavirus variant and Federal Reserve tightening. Investors await data for unemployment claims, as well as earnings from companies including Dollar General and Kroger. Tech is the weakest sector, dropping in sympathy after Apple warned its suppliers of slowing iPhone demand. Nasdaq futures pared earlier gains of up to 0.8% to trade down 0.1% while S&P futures are only 0.2% higher after rising as much as 0.9%. While the knee-jerk reaction of stock investors may “continue to be to take profits before the end of the year,” there is “plenty of liquidity available to drive stock prices higher as dip-buyers enter the market,” Ed Yardeni wrote in a note. The U.S. economy grew at a modest to moderate pace through mid-November, while price hikes were widespread amid supply-chain disruptions and labor shortages, the Federal Reserve said in its Beige Book survey Tuesday. Cruise-ship operator Carnival jumped 3.8% in premarket trading, while Pfizer and Moderna fell as the World Health Organization said that existing vaccines will likely protect against severe cases of the variant. Boeing contracts gained 3.4% after a report that the flagship 737 Max aircraft has regained airworthiness approval in China. With lots of uncertainty surrounding the pandemic and Fed policy, the size of potential market swings is still considerable.  Here are some other notable premarket movers today: Apple (AAPL US) shares fell 1.8% in premarket trading after the iPhone maker was said to tell suppliers that demand for its flagship product has slowed. Wall Street analysts, however, remained bullish. U.S. stocks tied to former President Donald Trump rise in premarket trading following a report his media group is in talks to raise new financing. Digital World Acquisition (DWAC US) +24%, Phunware (PHUN US) +38%. Katapult (KPLT US) shares sink 14% in premarket after the financial technology firm said its gross originations over a two-month period were lower than 2020 levels. Vir (VIR US) shares jump 8.1% in premarket trading after its Covid-19 antibody treatment, co-developed with Glaxo, looked to be effective against the new omicron variant in early testing. Snowflake (SNOW US) is up 17% premarket following quarterly results that impressed analysts, though some raise questions over the data software company’s valuation. CrowdStrike (CRWD US) shares jumped 5.1% in premarket after it boosted its revenue forecast for the full year. Square’s (SQ US) shares are 0.4% higher premarket. Corporate name change to Block Inc. indicates “a symbolic rebirth,” according to Barclays as it shows a broader set of possibilities than those of a pure payments company. Okta’s (OKTA US) shares advanced in postmarket trading. 3Q results show the cybersecurity company is well- positioned to deliver growth, even if some analysts say its guidance looks conservative and that its growth was not as strong as in prior quarters. The Omicron variant also hurt risk appetite, making the safe-haven bonds more attractive to investors, pushing yields down - although yields picked up again in early European trading. Volatility in equity markets as measured by the Vix hit its highest since February on Wednesday, before easing on Thursday, but remained well above this year’s average and almost twice as high as a month ago. Investors are braced for volatility to continue through December, stirred by tightening central-bank policies to fight inflation just as the omicron variant complicates the outlook for the pandemic recovery. The recent market turmoil may offer investors a chance to position for a trend reversal in reopening and commodity trades, according to JPMorgan Chase & Co. "Investors will need to maintain their calm during a period of uncertainty until the scientific data give a clearer picture of which scenario we face," said Mark Haefele, chief investment officer at UBS Global Wealth Management in Zurich. “This, in turn, will help shape the reaction of central bankers." Also weighing on stock markets, and flattening the U.S. yield curve, were remarks by Federal Reserve Chair Jerome Powell, who said that he would consider a faster end to the Fed's bond-buying programme, which could open the door to earlier interest rate hikes. In his second day of testimony in Congress on Wednesday, Powell reiterated that the U.S. central bank needs to be ready to respond to the possibility that inflation does not recede in the second half of next year. read more "In this past what we’ve seen is central banks using COVID as an excuse to remain dovish, and what we're seeing is central banks turn hawkish despite rising concerns around COVID, so it is a bit of a shift in communication," said Mohammed Kazmi, portfolio manager at UBP.  That said, the market is now so oversold, this is where we usually see aggressive dip-buying. In Europe, tech companies were the worst performers after Apple warned its component suppliers of slowing demand for its iPhone 13, the news dragged index heavyweight ASML Holding NV more than 4%. Meanwhile, travel shares were among the worst performers as the omicron variant continued to pop upin countries around the world, including the U.S., Norway, Ireland and South Korea. The Euro Stoxx 50 dropped as much as 1.7% while the Stoxx 600 Index fell 1.5%, extending declines to trade at a session low, with all sectors in the red and led lower by technology and travel stocks. The Stoxx 600 Technology Index slumped as much as 3.9%, the most in two months. Vifor Pharma surged by a record 18% following a report that Australia’s CSL is in advanced talks to acquire Swiss drugmaker. Here are some of the biggest European movers today: Vifor Pharma shares rise as much as 18% on a report that Australia’s CSL is in advanced talks to acquire the Swiss-based drug maker and developer while working with BofA on a A$4 billion funding package. Argenx jumps as much as 9.5% after Kepler Cheuvreux upgrades the stock to buy, saying the biotech company is on the brink of launching its first commercial product. Duerr gains as much as 7.2%, most since Aug. 10, after Deutsche Bank upgrades to buy and sets aa Street-high PT of EU60 for the German engineering company, citing the digitalization of the industry. Daily Mail & General Trust rises as much as 3.9% after Rothermere Continuation raised its bid for all DMGT’s Class A shares by 5.9% to 270p a share in cash. Klarabo surges as much as 54% as shares start trading on Nasdaq Stockholm after the Swedish property company raised SEK750m in an IPO. Eurofins Scientific declines for a fourth session, falling as much as 3.2%, as Goldman Sachs downgrades the company to neutral from buy “following strong outperformance YTD.” Deliveroo drops as much as 6.4% after an offering of 17.6m shares by CEO Will Shu and CFO Adam Miller at a price of 278p a share, representing a 4.2% discount to the last close. M&S falls as much as 3.4% after UBS cut its rating to neutral from buy, citing limited upside to its new price target as well as “little room for meaningful upgrades.” Earlier in the session, Asian stocks erased an earlier loss to trade slightly up, as traders continued to assess the potential impact of the omicron virus strain and the Federal Reserve’s efforts to keep inflation in check.  The MSCI Asia Pacific Index rose 0.2% after falling 0.4% in the morning. South Korea led regional gains, helped by large-cap chipmakers, while Japan was among the worst performers after the government dropped a plan for a blanket halt to all new incoming flight reservations. Asia’s equity benchmark is still down about 4% so far this year after rebounding in the past two sessions from a one-year low reached earlier this week. Despite the region’s underperformance against the U.S. and Europe, cheap valuations and foreign-investor positioning have prompted brokerages including Credit Suisse Group AG and Nomura Securities Co. Ltd. to turn bullish on Asia’s prospects next year. “Equity markets continue to play omicron tennis and traders looking for short-term direction should just wait for the next virus headline and then act accordingly,” said Jeffrey Halley, a senior market analyst at Oanda Corp. “Volatility, and not market direction, will be the winner this week.” Chinese technology shares including Alibaba Group Holding slid after Beijing was said to be planning to close a loophole used by the sector to go public abroad, fueling concern over existing overseas listings. Japanese equities declined, following U.S. peers lower after the first American case of the omicron coronavirus variant was confirmed. Electronics makers and telecoms were the biggest drags on the Topix, which fell 0.5%. SoftBank Group and TDK were the largest contributors to a 0.7% loss in the Nikkei 225.  The S&P 500 posted its worst two-day selloff since October 2020 after the first U.S. case of the new strain was reported. Federal Reserve Chair Jerome Powell reiterated that officials should consider a quicker reduction of monetary stimulus amid elevated inflation. “Truth is, there’s probably a lot of people who are wanting to buy stocks at some point,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management. “But, with omicron still an unknown, people are responding sensitively to news development, and that’s keeping them from buying.” India’s benchmark equity index climbed for a second day, led by software exporters, on an improving economic outlook and as investors grabbed some beaten-down stocks after recent declines. The S&P BSE Sensex Index rose 1.4% to close at 58,461.29 in Mumbai, the biggest advance since Nov. 1. Its two-day gains increased to 2.5%, the most since Aug. 31. The NSE Nifty 50 Index also surged by a similar magnitude. All of the 19 sector sub-indexes compiled by BSE Ltd. were up, led by a gauge of utilities companies. “India underperformed the global markets in recent weeks. Investors are now going for value buying in stocks at lower levels,” said A. K. Prabhakar, head of research at IDBI Capital Market Services. The Sensex gained in three of the past four sessions after plunging 2.9% on Friday, the biggest drop since April. The rally, however, is in contrast to most global peers which are witnessing volatility on worries over the spread of the omicron variant. High frequency indicators in India, such as tax collection and manufacturing activities, have shown robust growth in recent months, while the country’s economy expanded 8.4% in the quarter ended in September, according to an official data release on Tuesday. Mortgage lender HDFC contributed the most to the Sensex’s gain, increasing 3.9%. Out of 30 shares in the index, 27 rose and three fell. In rates, trading has been relatively quiet as bunds and gilts bull steepen a touch with risk offered, while cash TSYs bear flatten, cheapening ~5bps across the curve.Treasuries retraced part of yesterday’s rally that sent the benchmark 30-year rate to the lowest since early January. A large buyer of 5-year U.S. Treasury options targets the yield dropping around 17bps. 5s10s, 5s30s spreads flattened by ~1bp and ~2bp to multimonth lows; 10-year yields around 1.43%, cheaper by more than 3bp on the day while bunds and gilt yields are richer by ~1bp. Front-end and belly of the curve underperform vs long-end, while bunds and gilts outperform Treasuries. With little economic data slated, speeches by several Fed officials are main focal points. Peripheral spreads tighten with 10y Spain outperforming after well received auctions, albeit with a small size on offer. U.S. economic data slate includes November Challenger job cuts (7:30am) and initial jobless claims (8:30am) In FX, the Bloomberg Dollar Spot Index fell to a day low in the European session and the greenback traded mixed versus its Group-of-10 peers as most crosses consolidated in recent ranges. Two-week implied volatility in the major currencies trades in the green Thursday as it now captures the next policy decisions by the world’s major central banks. Euro- dollar on the tenor rises by as much as 138 basis points to touch 8.22%, highest in a year; the relative premium, however, remains below parity as realized has risen to levels unseen since August 2020. The pound rose along with some other risk- sensitive currencies following the British currency’s three-day slump against the dollar. Long-end gilts underperformed, leading to some steepening of the curve. The yen fell for the first day in three while the Swiss franc fell a second day. The Hungarian forint rose to almost a three-week high after the central bank in Budapest raised the one-week deposit rate by 20 basis points to 3.10%. Economists in a Bloomberg survey were evenly split in predicting a 10 or 20 basis point increase. The Turkish lira resumed its slump after President Recep Tayyip Erdogan abruptly replaced his finance minister amid deepening rifts in the administration over aggressive interest-rate cuts that have undermined the currency and fueled inflation. Poland’s central bank Governor Adam Glapinski sent the zloty to a three-week high against the euro on Thursday with his changed rhetoric on inflation, which he no longer sees as transitory after prices surged at the fastest pace in more than two decades. Currency market volatility also rose, with euro-dollar one-month volatility gauges below Monday's one-year peak but still at elevate levels . "Liquidity in some areas of the market is still quite poor as people grapple with this news and as we head towards year-end, a lot of it is really liquidity driven, which is leading to some volatility," said UBP's Kazmi. "Even in the most liquid market of the U.S. treasury market we've seen some fairly large moves on very little newsflow at times." In commodities, crude futures extend Asia’s gains. WTI adds 2.2% near $67, Brent near $70.50 ahead of today’s OPEC+ meeting. Spot gold finds support near Tuesday’s, recovering somewhat to trade near $1,774/oz. Base metals are mixed: LME aluminum drops as much as 1.1%, nickel, zinc and tin hold in the green Looking at the day ahead now, and central bank speakers include the Fed’s Quarles, Bostic, Daly and Barkin, as well as the ECB’s Panetta. Data releases include the Euro Area unemployment rate and PPI inflation for October, while there’s also the weekly initial jobless claims. Lastly, the OPEC+ group will be meeting. Market Snapshot S&P 500 futures up 0.7% to 4,540.25 STOXX Europe 600 down 1.0% to 466.37 MXAP up 0.2% to 192.07 MXAPJ up 0.7% to 629.36 Nikkei down 0.7% to 27,753.37 Topix down 0.5% to 1,926.37 Hang Seng Index up 0.5% to 23,788.93 Shanghai Composite little changed at 3,573.84 Sensex up 1.3% to 58,436.52 Australia S&P/ASX 200 down 0.1% to 7,225.18 Kospi up 1.6% to 2,945.27 Brent Futures up 2.4% to $70.53/bbl Gold spot down 0.6% to $1,771.73 U.S. Dollar Index little changed at 96.03 German 10Y yield little changed at -0.35% Euro little changed at $1.1320 Top Overnight News from Bloomberg Federal Reserve Bank of Cleveland President Loretta Mester said she’s “very open” to scaling back the Fed’s asset purchases at a faster pace so it can raise interest rates a couple of times next year if needed A United Nations gauge of global food prices rose 1.2% last month, threatening to make it more expensive for households to put a meal on the table. It’s more evidence of inflation soaring in the world’s largest economies and may make it even harder for the poorest nations to import food, worsening a hunger crisis Germany is poised to clamp down on people who aren’t vaccinated against Covid-19 and drastically curtail social contacts to ease pressure on increasingly stretched hospitals Some investors buffeted by concerns about tighter monetary policy are turning their sights to China’s battered junk bonds, given they offer some of the biggest yield buffers anywhere in global credit markets Pfizer Inc. says data on how well its Covid-19 vaccine protects against the omicron variant should be available within two to three weeks, an executive said GlaxoSmithKline Plc said its Covid-19 antibody treatment looks to be effective against the new omicron variant in early testing A more detailed look at global markets courtesy of Newsquawk Asian equity markets traded tentatively following the declines on Wall St where all major indices extended on losses and selling was exacerbated on confirmation of the first Omicron case in the US, while the Asia-Pac region also contended with its own pandemic concerns. ASX 200 (-0.2%) was subdued amid heavy losses in the tech sector and with a surge of infections in Victoria state, although downside in the index was cushioned amid inline Retail Sales and Trade Balance, as well as M&A optimism after Woolworths made a non-binding indicative proposal for Australian Pharmaceutical Industries. Nikkei 225 (-0.7%) weakened after the government instructed airlines to halt inbound flight bookings for a month due to fears of the new variant and with auto names also pressured by declines in monthly sales amid the chip supply crunch. KOSPI (+1.6%) showed resilience amid expectations for lawmakers to pass a record budget today and recouped opening losses despite the record increase in daily infections and confirmation of its first Omicron cases, while the index also shrugged off the highest CPI reading in a decade which effectively supports the case for further rate increases by the BoK. Hang Seng (+0.6%) and Shanghai Comp. (-0.1%) were choppy following another liquidity drain by the PBoC and with tech pressured in Hong Kong as Alibaba shares extended on declines after recently slipping to a 4-year low in its US listing. Beijing regulatory tightening also provided a headwind as initial reports suggested China is to crack down on loopholes used by tech firms for foreign IPOs, although this was later refuted by China, and the CBIRC is planning stricter regulations on major shareholders of banks and insurance companies, as well as confirmed it will better regulate connected transactions of banks. Finally, 10yr JGBs were higher as prices tracked gains in global counterparts and amid the risk aversion in Japan, although prices are off intraday highs after hitting resistance during a brief incursion to the 152.00 level and despite the marginally improved metrics from 10yr JGB auction. Top Asian News Asia Stocks Swing as Investors Weigh Omicron Impact, Fed Views Apple Tells Suppliers IPhone Demand Slowing as Holidays Near Moody’s Cuts China Property Sales View on Financing Difficulties Faith in Singapore Leaders Hit by Record Covid Wave, Poll Shows Bourses across Europe have held onto losses seen at the cash open (Euro Stoxx 50 -1.4%; Stoxx -1.2%), as the region plays catchup to the downside seen on Wall Street – seemingly sparked by a concoction of hawkish Fed rhetoric and the discovery of the Omicron variant in the US. Nonetheless, US equity futures are firmer across the board but to varying degrees – with the cyclical RTY (+1.1%) and the NQ (+0.3%) the current laggard. European futures ahead of the cash open saw some mild fleeting impetus on reports GlaxoSmithKline's (-0.3%) COVID treatment Sotrovimab retains its activity against Omicron variant, and the UK MHRA simultaneously approved the use of Sotrovimab – but caveated that it is too early to know whether Omicron has any impact on effectiveness. Conversely, brief risk-off crept into the market following commentary from a South African Scientist who warned the country is seeing an exponential rise in new COVID cases with a predominance of Omicron variant across the country – with the variant causing the fastest ever community transmission - but expects fewer active cases and hospitalisations this wave. Back to Europe, Euro indices see broad-based losses whilst the downside in the FTSE 100 (-0.7%) is less severe amid support from its heavyweight Oil & Gas sector – the outperforming sector in the region. Delving deeper, sectors see no overarching theme nor bias – Food & Beverages, Autos and Banks are towards the top of the bunch, whilst Tech, Telecoms, and Travel &Leisure. Tech is predominantly weighed on by reports that Apple (-2% pre-market) reportedly told iPhone component suppliers that demand slowed down. As such ASML (-5.0%), STMicroelectronics (-4.4%) and Infineon (-3.6%) reside among the biggest losers in the Stoxx 600. Deliveroo (-5.3%) is softer following an offering of almost 18mln at a discount to yesterday's close. In terms of market commentary, Morgan Stanley believes that inflation will remain high over the next few months, in turn supporting commodities, financials and some cyclical sectors. The bank identifies beneficiaries including EDF (-1.5%), Engie (-1.2%), SSE (-0.2%), Legrand (-1.3%), Tesco (-0.5%), BT (-0.8%), Michelin (-1.6%) and Sika (-0.9%). Top European News Shell Kicks Off First Wave of Buybacks From Permian Sale Omicron Threatens to Prolong Pain in Bid to Vaccinate the World Apple, Suppliers Drop Premarket After Report Demand Slowed Valeo, Gestamp Gain After Barclays Raises to Overweight In FX, currency markets are still in a state of flux, or limbo bar a few exceptions, and the Greenback is gyrating against major peers awaiting the next major event that could provide clearer direction and a more decisive range break. Thursday’s agenda offers some scope on that front via US initial jobless claims and a host of Fed speakers, but in truth NFP tomorrow is probably more likely to be influential even though chair Powell has effectively given the green light to fast-track tapering from December. In the interim, the index continues to keep a relatively short leash around 96.000, and is holding within 96.138-95.895 confines so far today. JPY/CHF - Although risk considerations look supportive for the Yen, on paper, UST-JGB/Fed-BoJ differentials coupled with technical impulses are keeping Usd/Jpy buoyant on the 113.00 handle, with additional demand said to have come from Japanese exporters overnight. However, the headline pair may run into offers/resistance circa 113.50 and any breach could be capped by decent option expiry interest spanning 113.60-75 (1.5 bn). Similarly, the Franc has slipped back below 0.9200 on yield and Swiss/US Central Bank policy stances plus near term outlooks, and hardly helped by a slowdown in retail sales. GBP/CAD/NZD - All firmer vs their US counterpart, though again well within recent admittedly wide ranges, and the Pound perhaps more attuned to Eur/Gbp fluctuations as the cross retreats to retest 0.8500 and Cable rebounds to have another look at 1.3300 where a fairly big option expiry resides (850 mn). Indeed, Sterling has largely shrugged off the latest BoE Monthly Decision Maker Panel release that in truth did not deliver any clues on what is set to be another knife-edge MPC gathering in December. Elsewhere, the Loonie is straddling 1.2800 with eyes on WTI crude ahead of Canadian jobs data on Friday and the Kiwi is hovering above 0.6800 after weaker NZ Q3 terms of trade were offset to some extent by favourable Aud/Nzd headwinds. AUD/EUR - Both narrowly mixed against US Dollar, with the Aussie pivoting 0.7100 in wake of roughly in line trade and retail sales data overnight, but wary about the latest virus outbreak in the state of Victoria, while the Euro is sitting somewhat uncomfortably on the 1.1300 handle amidst softer EGB yields and heightened uncertainty about what the ECB might or might not do in December on the QE guidance front. In commodities, WTI and Brent front-month futures are firmer intraday as traders gear up for the JMMC and OPEC+ confabs at 12:00GMT and 13:00GMT, respectively. The jury is still split on what the final decision could be, but the case for OPEC+ to pause the planned monthly relaxation of output curbs by 400k BPD has been strengthening against the backdrop of Omicron coupled with the coordinated SPR releases (an updating Rolling Headline is available on the Newsquawk headline feed). As expected, OPEC sources have been testing the waters in the run-up, whilst yesterday's JTC/OPEC meetings largely surrounded the successor to the Secretary-General position. Oil market price action will likely be centred around OPEC+ today in the absence of any macro shocks. WTI Jan resides around USD 66.50/bbl (vs low USD 65.41/bbl) whilst Brent Feb briefly topped USD 70/bbl (vs low USD 68.73/bbl). Elsewhere, spot gold has eased further from the USD 1,800/oz after failing to sustain a break above the 50, 100 and 200 DMAs which have all converged to USD 1,791/oz today. LME copper is on the backfoot amid the cautious risk sentiment, with the red metal back under USD 9,500/t but off overnight lows. US Event Calendar 7:30am: Nov. Challenger Job Cuts -77.0% YoY, prior -71.7% 8:30am: Nov. Initial Jobless Claims, est. 240,000, prior 199,000; 8:30am: Nov. Continuing Claims, est. 2m, prior 2.05m 9:45am: Nov. Langer Consumer Comfort, prior 52.2 DB's Jim Reid concludes the overnight wrap With investors remaining on tenterhooks to find out some definitive information on the Omicron variant, yesterday saw markets continue to see-saw for a 4th day running. Following one of the biggest sell-offs of the year on Friday, we then had a partial bounceback on Monday, another bout of fears on Tuesday (not helped by the prospect of faster tapering), and yesterday saw another rally back before risk sentiment turned sharply later in the day as an initial case of the Omicron variant was discovered in the US. You can get some idea of this by the fact that Europe’s STOXX 600 (+1.71%) posted its best daily performance since May, whereas the S&P 500 moved from an intraday high where it had been up +1.88%, before shedding all those gains and more to close -1.18% lower. In fact, that decline means the S&P has now lost over -3% in the last two sessions, marking its worst 2-day performance in over a year, and this heightened volatility saw the VIX index close back above 30 for the first time since early February. In terms of developments about Omicron, we’re still in a waiting game for some concrete stats, but there was positive news early on from the World Health Organization’s chief scientist, who said that they think vaccines “will still protect against severe disease as they have against the other variants”. On the other hand, there was further negative news out of South Africa, as the country reported 8,561 infections over the previous day, with a positivity rate of 16.5%. That’s up from 4,373 cases the day before, and 2,273 the day before that, so all eyes will be on whether this trend continues, and also on what that means for hospitalisation and death rates over the days ahead. Against this backdrop, calls for fresh restrictions mounted across a range of countries, particularly on the travel side. In the US, it’s been reported already by the Washington Post that President Biden could today announce stricter testing requirements for arriving travellers. Meanwhile, France is moving to require non-EU arrivals to show a negative test before arrival, irrespective of their vaccination status. The EU Commission further said that member states should conduct daily reviews of essential travel restrictions, and Commission President von der Leyen also said that the EU should discuss the topic of mandatory vaccinations. There was also a Bloomberg report that German Chancellor Merkel would recommend mandatory vaccinations from February 2022, according to a Chancellery paper that they’d obtained. That came as Slovakia sought to incentivise vaccination uptake among older citizens, with the cabinet backing a €500 hospitality voucher for residents over 60 who’ve been vaccinated. As on Tuesday, the other main headlines yesterday were provided by Fed Chair Powell, who re-emphasised his more hawkish rhetoric around inflation before the House Financial Services Committee. Notably he said that “We’ve seen inflation be more persistent. We’ve seen the factors that are causing higher inflation to be more persistent”, though yields on 2yr Treasuries (-1.4bps) already had the shift in stance priced in. New York Fed President Williams echoed that view in an interview, noting it would be germane to discuss and decide whether it was appropriate to accelerate the pace of tapering at the December FOMC. 10yr yields (-4.1bps) continued their decline, predominantly driven by the turn in sentiment following the negative Omicron headlines. That latest round of curve flattening left the 2s10s slope at its flattest level since early January around the time of the Georgia Senate race that ushered in the prospect of much larger fiscal stimulus. In terms of markets elsewhere, strong data releases helped to support risk appetite earlier in yesterday’s session, with investors also looking forward to tomorrow’s US jobs report for November that will be an important one ahead of the Fed’s decision in less than a couple of weeks’ time. The ISM manufacturing release for November saw the headline number come in roughly as expected at 61.1 (vs. 61.2 expected), and also included a rise in both the new orders (61.5) and the employment (53.3) components relative to last month. Separately, the ADP’s report of private payrolls for November likewise came in around expectations, with a +534k gain (vs. +526k expected). Staying on the US, one thing to keep an eye out over the next 24 hours will be any news on a government shutdown, with funding currently set to run out by the weekend as it stands. The headlines yesterday weren’t promising for those hoping for an uneventful, tidy resolution, as Politico indicated that some Congressional Republicans would not agree to an expedited process to fund the government should certain vaccine mandates remain in place. An expedited process is necessary to avoid a government shutdown at the end of the week, so one to watch. After the incredibly divergent equity performances in the US and Europe, we’ve seen a much more mixed performance in Asia overnight, with the KOSPI (+1.09%), Hang Seng (+0.23%), and CSI (+0.23%) all advancing, whereas the Shanghai Composite (-0.05%) and the Nikkei (-0.60%) are trading lower. In terms of the latest on Omicron, authorities in South Korea confirmed five cases, which came as the country also reported that CPI in November rose to its fastest since December 2011, at +3.7% (vs +3.1% expected). Separately in China, 53 local Covid-19 cases were reported in Inner Mongolia, whilst Harbin province reported 3 local cases. Looking forward, futures are indicating a positive start in the US with those on the S&P 500 (+0.64%) pointing higher. Back in Europe, sovereign bonds lost ground yesterday, and yields on 10yr bunds (+0.5bps), OATs (+1.1bps) and BTPs (+4.2bps) continued to move higher. Interestingly, there was a continued widening in peripheral spreads, with the gap between both Italian and Spanish 10yr yields over bunds reaching their biggest level in over a year, at 135bps and 77bps, respectively. Another factor to keep an eye on in Europe is another round of increases in natural gas prices, with futures up +3.42% to their highest level since mid-October yesterday. Lastly on the data front, the main other story was the release of the manufacturing PMIs from around the world. We’d already had the flash readings from a number of the key economies, so they weren’t too surprising, but the Euro Area came in at 58.4 (vs. flash 58.6), Germany came in at 57.4 (vs. flash 57.6), and the UK came in at 58.1 (vs. flash 58.2). One country that saw a decent upward revision was France, with the final number at 55.9 (vs. flash 54.6), which marks an end to 5 successive monthly declines in the French manufacturing PMI. One other release were German retail sales for October, which unexpectedly fell -0.3% (vs. +0.9% expected). To the day ahead now, and central bank speakers include the Fed’s Quarles, Bostic, Daly and Barkin, as well as the ECB’s Panetta. Data releases include the Euro Area unemployment rate and PPI inflation for October, while there’s also the weekly initial jobless claims. Lastly, the OPEC+ group will be meeting. Tyler Durden Thu, 12/02/2021 - 07:57.....»»

Category: dealsSource: nytDec 2nd, 2021

"Global Gloom": World Markets Plunge To Start The Week As Global Currency Crash Hits Max Pain And Beyond

"Global Gloom": World Markets Plunge To Start The Week As Global Currency Crash Hits Max Pain And Beyond The rout which hammered stocks on Friday, nearly pushing them to close at a new 2022 low, resumed overnight when the global FX crisis returned with a bang, and a flash crash in the British pound which as noted late last night, plummeted 500pips in thin trading, to fresh record lows following Friday's shocking mini-budget announcement which confirmed the UK has no idea what it is doing and will cut rates and issue more debt just as the BOE is desperately trying to tighten financial conditions. The plunge in cable was however just one symptom of a bigger malaise, namely the relentless surge in the dollar which overnight hit fresh record highs as the BBDXY rose as high as 1,355 before briefly fading the surge... ... as every dollar-denominated debt issuer in the world is suffering crippling pain and begging Powell to do something to ease the unprecedented shock of the strongest dollar in history just as the world slumps into a global depression. Alas, so far there is nothing but silence from the Fed - which will likely have to make some announcement on central bank currency swaps at some point before the open today to avoid an even more epic FX rout - and as traders await something to break big time across global markets... This is the week of the barbell trade: deep OTM calls and puts as things either break or CBs panic. — zerohedge (@zerohedge) September 26, 2022 ... this morning futures have tumbled another 0.7%, as eminis drop to 3,683 while Nasdaq futures are down 0.8% to 11,290 on fears that Federal Reserve rate hikes to combat persistently elevated inflation will crush the economy into a full-blown recession, or depression, and the VIX soared above 32. It wasn't just FX and stocks crashing: British bonds also cratered as yields surged to the highest in more than a decade, sparking talk of emergency action by the Bank of England. For one example of the total chaos look no further than 5Y UK Gilts which have exploded 51bps higher and last traded around 4.58% as the market now prices in Similar implosions were observed in US TSYs, where the 10Y traded just shy of Friday's mini blowout, and was last seen at 3.7828% as bond traders are hit by VaR shocks at the same time in every possible market. Turning back to stocks, the rout wasn't isolated to just one market and an index of global stocks traded to the lowest since 2020. European equities extended declines after sliding into a bear market on Friday, with mining and energy stocks underperforming as metals and oil fell. “We’re in a period of global gloom, with pessimism blanketing different countries for different reasons,” said Ed Yardeni, president of his eponymous research firm, who warned of growing storm clouds for the US economy. “The latest data jibe with our growth recession scenario, but the risks of a full-blown recession are obviously increasing,” he wrote in a note Monday. In premarket trading, major US tech and internet stocks including Apple, Amazon and Microsoft tumbled. Here are some other notable premarket movers: Farfetch (FTCH US) shares fall as much as 4.43% in US premarket trading, after Citi begins coverage of the luxury online retailer with a sell rating, with broker flagging “weak” underlying profitability. Shares of US-listed Macau casinos jump in premarket trading, after Macau government said tour groups from mainland China could resume as early as November. Wynn Resorts (WYNN US) jumps 5.4%; Las Vegas Sands (LVS US) +6.9%, Melco (MLCO US) +9.6% and MGM resorts (MGM US) +1.6% Cryptocurrency-exposed stocks edged higher in premarket trading on Monday as Bitcoin rose above $19,000. Marathon Digital (MARA US) +1.9%, Coinbase (COIN US) +0.4% Keep an eye on Diana Shipping (DSX US) and Safe Bulkers (SB US) as Jefferies downgraded them to hold from buy and lowered dry bulk estimates to reflect the decline in dry bulk charter rates. European shares extended their fall to Dec. 2020 lows; sliding 1% and extending losses as investors priced a major economic shock and recession. The Stoxx 600 Index was down 1% by 10:50am in London, touching its lowest since December 2020, with real estate and banks among the worst performing sectors, while technology shares outperformed. Italy’s FTSE MIB bucked broader European declines to trade little changed, after Giorgia Meloni won a clear majority in Sunday’s election, in line with expectations. Banks and real estate stocks were the worst-performing sectors in Europe on Monday, with declines led by UK stocks as the pound and UK bonds slump. The Stoxx 600 Banks Index and the Stoxx 600 Real Estate are both down at least 2.5% while the benchmark gauge is 1.1% lower. The bank index decline is led by UK names including Virgin Money (-10%), Lloyds (-4.6%) and NatWest (-4.5%). Virgin Money was today resumed with a hold rating at Berenberg; broker said that the lender is expected to see revenue declines and a sector- lagging return on tangible equity which will affect ability to re-rate. Among real estate stocks, the UK’s Safestore Holdings (-4.2%), Assura (-3.9%) and Derwent London (-3.8%) are among the worst performers; non-index member housebuilders, including Persimmon, Bellway and Taylor Wimpey, are also plunging as the pound’s slump prompts talk of emergency action by the Bank of England. Here are the most notable movers today: The Stoxx 600 Tech Index rises as much as 2.4%, set for its biggest one-day outperformance against the broader Stoxx 600 since early-August, with semiconductor stocks leading gains. Among chip stocks, ASML rose as much as +3.7% after Santander upgraded the stock to neutral from underperform Italy’s FTSE MIB index gains, bucking weaker markets in Europe, after Giorgia Meloni won a clear majority in Sunday’s election. While the outcome was in line with expectations, the fact that the coalition didn’t obtain a super majority needed to change the constitution reassures investors. Telecom Italia rose as much +7.4%, FinecoBank +5.1%, Moncler +4.4% Unilever shares rise as much as 3.7% after it announced that CEO Alan Jope will retire from the company at the end of 2023, in a move that Jefferies analyst Martin Deboo (buy) sees as a positive development. RPS Group shares rise as much as 13% after Tetra Tech’s agreed deal to buy the company at 222p/share in cash, representing a 7.8% premium to an offer WSP made in August. Liberum does not rule out a counterbid. Belimo shares rise as much as 8.5% since the market isn’t fully pricing in its growth outlook, Berenberg says in a note, moving to buy and establishing a Street-high CHF440 target. The stock gains as much as 8.1%, the most since March 2021. Zalando shares rise as much as 4.8% after Citi analyst says they like the long-term investment story, short-term earnings risks are still high. UK Domestics: the most remarkable reaction to Friday’s not-so-mini budget, however, might be in lenders’ shares. The decline in banking stocks reflects investors’ pessimistic view on Britain’s economy. HSBC fell as much as 2.9%; Lloyds -4.3%, NatWest -4.7% and Barclays -3.0%. Virgin Money UK shares drop as much as 10% after Berenberg resumed a hold rating in note, stating that in many ways the UK small banks are “more different than they are alike.” Utilities are the day’s worst-performing European sector. Citi analyst Piotr Dzieciolowski says the EU’s funding for its policy response has so far been insufficient and also expects uncertainty to persist for UK names. United Utilities fell as much as -3.4%, Drax -3.8% Geopolitical risks from the war in Ukraine to escalating tensions over Taiwan and unrest in Iran also weighed on sentiment. Meanwhile, the OECD cut almost all growth forecasts for the Group of 20 next year while anticipating further interest-rate hikes, and a gauge of German business confidence deteriorated. Earlier in the session, a rout in Asian stocks extended into Monday as rising concerns about a global recession and weak demand hit the region’s exporters and materials producers. The MSCI Asia Pacific Index declined as much as 2.3% to the lowest since April 2020, dragged lower by TSMC, BHP and Toyota Motor. All but one sector traded lower with materials leading the slump.  South Korean stocks fell the most in the region, with the benchmark tumbling 3% to more than a two-year low. The Korean market’s heavy tech exposure has proven costly amid rising rates and a stronger dollar, with fears that a looming recession may wreak havoc on global demand. Gauges in Hong Kong and China reversed earlier gains as the region’s selloff intensified.   Korea Assets Are Asia’s Biggest Losers on Global Recession Angst “Investor sentiment is again at the stage of extreme fear,” said Lee Kyoung-Min, an analyst at Daishin Investment. “It is becoming solid and clear that Kospi and other global stock markets are on a mid-to-long term downward trend.” Asian stock benchmarks are being buffeted by global headwinds as well as risks of their own. The Federal Reserve’s relentless rate hike campaign is pushing Asian currencies lower and raising the risk of capital outflows, while China’s adherence to Covid Zero is hurting growth in the region’s economic giant.  If Monday’s losses are extended through the week, the MSCI Asia Pacific Index will see its longest run of declines since 2015. Japan stocks declined more than 2% as the nation resumed trading after a holiday on Friday. The Philippine stock market was closed Monday as Super Typhoon Noru barreled into the main Luzon island.  Among the key issues investors are watching this week are speeches by central bank officials in US and Europe, including Fed Chair Jerome Powell on Tuesday. Japanese equities tumbled as the market reopened following a three-day weekend, tracking US peers lower after the Fed’s hawkish comments last week deepened fears of a global downturn. The Topix fell 2.7% to close at 1,864.28, while the Nikkei declined 2.7% to 26,431.55. Toyota Motor contributed the most to the Topix decline, decreasing 3.2% after its monthly production update lagged expectations. Out of 2,169 stocks in the index, 145 rose and 1,985 fell, while 39 were unchanged. “There is a possibility that inflation will not subside and interest rates will rise further, which the markets will not like,” said Shoji Hirakawa, a chief global strategist at Tokai Tokyo Research. In Australia, the S&P/ASX 200 index fell 1.6% to close at 6,469.40, as energy and mining shares plummeted. An energy gauge including oil and coal linked securities declined by the most since March 2020.  The New Zealand market was closed for a holiday In India, key stocks gauges plunged to their lowest closing levels in almost two months as the global equity rout continues. The S&P BSE Sensex dropped 1.6% to 57,145.22 in Mumbai to its lowest since July 28. The NSE Nifty 50 Index fell 1.8%, its biggest single-day plunge since Sept. 16. Both the indexes, down in four of the past five weeks, have lost almost 6% since this month’s peak. Volatility in domestic equities is likely to remain elevated this week, pending monthly derivatives expiry on Thursday. Of 30 shares in the Sensex index, 24 fell and 6 advanced. All but one of the 19 sector sub-indexes compiled by BSE Ltd. declined, led by utilities and power companies.  The Indian rupee weakened to a new record against the dollar amid surging US Treasury yields. The Reserve Bank of India’s rate-setting panel will announce monetary policy later this week. As noted above, while stocks are ugly, rates are a horrorshow as Treasuries extended their worst bond slide in decades as a dollar gauge rose to yet another record. Treasuries extended losses in a bear flattening move with yields cheaper by up to 10bp across the belly of the curve. US 10-year yields around 3.78%, cheaper by 6bp on the day with 5s30s spread flatter by 5bp, dropping as low as -45.4bp in European session; UK yields cheaper by 60bp to 25bp from front- end out to long-end of the curve. The Move comes as market participants brace for accelerated policy tightening from global central banks and headlines such as this: *TRADERS PRICE IN UP TO 200BPS OF BOE RATE HIKES BY NOVEMBER Yields on 2-year gilts are 60bp cheaper heading into early US session, while the pound recovers slightly after reaching a fresh all-time low. US session focus on 2-year auction, while a barrage of Fed speakers are expected for the week. Peripheral spreads widen to Germany with 10y BTP/Bund widening 7bps to 238bps. FX, of course, is a disaster, with the Bloomberg Dollar Spot Index rising a fifth consecutive day as the greenback advanced versus most of its Group-of-10 peers. The pound plunged almost 5% to $1.0350 in Asian trading, the lowest recorded in Bloomberg data going back to 1971, while gilts crashed after the UK government vowed to press ahead with more tax cuts, stoking fears that new fiscal policies will send inflation and debt soaring, triggering emergency rate hikes. The options market signals no respite even as the pound rebounded from a record low hit during the Asia session. The yield on two- year bonds surged more than 55 basis points to 4.51%, while the 10-year yield rose 37 basis points to 4.19%. Money markets price in more than 150 basis points of rate increases by the BoE’s next policy meeting in November The euro steadied after earlier dropping to $0.9554; European bond yields rose; Italian bonds underperformed German peers. Giorgia Meloni won a clear majority in Sunday’s Italian election, setting herself up to become the country’s first female prime minister at the head of the most right-wing government since World War II. Germany’s IFO business expectations slid to 75.2 in September from 80.3 in August. That’s the lowest since April 2020. Analysts had predicted a drop to 79. An index of current conditions also fell. The Australian and New Zealand dollars pared some losses after earlier touching fresh 2-year lows. Aussie bond yields rose by up to 13bps, led by the front end The yen weakened amid a broadly stronger dollar. Bank of Japan Governor Haruhiko Kuroda said the government’s intervention in the foreign exchange market last week was appropriate given the recent volatility in the yen The currency’s rally is “untenable” for risk assets, according to a note by Morgan Stanley strategists led by Michael Wilson, while Sian Fenner, senior Asia economist for Oxford Economics, said that “It’s a king US dollar...“It’s adding to inflationary pressures and more central banks raising rates more than we have historically seen.” In commodities, WTI slides almost 1% to trade near $78/bbl. Spot gold mostly unchanged near $1,643/oz. Bitcoin climbs above $19,000. Trading this week will be punctuated by a number of economic reports including US initial jobless claims and gross-domestic-product data, along with PMI figures from China. Choppiness in price moves is likely with a steady stream of Federal Reserve officials speaking through the week. Looking at today's calendar, we get the September Dallas Fed manufacturing activity index, and the August Chicago Fed national activity index. Central bank speakers include the Fed's Bostic, Collins, Logan and Mester; ECB's Lagarde also speaks as does Nagel, Guindos, Centeno and Panetta speak, BoE's Tenreyro speaks. Market Snapshot S&P 500 futures little changed at 3,706.25 MXAP down 2.0% to 142.24 MXAPJ down 1.4% to 463.08 Nikkei down 2.7% to 26,431.55 Topix down 2.7% to 1,864.28 Hang Seng Index down 0.4% to 17,855.14 Shanghai Composite down 1.2% to 3,051.23 Sensex down 1.2% to 57,378.30 Australia S&P/ASX 200 down 1.6% to 6,469.41 Kospi down 3.0% to 2,220.94 STOXX Europe 600 down 0.2% to 389.70 German 10Y yield little changed at 2.08% Euro little changed at $0.9683 Brent Futures down 0.7% to $85.59/bbl Brent Futures down 0.7% to $85.59/bbl Gold spot up 0.1% to $1,645.98 U.S. Dollar Index little changed at 113.22 Top Overnight News from Bloomberg Chancellor of the Exchequer Kwasi Kwarteng must do more to reassure the markets about his plans for the economy after a selloff sent the pound crashing to an all-time low against the dollar, said Gerard Lyons, an external adviser to Prime Minister Liz Truss The UK’s foreign currency holdings are a fraction of the huge stockpiles built up by some of its peers, making unilateral intervention in the market to prop up the plunging pound a tall order for UK policymakers. The UK had $108 billion in foreign currency reserves at the end of August, according to data from the IMF Hedge funds ramped up bullish bets on the pound just days before the UK government’s unexpectedly large tax cuts sent the currency tumbling The ECB’s newest policy maker, Boris Vujcic, says “it’s clear that this is the right way to go,” backing this month’s 75-basis point interest-rate hike ECB Vice President Luis de Guindos said the biggest problem facing the continent’s economy is record inflation, which is becoming more broad-based, threatening investment and consumer spending ECB Governing Council member Yannis Stournaras says the central bank must maintain the main principles of gradualism and flexibility, since the problem it faces is different from the one that the US Fed faces China made it more expensive to bet against the yuan in the derivatives market, ramping up support for the currency as it slides toward the weakest level since the 2008 financial crisis A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mostly negative in a resumption of last week's global stock rout amid the continued surge in the dollar and higher yields, while there was also FX volatility which saw a flash crash in GBP/USD to a record low. ASX 200 was dragged lower amid losses in the commodity-related sectors and with sentiment dampened by the collapse of potential M&A deals involving Ramsay Health-KKR and Link Administration-Dye & Durham. Nikkei 225 underperformed with Mazda Motors among the worst hit as it considers exiting Russian operations. Hang Seng and Shanghai Comp retraced most of their initial losses with Hong Kong underpinned following the scrapping of hotel quarantine policy and with casinos boosted as Macau is to resume tour groups from China, while the property industry benefits after China Construction Bank formed a CNY 30bln housing rental fund and some Twitter sources also circulated that some China state banks were reportedly ordered to buy stocks to contain selling. Top Asian News PBoC injected CNY 42bln via 7-day reverse repos with the rate kept at 2.00% and CNY 93bln via 14-day reverse repos with the rate kept at 2.15% for a net CNY 133bln injection. There were rumours circulating on social media of a coup against Chinese President Xi, although experts and journalists in Beijing dismissed the rumours and said there was no evidence to support them, according to The Print. Philippines Stock Exchange announced a trading suspension for Monday amid a typhoon in the capital, according to Reuters. European bourses are softer after a mixed cash open and despite a brief foray higher, Euro Stoxx 50 -0.5%, as sentiment remains subdued amid recession/inflation concerns. The breakdown features modest outperformance in the FTSE MIB as Italian election results are in-line with expectations. Stateside, futures are lower across the board in-fitting with peers going into a week of Fed speak and inflation data. Top European News UK PM Truss said she is determined to make the special relationship with the US even more special and said she agreed with US President Biden that it is vital to protect the Northern Ireland Good Friday Agreement, while she wants to find a way forward with a negotiated solution with the EU, according to Reuters and a CNN interview. UK PM Truss is to review visa schemes in an attempt to ease UK labour shortages, according to FT. UK Chancellor Kwarteng hinted that more tax cuts are on the way and claimed his tax cuts “favour people right across the income scale” amid accusations they mainly help the rich, according to Evening Standard. UK Chancellor Kwarteng said he is focused on growing the economy and the longer term when asked about the market reaction to his statement on Friday. Kwarteng added that he shares ideas with BoE Governor Bailey but added that Bailey is completely independent and Kwarteng is confident the BoE is dealing with inflation, according to Reuters. UK opposition Labour Party leader Starmer said they would reintroduce the top rate of income tax at 45% which the government announced to scrap last week, while he added that they will support the government plan to lower the basic rate of income tax to 19%, according to Reuters. Italy's right-wing bloc is seen winning the national election with 43.3% and centre-left bloc is seen winning 25.4%, according to the first projection by LA7 TV based on the actual vote count.. Click here for newsquawk snap analysis. Italy's Meloni said Italians gave clear backing to a centre-right government led by the Brothers of Italy and said the situation is difficult and needs contribution from everyone. It was separately reported that Italy's Democratic Party conceded in the election and said it will be the main opposition force, while Italy's Meloni claimed leadership of the next Italian government, according to Reuters and AFP. FX DXY climbed to a fresh YTD high of 114.58 before paring modestly, but remaining firmer, as GBP in particular lifts off worst levels. Cable succumbed to a flash crash overnight, with GBP/USD hitting an all-time-low around 1.0350 as participants confidence in the economy slips. EUR suffers amid the mentioned USD move but derives relative benefit from GBP, while ECB speakers thus far have added little. Antipodeans and CAD weighed on by broader risk and commodity pressure. Japanese Finance Minister Suzuki said the government and BoJ share views on concerns about a weak JPY, while he added that FX intervention had a certain effect and there is no change to the stance that they will respond to market moves as needed, according to Reuters. PBoC set USD/CNY mid-point at 7.0298 vs exp. 7.0019 (prev. 6.9920) PBoC imposed a 20% risk reserve requirement for FX forward sales from September 28th to rein in yuan weakness. Fixed Income Gilts have retained some composure after slumping over 200ticks at the commencement of trade and have settled around halfway between intraday extremes. EGBs downbeat in sympathy while BTPs marginally lag core-EGB peers as Italian as-expected election results are digested with BTP-Bund only modestly wider as such. Stateside, USTs are pressured in-fitting with peers and also conscious of the week's supply docket getting underway via a 43bln 2yr. Central Banks Fed’s Bostic (2024 voter) said inflation is too high and that they need to do all they can to bring it down and said demand is beginning to shrink which will ultimately pay dividends in inflation levels. Bostic also stated that there are scenarios where they can avoid deep pain but there will likely be some job losses, according to Reuters. BoJ's Kuroda says the BoJ will maintain accommodative monetary conditions to support companies, hopes to support a positive economic cycle, long-term inflation expectations have begun to heighten, via Reuters. Intervention from the MoF is an "appropriate" move, does not think gov't intervention and BoJ policy are contradictory. Amamiya says the domestic economy is picking up, must carefully watch how FX moves affect the economy and prices. BoJ Governor Kuroda says when he stated that BoJ forward guidance will not change for 2-3yrs, did not refer to guidance on keeping short and long-term rates at present of lower levels via Reuters. ECB's de Guindos says Q3 and Q4 point towards growth rates being close to zero within the EZ, the scenario is market by high uncertainty, lower growth and higher inflation. ECB's Panetta says ECB is assessing the potential of distributed ledger technology (DLT) and "the extent to which it could improve our services.". Capital Economics calls for the BoE to "get on the front foot with a big rate hike". Allianz's El-Erian says, on GBP, the fall is about extra tax cuts and Chancellor Kwarteng could recalibrate this. Alternative, would be for the BoE to hike at an emergency meeting. Adding, he would hike by 100bp. BoE publishes key elements of the 2022 annual cyclical scenario stress test; includes a scenario where the Bank Rate is assumed to rise rapidly to a peak of 6% in early 2023 before gradually reduced to sub-3.5%. Commodities WTI and Brent November futures remain subdued in early European trade following last week’s recession-induced losses. Spot gold trades in tandem with the Buck and sees resistance at around USD 1,650/oz after falling to USD 1,627/oz as a casualty of the Sterling flash crash overnight. LME metals are softer across the board with 3M copper futures having a hard time reclaiming USD +7,500/t status with upside capped by the Buck. Iraq began trial operations at the Karabala oil refinery which has a production capacity of 140k bpd, according to a statement from the Oil Ministry. German Chancellor Scholz signed a strategic agreement with UAE’s President on accelerating energy security and industrial growth, while UAE’s ADNOC signed an agreement with Germany’s RWE which includes ADNOC exporting its first LNG cargo to RWE and will conduct trial shipments of low-carbon ammonia to Germany. Furthermore, Chancellor Scholz said while visiting Doha that he talked with the Emir about LNG deliveries and that they want to achieve further progress, according to Reuters. Germany is preparing a national electricity price cap to be implemented this fall in the scenario the EU falls to agree on a similar move for the entirety of the bloc, via WSJ citing officials. Vitol's CEO said at the Asia Pacific Petroleum Conference that Russian gas supply cuts put enormous strain on supply-demand in Europe and that high gas prices are to impact 60%-80% of demand, while Ecopetrol's CEO said they are increasing crude exports to Europe this year to replace Russian supplies and are drilling 600 oil wells this year. Anglo American (AAL LN) tightens copper production guidance for Chile to 560k-580k tonnes of copper (prev. 560k-600k tonnes) due to lower throughput at Los Bronces caused by a combination of water restrictions and a change in ore characteristics, via Reuters. US Event Calendar 08:30: Aug. Chicago Fed Nat Activity Index, est. 0.23, prior 0.27 10:30: Sept. Dallas Fed Manf. Activity, est. -10.0, prior -12.9 Central Banks 10:00: Boston Fed’s Susan Collins Speaks to Boston Chamber of... 12:00: Fed’s Bostic Discusses Income Inequality 12:30: Fed’s Logan Speaks at Banking Conference 16:00: Fed’s Mester Discusses Economic Outlook DB's Jim Reid concludes the overnight wrap I wonder whether any research report has ever been written whilst watching synchronised swimming? Well if not, then you’re reading the first ever as I’m getting a head start on the early morning news by starting this on Sunday evening watching my daughter Maisie do her second session after getting into the local club. Watching this sport is going to take some getting used to after years of watching football, cricket, golf, F1, athletics, rugby... actually.... virtually every sport bar synchronised swimming. I think everyone felt they were swimming in a tsunami of newsflow last week after one of the most incredible macro weeks in recent memory in terms of breadth of events. Yes there have been more extreme weeks in crises but last week had a bit more variety and was outside of a crisis period. If over 500bps of global rate hikes wasn’t enough, you also had 2yr US yields moving higher for the 12th successive day on Friday (the longest steak since data begins in 1976), the BoJ intervening in FX markets for the first time since 1998, and what can only be termed as one of the darker days for sterling assets on record on Friday after a mammoth tax giveaway in what was a mini-budget in name and not by nature. Henry and I put a note out on Friday night (link here) showing that it was the third worst day for Sterling (-3.57%) since Black Wednesday in 1992, with the worst two since being the day after the Brexit vote (-8.1%) and after the initial covid shock in 2020 (-3.71%) when there was a global flight to dollars. We also show a graph of daily Sterling moves back to 1862 and on that it was the 41st worst day in history spanning 47,000 trading days. Obviously in the long era of fixed FX rates there were the occasional big devaluations which were much bigger than Friday. This morning is Asia it fell around -4.5% at one point (1.0392) which was a record low against the Dollar. It's around -2.78% as I type. This follows a weekend interview where Chancellor Kwarteng suggested that more tax cuts were to come so that certainly was a red rag to markets. Will we hear from the upper echelons of the BoE today? Watch out for any comments, especially at the market open. DB's George Saravelos suggested on Friday that the Bank of England need to do an inter meeting hike to restore policy credibility. There’s also a graph in our note mentioned above showing that Friday was the worst day for 5yr gilts (+50.3bps) since a +200bps hike in 1985 when sterling was also slumping. So maybe omens here. I suppose the only slight mystery is the timing of the sell-off as the mini-budget in magnitude was broadly in-line with the recent elevated fiscal expectations that had been building. However perhaps it was the unabashed revival of trickle-down economics that had markets a little aghast. It goes against the current economic orthodoxy and the overall zeitgeist of our immediate times. As such there is likely to be concerns of a credibility issue. We are publishing our long-term study today with the title “How we got here, and where we’re going?”. In it we try to put the current macro woes into historical context in an attempt to work out where we’re going. There are quite a few people who have proof-read it on my team and they were all thoroughly depressed at the end. I didn't feel that way writing it but maybe it's a case of starting point perceptions. Anyway, look out for it around the European lunchtime. Overnight in Italy, the right-wing alliance led by Giorgia Meloni's Brothers of Italy party was on course to become the nation’s first woman prime minister after exit polls gave it a clear majority. With the full results due later today, she is predicted to win up to 26% of the vote ahead of her closest rival Enrico Letta from the centre left. The right wing alliance is slated to be on course for around 43% of the vote, enough for a majority if correct. As I type, the euro is extending its losses against the dollar for the fifth day, its longest streak since April 28, falling as much as -0.5% to 0.9638, albeit being overshadowed by Sterling. For this week we have an array of consumer-driven economic data in the US and some important European inflation prints. We will also get a number of consumer sentiment indicators across the key economies and PMIs from Asia. Away from the data, there are more than 30 central banker appearances across the Fed and the ECB to keep markets busy. Tomorrow also sees referendums in the Russia-annexed Ukrainian territories as the conflict goes into its eight month. Going through the data in more details now. Starting with the US, the PCE and personal income and spending data will be front and centre for markets next week as they gauge the extent of inflationary pressures and the strength of the consumer. The Fed’s preferred inflation gauge, the PCE, due Friday, will be watched for signs of price pressures we saw in last week's CPI report. Our US economists expect core PCE to edge higher by +0.5% MoM (vs +0.1% in July) which won’t allow the Fed to take the foot off the tightening pedal. For the other two data points, our team forecasts a +0.1% MoM increase for both income and consumption. Final US Q2 GDP will also be released on Thursday and although DB expect no change to the -0.6% second reading, watch out for the annual benchmark revisions back to Q1 2017. History could be re-written that could have some implications for how we all think about the economy. In other US data, we will also get the consumer confidence index on Tuesday, along with durable goods orders, and inventories data on Wednesday, with the Chicago PMI on Friday. Over in Europe, all eyes will be on September's inflation data, including the Euro Area flash CPI release on Friday. Our economists are expecting the measure to hit a record +9.5%, up from the previous record of +9.1% in August. Other data in the region will include consumer and economic sentiment from Germany, France, Italy and the Eurozone throughout the week. Meanwhile, EU energy ministers will meet again on Friday regarding the emergency intervention amid elevated energy prices. Finally, next week's earnings line up will feature a number of retail bellwethers on Thursday. Among them will be Nike, H&M and Next. Micron will report that day as well. See our usual day by day guide to the week at the end which contains many of the key Fed and ECB speakers including Powell and Lagarde. Stock markets across Asia are mostly lower this morning. The Kospi (-2.40%), Nikkei (-2.30%) and the S&P/ASX 200 (-1.40%) are leading the declines. Meanwhile, the Hang Seng (+0.11%) is swinging between gains and losses after rising by +2.45% initially with Chinese shares mixed as the Shanghai Composite (-0.10%) is trading lower while the CSI (+0.46%) is up as we go to press. Stock futures in DMs are pointing to further losses with contracts on the S&P 500 (-0.49%), NASDAQ 100 (-0.46%) and DAX (-0.33%) all moving lower. Early morning data showed that Japan’s manufacturing sector continued to expand albeit at a slower pace as the latest au Jibun Bank manufacturing PMI slipped to a 20-month low of 51.0 in September from 51.5 in August, pulled lower by high energy and raw material prices that was exacerbated by a weak yen. At the same time, the au Jibun Bank services PMI returned to expansion, recording a level of 51.9 in September from August's 49.5 final reading. Moving on to China, in order to stabilise expectations in the FX market, the People’s Bank of China (PBOC) today raised the risk reserve requirement on foreign exchange forward sales to 20% from 0% beginning September 28 as the yuan faces increasing depreciation pressure, in line with most major currencies amid broad dollar strength. Looking back now on a week that will not be forgotten anytime soon. While there were historic central bank hikes all week, the biggest news came from the fiscal authorities, following the UK’s budget Friday, which had the largest tax cut package since the 1970s. Gilt yields had their largest one-day increase in decades with 2yrs +44.7bps, 5yrs +50.3bps, and 10yrs +33.3bps. As we mentioned at the top, 5yrs yields saw their largest move since 1985 after a +200bps hike aimed at helping a plunging currency. The pound fell -3.57% against the US dollar to within a percentage point of the weakest in the post-Bretton Woods 51yr free float era. It was already a busy macro week before the blockbuster budget, where we got more than 500bps of global central bank hikes and a currency intervention from Japan. In terms of the biggest players, the Fed delivered its third consecutive 75bp hike while the BoE delivered its second 50bp hike in a row, with both banks guiding toward yet more tightening, while the BoJ remained the outlier by keeping its accommodative policy in place, which isn’t going to help the yen turnaround even with intervention. When all was said and done, sovereign bonds and equities sold off in size, while yield curves flattened. 2yr Treasuries (+33.4bps, +7.9bps Friday), 2yr Bunds (+38.5bps, +7.2bps Friday), 2yr Gilts (+82.1bps, +44.7bps Friday) reached their highest levels since 2007, 2008, and 2008, respectively, as markets priced in more tightening to overcome inflationary pressures (and in the case of the UK, fiscal expansion). 10yr Treasuries (+23.5bps, -2.9bps Friday) ended the week a touch lower on the day but hit their highest levels since 2011 during the week, while 10yr Bunds (+26.8bps, +5.9bps Friday), and 10yr Gilts (+69.1bps, +33.3bps Friday) hit their highest levels since 2013 and 2011, respectively. The mixture unsurprisingly proved unpalatable to risk assets, driving the STOXX 600 and S&P 500 back to their lows for the year. The STOXX 600 retreated -4.37% on the week and -2.34% on Friday, the worst weekly and daily return since mid-June. The S&P 500 fell -4.65% (-1.75% Friday), returning to bear market territory. The FTSE managed to stay above its YTD lows, but still fell -3.01% on the week, its worst weekly return since mid-June as well, and retreated -1.97% on Friday, the worst daily return since early July. Tyler Durden Mon, 09/26/2022 - 08:08.....»»

Category: blogSource: zerohedgeSep 26th, 2022

“Global Gloom": World Markets Plunge To Start The Week As Global Currency Crash Hits Max Pain And Beyond

“Global Gloom": World Markets Plunge To Start The Week As Global Currency Crash Hits Max Pain And Beyond The rout which hammered stocks on Friday, nearly pushing them to close at a new 2022 low, resumed overnight when the global FX crisis returned with a bang, and a flash crash in the British pound which as noted late last night, plummeted 500pips in thin trading, to fresh record lows following Friday's shocking mini-budget announcement which confirmed the UK has no idea what it is doing and will cut rates and issue more debt just as the BOE is desperately trying to tighten financial conditions. The plunge in cable was however just one symptom of a bigger malaise, namely the relentless surge in the dollar which overnight hit fresh record highs as the BBDXY rose as high as 1,355 before briefly fading the surge... ... as every dollar-denominated debt issuer in the world is suffering crippling pain and begging Powell to do something to ease the unprecedented shock of the strongest dollar in history just as the world slumps into a global depression. Alas, so far there is nothing but silence from the Fed - which will likely have to make some announcement on central bank currency swaps at some point before the open today to avoid an even more epic FX rout - and as traders await something to break big time across global markets... This is the week of the barbell trade: deep OTM calls and puts as things either break or CBs panic. — zerohedge (@zerohedge) September 26, 2022 ... this morning futures have tumbled another 0.7%, as eminis drop to 3,683 while Nasdaq futures are down 0.8% to 11,290 on fears that Federal Reserve rate hikes to combat persistently elevated inflation will crush the economy into a full-blown recession, or depression, and the VIX soared above 32. It wasn't just FX and stocks crashing: British bonds also cratered as yields surged to the highest in more than a decade, sparking talk of emergency action by the Bank of England. For one example of the total chaos look no further than 5Y UK Gilts which have exploded 51bps higher and last traded around 4.58% as the market now prices in Similar implosions were observed in US TSYs, where the 10Y traded just shy of Friday's mini blowout, and was last seen at 3.7828% as bond traders are hit by VaR shocks at the same time in every possible market. Turning back to stocks, the rout wasn't isolated to just one market and an index of global stocks traded to the lowest since 2020. European equities extended declines after sliding into a bear market on Friday, with mining and energy stocks underperforming as metals and oil fell. “We’re in a period of global gloom, with pessimism blanketing different countries for different reasons,” said Ed Yardeni, president of his eponymous research firm, who warned of growing storm clouds for the US economy. “The latest data jibe with our growth recession scenario, but the risks of a full-blown recession are obviously increasing,” he wrote in a note Monday. In premarket trading, major US tech and internet stocks including Apple, Amazon and Microsoft tumbled. Here are some other notable premarket movers: Farfetch (FTCH US) shares fall as much as 4.43% in US premarket trading, after Citi begins coverage of the luxury online retailer with a sell rating, with broker flagging “weak” underlying profitability. Shares of US-listed Macau casinos jump in premarket trading, after Macau government said tour groups from mainland China could resume as early as November. Wynn Resorts (WYNN US) jumps 5.4%; Las Vegas Sands (LVS US) +6.9%, Melco (MLCO US) +9.6% and MGM resorts (MGM US) +1.6% Cryptocurrency-exposed stocks edged higher in premarket trading on Monday as Bitcoin rose above $19,000. Marathon Digital (MARA US) +1.9%, Coinbase (COIN US) +0.4% Keep an eye on Diana Shipping (DSX US) and Safe Bulkers (SB US) as Jefferies downgraded them to hold from buy and lowered dry bulk estimates to reflect the decline in dry bulk charter rates. European shares extended their fall to Dec. 2020 lows; sliding 1% and extending losses as investors priced a major economic shock and recession. The Stoxx 600 Index was down 1% by 10:50am in London, touching its lowest since December 2020, with real estate and banks among the worst performing sectors, while technology shares outperformed. Italy’s FTSE MIB bucked broader European declines to trade little changed, after Giorgia Meloni won a clear majority in Sunday’s election, in line with expectations. Banks and real estate stocks were the worst-performing sectors in Europe on Monday, with declines led by UK stocks as the pound and UK bonds slump. The Stoxx 600 Banks Index and the Stoxx 600 Real Estate are both down at least 2.5% while the benchmark gauge is 1.1% lower. The bank index decline is led by UK names including Virgin Money (-10%), Lloyds (-4.6%) and NatWest (-4.5%). Virgin Money was today resumed with a hold rating at Berenberg; broker said that the lender is expected to see revenue declines and a sector- lagging return on tangible equity which will affect ability to re-rate. Among real estate stocks, the UK’s Safestore Holdings (-4.2%), Assura (-3.9%) and Derwent London (-3.8%) are among the worst performers; non-index member housebuilders, including Persimmon, Bellway and Taylor Wimpey, are also plunging as the pound’s slump prompts talk of emergency action by the Bank of England. Here are the most notable movers today: The Stoxx 600 Tech Index rises as much as 2.4%, set for its biggest one-day outperformance against the broader Stoxx 600 since early-August, with semiconductor stocks leading gains. Among chip stocks, ASML rose as much as +3.7% after Santander upgraded the stock to neutral from underperform Italy’s FTSE MIB index gains, bucking weaker markets in Europe, after Giorgia Meloni won a clear majority in Sunday’s election. While the outcome was in line with expectations, the fact that the coalition didn’t obtain a super majority needed to change the constitution reassures investors. Telecom Italia rose as much +7.4%, FinecoBank +5.1%, Moncler +4.4% Unilever shares rise as much as 3.7% after it announced that CEO Alan Jope will retire from the company at the end of 2023, in a move that Jefferies analyst Martin Deboo (buy) sees as a positive development. RPS Group shares rise as much as 13% after Tetra Tech’s agreed deal to buy the company at 222p/share in cash, representing a 7.8% premium to an offer WSP made in August. Liberum does not rule out a counterbid. Belimo shares rise as much as 8.5% since the market isn’t fully pricing in its growth outlook, Berenberg says in a note, moving to buy and establishing a Street-high CHF440 target. The stock gains as much as 8.1%, the most since March 2021. Zalando shares rise as much as 4.8% after Citi analyst says they like the long-term investment story, short-term earnings risks are still high. UK Domestics: the most remarkable reaction to Friday’s not-so-mini budget, however, might be in lenders’ shares. The decline in banking stocks reflects investors’ pessimistic view on Britain’s economy. HSBC fell as much as 2.9%; Lloyds -4.3%, NatWest -4.7% and Barclays -3.0%. Virgin Money UK shares drop as much as 10% after Berenberg resumed a hold rating in note, stating that in many ways the UK small banks are “more different than they are alike.” Utilities are the day’s worst-performing European sector. Citi analyst Piotr Dzieciolowski says the EU’s funding for its policy response has so far been insufficient and also expects uncertainty to persist for UK names. United Utilities fell as much as -3.4%, Drax -3.8% Geopolitical risks from the war in Ukraine to escalating tensions over Taiwan and unrest in Iran also weighed on sentiment. Meanwhile, the OECD cut almost all growth forecasts for the Group of 20 next year while anticipating further interest-rate hikes, and a gauge of German business confidence deteriorated. Earlier in the session, a rout in Asian stocks extended into Monday as rising concerns about a global recession and weak demand hit the region’s exporters and materials producers. The MSCI Asia Pacific Index declined as much as 2.3% to the lowest since April 2020, dragged lower by TSMC, BHP and Toyota Motor. All but one sector traded lower with materials leading the slump.  South Korean stocks fell the most in the region, with the benchmark tumbling 3% to more than a two-year low. The Korean market’s heavy tech exposure has proven costly amid rising rates and a stronger dollar, with fears that a looming recession may wreak havoc on global demand. Gauges in Hong Kong and China reversed earlier gains as the region’s selloff intensified.   Korea Assets Are Asia’s Biggest Losers on Global Recession Angst “Investor sentiment is again at the stage of extreme fear,” said Lee Kyoung-Min, an analyst at Daishin Investment. “It is becoming solid and clear that Kospi and other global stock markets are on a mid-to-long term downward trend.” Asian stock benchmarks are being buffeted by global headwinds as well as risks of their own. The Federal Reserve’s relentless rate hike campaign is pushing Asian currencies lower and raising the risk of capital outflows, while China’s adherence to Covid Zero is hurting growth in the region’s economic giant.  If Monday’s losses are extended through the week, the MSCI Asia Pacific Index will see its longest run of declines since 2015. Japan stocks declined more than 2% as the nation resumed trading after a holiday on Friday. The Philippine stock market was closed Monday as Super Typhoon Noru barreled into the main Luzon island.  Among the key issues investors are watching this week are speeches by central bank officials in US and Europe, including Fed Chair Jerome Powell on Tuesday. Japanese equities tumbled as the market reopened following a three-day weekend, tracking US peers lower after the Fed’s hawkish comments last week deepened fears of a global downturn. The Topix fell 2.7% to close at 1,864.28, while the Nikkei declined 2.7% to 26,431.55. Toyota Motor contributed the most to the Topix decline, decreasing 3.2% after its monthly production update lagged expectations. Out of 2,169 stocks in the index, 145 rose and 1,985 fell, while 39 were unchanged. “There is a possibility that inflation will not subside and interest rates will rise further, which the markets will not like,” said Shoji Hirakawa, a chief global strategist at Tokai Tokyo Research. In Australia, the S&P/ASX 200 index fell 1.6% to close at 6,469.40, as energy and mining shares plummeted. An energy gauge including oil and coal linked securities declined by the most since March 2020.  The New Zealand market was closed for a holiday In India, key stocks gauges plunged to their lowest closing levels in almost two months as the global equity rout continues. The S&P BSE Sensex dropped 1.6% to 57,145.22 in Mumbai to its lowest since July 28. The NSE Nifty 50 Index fell 1.8%, its biggest single-day plunge since Sept. 16. Both the indexes, down in four of the past five weeks, have lost almost 6% since this month’s peak. Volatility in domestic equities is likely to remain elevated this week, pending monthly derivatives expiry on Thursday. Of 30 shares in the Sensex index, 24 fell and 6 advanced. All but one of the 19 sector sub-indexes compiled by BSE Ltd. declined, led by utilities and power companies.  The Indian rupee weakened to a new record against the dollar amid surging US Treasury yields. The Reserve Bank of India’s rate-setting panel will announce monetary policy later this week. As noted above, while stocks are ugly, rates are a horrorshow as Treasuries extended their worst bond slide in decades as a dollar gauge rose to yet another record. Treasuries extended losses in a bear flattening move with yields cheaper by up to 10bp across the belly of the curve. US 10-year yields around 3.78%, cheaper by 6bp on the day with 5s30s spread flatter by 5bp, dropping as low as -45.4bp in European session; UK yields cheaper by 60bp to 25bp from front- end out to long-end of the curve. The Move comes as market participants brace for accelerated policy tightening from global central banks and headlines such as this: *TRADERS PRICE IN UP TO 200BPS OF BOE RATE HIKES BY NOVEMBER Yields on 2-year gilts are 60bp cheaper heading into early US session, while the pound recovers slightly after reaching a fresh all-time low. US session focus on 2-year auction, while a barrage of Fed speakers are expected for the week. Peripheral spreads widen to Germany with 10y BTP/Bund widening 7bps to 238bps. FX, of course, is a disaster, with the Bloomberg Dollar Spot Index rising a fifth consecutive day as the greenback advanced versus most of its Group-of-10 peers. The pound plunged almost 5% to $1.0350 in Asian trading, the lowest recorded in Bloomberg data going back to 1971, while gilts crashed after the UK government vowed to press ahead with more tax cuts, stoking fears that new fiscal policies will send inflation and debt soaring, triggering emergency rate hikes. The options market signals no respite even as the pound rebounded from a record low hit during the Asia session. The yield on two- year bonds surged more than 55 basis points to 4.51%, while the 10-year yield rose 37 basis points to 4.19%. Money markets price in more than 150 basis points of rate increases by the BoE’s next policy meeting in November The euro steadied after earlier dropping to $0.9554; European bond yields rose; Italian bonds underperformed German peers. Giorgia Meloni won a clear majority in Sunday’s Italian election, setting herself up to become the country’s first female prime minister at the head of the most right-wing government since World War II. Germany’s IFO business expectations slid to 75.2 in September from 80.3 in August. That’s the lowest since April 2020. Analysts had predicted a drop to 79. An index of current conditions also fell. The Australian and New Zealand dollars pared some losses after earlier touching fresh 2-year lows. Aussie bond yields rose by up to 13bps, led by the front end The yen weakened amid a broadly stronger dollar. Bank of Japan Governor Haruhiko Kuroda said the government’s intervention in the foreign exchange market last week was appropriate given the recent volatility in the yen The currency’s rally is “untenable” for risk assets, according to a note by Morgan Stanley strategists led by Michael Wilson, while Sian Fenner, senior Asia economist for Oxford Economics, said that “It’s a king US dollar...“It’s adding to inflationary pressures and more central banks raising rates more than we have historically seen.” In commodities, WTI slides almost 1% to trade near $78/bbl. Spot gold mostly unchanged near $1,643/oz. Bitcoin climbs above $19,000. Trading this week will be punctuated by a number of economic reports including US initial jobless claims and gross-domestic-product data, along with PMI figures from China. Choppiness in price moves is likely with a steady stream of Federal Reserve officials speaking through the week. Looking at today's calendar, we get the September Dallas Fed manufacturing activity index, and the August Chicago Fed national activity index. Central bank speakers include the Fed's Bostic, Collins, Logan and Mester; ECB's Lagarde also speaks as does Nagel, Guindos, Centeno and Panetta speak, BoE's Tenreyro speaks. Market Snapshot S&P 500 futures little changed at 3,706.25 MXAP down 2.0% to 142.24 MXAPJ down 1.4% to 463.08 Nikkei down 2.7% to 26,431.55 Topix down 2.7% to 1,864.28 Hang Seng Index down 0.4% to 17,855.14 Shanghai Composite down 1.2% to 3,051.23 Sensex down 1.2% to 57,378.30 Australia S&P/ASX 200 down 1.6% to 6,469.41 Kospi down 3.0% to 2,220.94 STOXX Europe 600 down 0.2% to 389.70 German 10Y yield little changed at 2.08% Euro little changed at $0.9683 Brent Futures down 0.7% to $85.59/bbl Brent Futures down 0.7% to $85.59/bbl Gold spot up 0.1% to $1,645.98 U.S. Dollar Index little changed at 113.22 Top Overnight News from Bloomberg Chancellor of the Exchequer Kwasi Kwarteng must do more to reassure the markets about his plans for the economy after a selloff sent the pound crashing to an all-time low against the dollar, said Gerard Lyons, an external adviser to Prime Minister Liz Truss The UK’s foreign currency holdings are a fraction of the huge stockpiles built up by some of its peers, making unilateral intervention in the market to prop up the plunging pound a tall order for UK policymakers. The UK had $108 billion in foreign currency reserves at the end of August, according to data from the IMF Hedge funds ramped up bullish bets on the pound just days before the UK government’s unexpectedly large tax cuts sent the currency tumbling The ECB’s newest policy maker, Boris Vujcic, says “it’s clear that this is the right way to go,” backing this month’s 75-basis point interest-rate hike ECB Vice President Luis de Guindos said the biggest problem facing the continent’s economy is record inflation, which is becoming more broad-based, threatening investment and consumer spending ECB Governing Council member Yannis Stournaras says the central bank must maintain the main principles of gradualism and flexibility, since the problem it faces is different from the one that the US Fed faces China made it more expensive to bet against the yuan in the derivatives market, ramping up support for the currency as it slides toward the weakest level since the 2008 financial crisis A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mostly negative in a resumption of last week's global stock rout amid the continued surge in the dollar and higher yields, while there was also FX volatility which saw a flash crash in GBP/USD to a record low. ASX 200 was dragged lower amid losses in the commodity-related sectors and with sentiment dampened by the collapse of potential M&A deals involving Ramsay Health-KKR and Link Administration-Dye & Durham. Nikkei 225 underperformed with Mazda Motors among the worst hit as it considers exiting Russian operations. Hang Seng and Shanghai Comp retraced most of their initial losses with Hong Kong underpinned following the scrapping of hotel quarantine policy and with casinos boosted as Macau is to resume tour groups from China, while the property industry benefits after China Construction Bank formed a CNY 30bln housing rental fund and some Twitter sources also circulated that some China state banks were reportedly ordered to buy stocks to contain selling. Top Asian News PBoC injected CNY 42bln via 7-day reverse repos with the rate kept at 2.00% and CNY 93bln via 14-day reverse repos with the rate kept at 2.15% for a net CNY 133bln injection. There were rumours circulating on social media of a coup against Chinese President Xi, although experts and journalists in Beijing dismissed the rumours and said there was no evidence to support them, according to The Print. Philippines Stock Exchange announced a trading suspension for Monday amid a typhoon in the capital, according to Reuters. European bourses are softer after a mixed cash open and despite a brief foray higher, Euro Stoxx 50 -0.5%, as sentiment remains subdued amid recession/inflation concerns. The breakdown features modest outperformance in the FTSE MIB as Italian election results are in-line with expectations. Stateside, futures are lower across the board in-fitting with peers going into a week of Fed speak and inflation data. Top European News UK PM Truss said she is determined to make the special relationship with the US even more special and said she agreed with US President Biden that it is vital to protect the Northern Ireland Good Friday Agreement, while she wants to find a way forward with a negotiated solution with the EU, according to Reuters and a CNN interview. UK PM Truss is to review visa schemes in an attempt to ease UK labour shortages, according to FT. UK Chancellor Kwarteng hinted that more tax cuts are on the way and claimed his tax cuts “favour people right across the income scale” amid accusations they mainly help the rich, according to Evening Standard. UK Chancellor Kwarteng said he is focused on growing the economy and the longer term when asked about the market reaction to his statement on Friday. Kwarteng added that he shares ideas with BoE Governor Bailey but added that Bailey is completely independent and Kwarteng is confident the BoE is dealing with inflation, according to Reuters. UK opposition Labour Party leader Starmer said they would reintroduce the top rate of income tax at 45% which the government announced to scrap last week, while he added that they will support the government plan to lower the basic rate of income tax to 19%, according to Reuters. Italy's right-wing bloc is seen winning the national election with 43.3% and centre-left bloc is seen winning 25.4%, according to the first projection by LA7 TV based on the actual vote count.. Click here for newsquawk snap analysis. Italy's Meloni said Italians gave clear backing to a centre-right government led by the Brothers of Italy and said the situation is difficult and needs contribution from everyone. It was separately reported that Italy's Democratic Party conceded in the election and said it will be the main opposition force, while Italy's Meloni claimed leadership of the next Italian government, according to Reuters and AFP. FX DXY climbed to a fresh YTD high of 114.58 before paring modestly, but remaining firmer, as GBP in particular lifts off worst levels. Cable succumbed to a flash crash overnight, with GBP/USD hitting an all-time-low around 1.0350 as participants confidence in the economy slips. EUR suffers amid the mentioned USD move but derives relative benefit from GBP, while ECB speakers thus far have added little. Antipodeans and CAD weighed on by broader risk and commodity pressure. Japanese Finance Minister Suzuki said the government and BoJ share views on concerns about a weak JPY, while he added that FX intervention had a certain effect and there is no change to the stance that they will respond to market moves as needed, according to Reuters. PBoC set USD/CNY mid-point at 7.0298 vs exp. 7.0019 (prev. 6.9920) PBoC imposed a 20% risk reserve requirement for FX forward sales from September 28th to rein in yuan weakness. Fixed Income Gilts have retained some composure after slumping over 200ticks at the commencement of trade and have settled around halfway between intraday extremes. EGBs downbeat in sympathy while BTPs marginally lag core-EGB peers as Italian as-expected election results are digested with BTP-Bund only modestly wider as such. Stateside, USTs are pressured in-fitting with peers and also conscious of the week's supply docket getting underway via a 43bln 2yr. Central Banks Fed’s Bostic (2024 voter) said inflation is too high and that they need to do all they can to bring it down and said demand is beginning to shrink which will ultimately pay dividends in inflation levels. Bostic also stated that there are scenarios where they can avoid deep pain but there will likely be some job losses, according to Reuters. BoJ's Kuroda says the BoJ will maintain accommodative monetary conditions to support companies, hopes to support a positive economic cycle, long-term inflation expectations have begun to heighten, via Reuters. Intervention from the MoF is an "appropriate" move, does not think gov't intervention and BoJ policy are contradictory. Amamiya says the domestic economy is picking up, must carefully watch how FX moves affect the economy and prices. BoJ Governor Kuroda says when he stated that BoJ forward guidance will not change for 2-3yrs, did not refer to guidance on keeping short and long-term rates at present of lower levels via Reuters. ECB's de Guindos says Q3 and Q4 point towards growth rates being close to zero within the EZ, the scenario is market by high uncertainty, lower growth and higher inflation. ECB's Panetta says ECB is assessing the potential of distributed ledger technology (DLT) and "the extent to which it could improve our services.". Capital Economics calls for the BoE to "get on the front foot with a big rate hike". Allianz's El-Erian says, on GBP, the fall is about extra tax cuts and Chancellor Kwarteng could recalibrate this. Alternative, would be for the BoE to hike at an emergency meeting. Adding, he would hike by 100bp. BoE publishes key elements of the 2022 annual cyclical scenario stress test; includes a scenario where the Bank Rate is assumed to rise rapidly to a peak of 6% in early 2023 before gradually reduced to sub-3.5%. Commodities WTI and Brent November futures remain subdued in early European trade following last week’s recession-induced losses. Spot gold trades in tandem with the Buck and sees resistance at around USD 1,650/oz after falling to USD 1,627/oz as a casualty of the Sterling flash crash overnight. LME metals are softer across the board with 3M copper futures having a hard time reclaiming USD +7,500/t status with upside capped by the Buck. Iraq began trial operations at the Karabala oil refinery which has a production capacity of 140k bpd, according to a statement from the Oil Ministry. German Chancellor Scholz signed a strategic agreement with UAE’s President on accelerating energy security and industrial growth, while UAE’s ADNOC signed an agreement with Germany’s RWE which includes ADNOC exporting its first LNG cargo to RWE and will conduct trial shipments of low-carbon ammonia to Germany. Furthermore, Chancellor Scholz said while visiting Doha that he talked with the Emir about LNG deliveries and that they want to achieve further progress, according to Reuters. Germany is preparing a national electricity price cap to be implemented this fall in the scenario the EU falls to agree on a similar move for the entirety of the bloc, via WSJ citing officials. Vitol's CEO said at the Asia Pacific Petroleum Conference that Russian gas supply cuts put enormous strain on supply-demand in Europe and that high gas prices are to impact 60%-80% of demand, while Ecopetrol's CEO said they are increasing crude exports to Europe this year to replace Russian supplies and are drilling 600 oil wells this year. Anglo American (AAL LN) tightens copper production guidance for Chile to 560k-580k tonnes of copper (prev. 560k-600k tonnes) due to lower throughput at Los Bronces caused by a combination of water restrictions and a change in ore characteristics, via Reuters. US Event Calendar 08:30: Aug. Chicago Fed Nat Activity Index, est. 0.23, prior 0.27 10:30: Sept. Dallas Fed Manf. Activity, est. -10.0, prior -12.9 Central Banks 10:00: Boston Fed’s Susan Collins Speaks to Boston Chamber of... 12:00: Fed’s Bostic Discusses Income Inequality 12:30: Fed’s Logan Speaks at Banking Conference 16:00: Fed’s Mester Discusses Economic Outlook DB's Jim Reid concludes the overnight wrap I wonder whether any research report has ever been written whilst watching synchronised swimming? Well if not, then you’re reading the first ever as I’m getting a head start on the early morning news by starting this on Sunday evening watching my daughter Maisie do her second session after getting into the local club. Watching this sport is going to take some getting used to after years of watching football, cricket, golf, F1, athletics, rugby... actually.... virtually every sport bar synchronised swimming. I think everyone felt they were swimming in a tsunami of newsflow last week after one of the most incredible macro weeks in recent memory in terms of breadth of events. Yes there have been more extreme weeks in crises but last week had a bit more variety and was outside of a crisis period. If over 500bps of global rate hikes wasn’t enough, you also had 2yr US yields moving higher for the 12th successive day on Friday (the longest steak since data begins in 1976), the BoJ intervening in FX markets for the first time since 1998, and what can only be termed as one of the darker days for sterling assets on record on Friday after a mammoth tax giveaway in what was a mini-budget in name and not by nature. Henry and I put a note out on Friday night (link here) showing that it was the third worst day for Sterling (-3.57%) since Black Wednesday in 1992, with the worst two since being the day after the Brexit vote (-8.1%) and after the initial covid shock in 2020 (-3.71%) when there was a global flight to dollars. We also show a graph of daily Sterling moves back to 1862 and on that it was the 41st worst day in history spanning 47,000 trading days. Obviously in the long era of fixed FX rates there were the occasional big devaluations which were much bigger than Friday. This morning is Asia it fell around -4.5% at one point (1.0392) which was a record low against the Dollar. It's around -2.78% as I type. This follows a weekend interview where Chancellor Kwarteng suggested that more tax cuts were to come so that certainly was a red rag to markets. Will we hear from the upper echelons of the BoE today? Watch out for any comments, especially at the market open. DB's George Saravelos suggested on Friday that the Bank of England need to do an inter meeting hike to restore policy credibility. There’s also a graph in our note mentioned above showing that Friday was the worst day for 5yr gilts (+50.3bps) since a +200bps hike in 1985 when sterling was also slumping. So maybe omens here. I suppose the only slight mystery is the timing of the sell-off as the mini-budget in magnitude was broadly in-line with the recent elevated fiscal expectations that had been building. However perhaps it was the unabashed revival of trickle-down economics that had markets a little aghast. It goes against the current economic orthodoxy and the overall zeitgeist of our immediate times. As such there is likely to be concerns of a credibility issue. We are publishing our long-term study today with the title “How we got here, and where we’re going?”. In it we try to put the current macro woes into historical context in an attempt to work out where we’re going. There are quite a few people who have proof-read it on my team and they were all thoroughly depressed at the end. I didn't feel that way writing it but maybe it's a case of starting point perceptions. Anyway, look out for it around the European lunchtime. Overnight in Italy, the right-wing alliance led by Giorgia Meloni's Brothers of Italy party was on course to become the nation’s first woman prime minister after exit polls gave it a clear majority. With the full results due later today, she is predicted to win up to 26% of the vote ahead of her closest rival Enrico Letta from the centre left. The right wing alliance is slated to be on course for around 43% of the vote, enough for a majority if correct. As I type, the euro is extending its losses against the dollar for the fifth day, its longest streak since April 28, falling as much as -0.5% to 0.9638, albeit being overshadowed by Sterling. For this week we have an array of consumer-driven economic data in the US and some important European inflation prints. We will also get a number of consumer sentiment indicators across the key economies and PMIs from Asia. Away from the data, there are more than 30 central banker appearances across the Fed and the ECB to keep markets busy. Tomorrow also sees referendums in the Russia-annexed Ukrainian territories as the conflict goes into its eight month. Going through the data in more details now. Starting with the US, the PCE and personal income and spending data will be front and centre for markets next week as they gauge the extent of inflationary pressures and the strength of the consumer. The Fed’s preferred inflation gauge, the PCE, due Friday, will be watched for signs of price pressures we saw in last week's CPI report. Our US economists expect core PCE to edge higher by +0.5% MoM (vs +0.1% in July) which won’t allow the Fed to take the foot off the tightening pedal. For the other two data points, our team forecasts a +0.1% MoM increase for both income and consumption. Final US Q2 GDP will also be released on Thursday and although DB expect no change to the -0.6% second reading, watch out for the annual benchmark revisions back to Q1 2017. History could be re-written that could have some implications for how we all think about the economy. In other US data, we will also get the consumer confidence index on Tuesday, along with durable goods orders, and inventories data on Wednesday, with the Chicago PMI on Friday. Over in Europe, all eyes will be on September's inflation data, including the Euro Area flash CPI release on Friday. Our economists are expecting the measure to hit a record +9.5%, up from the previous record of +9.1% in August. Other data in the region will include consumer and economic sentiment from Germany, France, Italy and the Eurozone throughout the week. Meanwhile, EU energy ministers will meet again on Friday regarding the emergency intervention amid elevated energy prices. Finally, next week's earnings line up will feature a number of retail bellwethers on Thursday. Among them will be Nike, H&M and Next. Micron will report that day as well. See our usual day by day guide to the week at the end which contains many of the key Fed and ECB speakers including Powell and Lagarde. Stock markets across Asia are mostly lower this morning. The Kospi (-2.40%), Nikkei (-2.30%) and the S&P/ASX 200 (-1.40%) are leading the declines. Meanwhile, the Hang Seng (+0.11%) is swinging between gains and losses after rising by +2.45% initially with Chinese shares mixed as the Shanghai Composite (-0.10%) is trading lower while the CSI (+0.46%) is up as we go to press. Stock futures in DMs are pointing to further losses with contracts on the S&P 500 (-0.49%), NASDAQ 100 (-0.46%) and DAX (-0.33%) all moving lower. Early morning data showed that Japan’s manufacturing sector continued to expand albeit at a slower pace as the latest au Jibun Bank manufacturing PMI slipped to a 20-month low of 51.0 in September from 51.5 in August, pulled lower by high energy and raw material prices that was exacerbated by a weak yen. At the same time, the au Jibun Bank services PMI returned to expansion, recording a level of 51.9 in September from August's 49.5 final reading. Moving on to China, in order to stabilise expectations in the FX market, the People’s Bank of China (PBOC) today raised the risk reserve requirement on foreign exchange forward sales to 20% from 0% beginning September 28 as the yuan faces increasing depreciation pressure, in line with most major currencies amid broad dollar strength. Looking back now on a week that will not be forgotten anytime soon. While there were historic central bank hikes all week, the biggest news came from the fiscal authorities, following the UK’s budget Friday, which had the largest tax cut package since the 1970s. Gilt yields had their largest one-day increase in decades with 2yrs +44.7bps, 5yrs +50.3bps, and 10yrs +33.3bps. As we mentioned at the top, 5yrs yields saw their largest move since 1985 after a +200bps hike aimed at helping a plunging currency. The pound fell -3.57% against the US dollar to within a percentage point of the weakest in the post-Bretton Woods 51yr free float era. It was already a busy macro week before the blockbuster budget, where we got more than 500bps of global central bank hikes and a currency intervention from Japan. In terms of the biggest players, the Fed delivered its third consecutive 75bp hike while the BoE delivered its second 50bp hike in a row, with both banks guiding toward yet more tightening, while the BoJ remained the outlier by keeping its accommodative policy in place, which isn’t going to help the yen turnaround even with intervention. When all was said and done, sovereign bonds and equities sold off in size, while yield curves flattened. 2yr Treasuries (+33.4bps, +7.9bps Friday), 2yr Bunds (+38.5bps, +7.2bps Friday), 2yr Gilts (+82.1bps, +44.7bps Friday) reached their highest levels since 2007, 2008, and 2008, respectively, as markets priced in more tightening to overcome inflationary pressures (and in the case of the UK, fiscal expansion). 10yr Treasuries (+23.5bps, -2.9bps Friday) ended the week a touch lower on the day but hit their highest levels since 2011 during the week, while 10yr Bunds (+26.8bps, +5.9bps Friday), and 10yr Gilts (+69.1bps, +33.3bps Friday) hit their highest levels since 2013 and 2011, respectively. The mixture unsurprisingly proved unpalatable to risk assets, driving the STOXX 600 and S&P 500 back to their lows for the year. The STOXX 600 retreated -4.37% on the week and -2.34% on Friday, the worst weekly and daily return since mid-June. The S&P 500 fell -4.65% (-1.75% Friday), returning to bear market territory. The FTSE managed to stay above its YTD lows, but still fell -3.01% on the week, its worst weekly return since mid-June as well, and retreated -1.97% on Friday, the worst daily return since early July. Tyler Durden Mon, 09/26/2022 - 08:08.....»»

Category: blogSource: zerohedgeSep 26th, 2022

Futures Jump As Dollar Slide Accelerates

Futures Jump As Dollar Slide Accelerates It appears that Goldman's trading desk was right again. Just days after the vampire squid's sellside researchers were warning that the market has not yet bottomed, the bank's far more accurate flow traders said that "The Pain Trade Is Now Up, The CPI Doesn't Matter At All, And The Q4 Chase Starts Early", and on Monday morning it was all engines go in global stock markets, with US equities poised to extend their brisk rally from last week as investors braced for the final CPI before the Federal Reserve’s September decision. Futures for the S&P 500 and Nasdaq 100 both rose 0.5% each at 715 a.m. in New York, extending above their Friday session highs, putting the underlying gauges on track for a fourth day of gains, while Europe's Stoxx 600 index climbed for a third day, and Asia was almost all green. Treasury yields dropped and the dollar retreated further as traders bet inflation is near peaking even as Fed talking heads ramped up hawkish rhetoric (it's ok, the Fed is always 9-12 months behind the curve). And as the USD slumps, the euro is extending gains, rising the most in six months against the dollar, as hawkish commentary from ECB policy makers continue.  Crude oil and industrial metals gained as the greenback’s descent countered demand concerns, while speculation grows that China will ease on covid-zero policies after the coming plenum. In US premarket trading, cryptocurrency-exposed stocks including Riot Blockchain and Coinbase edged higher as Bitcoin added to last week’s gains, rising above the $22,000 level. Meanwhile, Apple rose, with analysts positive on the company as pre-order data for the latest versions of its iPhone point to strong interest and demand. Here are some other notable premarket movers: Bristol Myers Squibb (BMY US) rises 6% in premarket trading after deucravatinib received approval from the US Food and Drug Administration for the treatment of moderate-to-severe psoriasis with no “black box” warnings. Watch Cable One (CABO US) after it was downgraded to equal-weight at Wells Fargo, which took less positive stance on the sector, even as the stock remains “the best house in the cable neighborhood.” Keep an eye on Bill.com Holdings (BILL US) as the stock was initiated with an overweight rating at Morgan Stanley, which cites multiple growth drivers for the infrastructure software firm. US railroad stocks may be in focus as tens of thousands of industry workers could be on strike by the end of this week. Keep an eye on CSX (CSX US), Norfolk Southern (NSC US) and Union Pacific (UNP US). US chipmakers could be in focus after Reuters reports the Biden administration plans to broaden curbs on US shipments of semiconductors for artificial intelligence and chipmaking tools to China. Watch Lam Research (LRCX US), Applied Materials (AMAT US), KLA (KLAC US), Nvidia (NVDA US) and AMD (AMD US). Keep an eye on CoStar Group (CSGP US) as it was initiated at market perform by BMO Capital Markets, which sees the commercial real estate information provider as a “poster child” for the info services sector, but finds it hard to justify an outperform recommendation. Stocks have rebounded amid more speculation of oversold systematic funds and another short squeeze - conditions similar to the mid-June bounce. Now, traders are preparing for tomorrow's inflation data which are expected to show an 8% increase in the overall August consumer price index from the same month last year, down from 8.5% in July yet still historically elevated, and to cement the point that peak inflation has been hit. The outcome will be significant for the Fed’s decision next week and could sway equities in either direction, although the worst case scenario is now fully priced in: traders almost fully expect another jumbo-sized Fed hike next week, following two 75-basis-point increases, and forward guidance by Fed officials in the run-up to the policy meeting has supported that view. Any easing in the Fed's tightening resolve would be seen a very dovish and send stocks surging even more. “It seems policy makers were keen to reinforce their hawkish position ahead of the blackout period -- which we’re now in -- potentially with an eye on that data point,” said Craig Erlam, a senior market analyst at Oanda. “There was perhaps a feeling that a softer reading could see market expectations slip which they clearly want to avoid. It will be interesting to see how traders now respond as we’ve seen how keen they were to hop aboard the ‘dovish pivot’ train before.” Indeed, on Friday, Fed Governor Christopher Waller said he favors “another significant” increase in interest rates when the central bank meets later this month, signaling his backing for a 75 basis-point move. Fed Bank of St. Louis President James Bullard said he was leaning “more strongly” toward a third straight boost of that magnitude, while his Kansas City counterpart Esther George noted officials have a “clear-cut” case for continuing to remove monetary support. Meanwhile, thanks to receding inflation fears, markets are pricing in little prospect of a recession, according to Tatjana Puhan, deputy chief investment officer at Tobam SAS. Risk assets are buying into the narrative of a soft landing even though a hard landing is more likely, she said. "We should be ready for a significant impact on the economy,” Puhan told Bloomberg Television. “I can easily see markets going down another 20%,"she said, echoing Guggneheim's Scott Minerd. Markets also have to digest the implications of Ukraine’s counter-offensive, after its forces continued their rapid advance in the Kharkiv region, exploiting a retreat of Russian defenses.  In Europe, the Stoxx 50 rallied 1.4% climbing for a third day, with retailers leading the advance amid optimism plans to curb energy bills will provide some relief for consumers squeezed by a cost-of-living crisis. The FTSE MIB outperforms, adding 1.8%, Stoxx 600 lags, adding 0.9%. Retailers, miners and autos are the strongest-performing sectors. Here are some of the biggest European movers today: Mining stocks outperform the broader European market again on Monday as metals rise on increased demand amid China’s peak construction season, a weaker dollar and risks to supply Ferrexpo and shares in other companies with operations in Ukraine surge in European trading Monday as the country’s military continued a rapid advance in the Kharkiv region at the weekend Atos shares jump for a second day, as much as 6.9%, as minority shareholder Sycomore Asset Management called for the chairman to resign during an interview with Reuters Pernod Ricard shares rise after declining as much as 1.2% after Deutsche Bank cut the recommendation to hold on macro headwinds and lagging advertising & promotional/sales Thule shares drop as much as 16% after a profit warning from the Swedish bike, car and outdoor equipment manufacturer. Handelsbanken says “considerable 2023 uncertainty remains” Tate & Lyle falls as much as 7.1% after Jefferies downgrades to hold from buy on increasing cost pressures in Europe, saying is now more exposed to “tricky” European market Electrolux shares fall as much as 6.8% as the Swedish appliance producer expects 3Q earnings to decline sharply. Handelsbanken says “significant cuts” to 2022-2023 estimates are needed HelloFresh shares fall as much as 6.7% on Monday after the USDA warned of possible E. coli contamination for some ground beef packages in HelloFresh meal kits shipped in July Orpea slumps as much as 21% as the company warns that profit will be lower than expected, citing rising energy and salary costs, with analysts noting there are still downside risks to shares According to another group of Goldman Sachs strategists - the ones who are pretty much always wrong - said US firms that do most of their business at home will fare better than those exposed to Europe, where a recession is all but guaranteed. A team led by David Kostin say that while the path of US growth may be “uncertain,” the economic situation in Europe is dire. Translation: buy European stocks. Earlier in the session, Asian stocks began the week by heading for a third straight daily advance, bolstered by the weakening of the dollar and oil prices. The MSCI Asia Pacific Index climbed as much as 0.8% on Monday, poised for its highest close in nearly two weeks, as tech and materials shares rallied. TSMC rose 2.4%, boosting Taiwan’s gauge, after the firm said August sales rose 59% from a year ago and Reuters reported that the US plans to broaden curbs on chip shipments to China. Markets were closed for holidays in China, Hong Kong and South Korea. Benchmarks in the Philippines, Taiwan, Japan and Australia were all up. India’s S&P BSE Sensex Index also rose ahead of the nation’s retail inflation data for August, while Thailand’s main gauge was higher for a fifth-straight day to erase this year’s decline amid optimism the economic recovery has momentum.  The dollar and oil prices weakened ahead of a much-awaited US inflation report on Tuesday, with investors preparing for super-sized interest-rate hikes in the US. Investors are also watching for Russia’s response after reports overnight of the advance of Ukraine forces in Kharkiv region. Japanese stocks advanced for a third day, driven by gains in electronics makers, while reopening plays rallied on reports of reduced restrictions for inbound tourists. The Topix rose 0.7% to 1,980.22 as of 3:02 p.m. Tokyo time, while the Nikkei advanced 1.2% to 28,542.11. The yen resumed weakening after regaining more than 1% against the dollar Friday. Keyence Corp. contributed the most to the Topix gain, increasing 1.9%. Out of 2,169 shares in the index, 1,449 rose and 596 fell, while 124 were unchanged. “On many measures, positioning continues to appear quite extreme to us and thus there is a possibility that a lower than expected m-m core CPI print may lead to a knee-jerk positive reaction in stocks,” Chetan Seth, Asia Pacific equity strategist at Nomura wrote in a note. On Ukraine, he said that “it’s too early to extrapolate this event for the market,” and that the supply of some key commodities will likely take time to increase. The pause in the dollar’s rally has given Asian stocks some breathing room, with the MSCI measure up about 3% from a trough last week. But with many signals indicating more dollar strength and China’s lockdowns continuing, flows into the region are likely to remain under pressure. In FX, the Bloomberg Dollar Spot Index extended declines, with all G-10 FX rising, barring the yen, which trades at around 142.75/USD. Some more details: The BBDXY Index was set for its biggest two-day drop in a month as the greenback weakened against all of its Group-of-10 peers apart from the yen. The euro rose as much as 1.6% against the greenback on Monday to trade just shy of the 1.02 handle. Bunds, Italian bonds fell across the curve and money markets rose ECB tightening bets after Bundesbank President Joachim Nagel said the central bank must take further clear steps if the inflation picture stays the same. ECB Executive Board member Frank Elderson said more hikes will come as “it’s very important that the expectations that the people have on how the inflation will develop in the medium to long term will not become deanchored” The pound rose against a broadly weaker dollar though trailed the euro and other European currencies. Data show the UK economy recovered more slowly than expected from a slump triggered by an extra bank holiday in June, with industrial production and construction both shrinking Sweden’s krona was the best-performing G-10 currency as the nation is on the cusp of a power shift, casting aside the ruling Social Democrats in favor of a center-right opposition bloc as vote counting nears the finish line The yen resumed its downtrend after jumping more than 1% on Friday as players adjusted positions before US inflation figures due on Tuesday. JGBs followed Treasuries lower. On Sunday, Deputy Chief Cabinet Secretary Seiji Kihara said during a TV program that Japan has “to take necessary steps while closely monitoring developments including excessive, one-sided moves in the exchange rate” In rates, US Treasuries edged higher with gains led by front-end of the curve, steepening spreads slightly while the dollar retreats. US yields were richer by up to 2.5bp across front-end of the curve with 2s10s, 5s30s spreads steeper by 0.5bp and 1.5bp on the day; 10-year yields around 3.29%, trading 1bp cheaper vs. bunds and slightly outperforming gilts in the sector. A US double auction of 3- and 10-year notes imposes an obstacle for further Treasuries advance. The US double auction kicks off at 11:30am with $41b 3-year note sale, followed by $32b 10-year reopening at 1pm.  3-year WI around 3.567% is above auction stops since 2007 and ~36.5bp cheaper than August stop-out which traded 0.3bp through the WI level. Auctions conclude Tuesday with $18b 30-year bond reopening. In commodities, WTI crude jumps 1% to around $87.63; spot gold rises roughly $9 to trade near $1,726/oz. Natural gas prices fall as the market awaits details of the European Union’s intervention plan. Bitcoin has risen above USD 22k amid the broader risk appetite, whilst Ethereum topped USD 1,750 in early trade. Looking at today's calendar, we have Japan's August machine tool orders, UK July monthly GDP, construction output, industrial and manufacturing production, index of services, trade balance, Germany July current account balance, Italy July industrial production. There is nothing on the US calendar. Market Snapshot S&P 500 futures up 0.5% to 4,087.25 STOXX Europe 600 up 0.8% to 423.90 MXAP up 0.7% to 155.35 MXAPJ up 0.8% to 509.68 Nikkei up 1.2% to 28,542.11 Topix up 0.7% to 1,980.22 Hang Seng Index up 2.7% to 19,362.25 Shanghai Composite up 0.8% to 3,262.05 Sensex up 0.7% to 60,217.05 Australia S&P/ASX 200 up 1.0% to 6,964.46 Kospi up 0.3% to 2,384.28 Gold spot up 0.5% to $1,724.64 U.S. Dollar Index down 1.05% to 107.86 German 10Y yield little changed at 1.71% Euro up 1.5% to $1.0188 Top Overnight News from Bloomberg The Biden administration plans to broaden curbs on US shipments of semiconductors for artificial intelligence and chipmaking tools to China, Reuters reported, citing unidentified people familiar with the matter The ECB’s jumbo increase in interest rates last week was designed to keep inflation expectations anchored, according to Vice President Luis de Guindos German inflation will only peak in the first quarter of 2023 as surging energy costs trickle down to consumers, weighing on purchasing power and tipping the country into recession during the winter months, according to the Ifo institute French Finance Minister Bruno Le Maire said the government will cut a levy on industrial production at a slower pace than initially planned as it seeks to meet deficit reduction targets despite lower economic growth Natural gas prices fell as the market awaits details of the European Union’s plan to intervene in an unprecedented energy crisis that is already destroying demand for the fuel Russia hit power plants deep behind Ukrainian lines, causing blackouts across the northeast of the country as Kyiv’s forces pressed a lightning offensive that’s reversed months of Moscow’s advances A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks took impetus from last Friday’s gains on Wall Street in a holiday-thinned start to the week. ASX 200 traded higher with the mining-related sectors and tech resuming their recent outperformance, while the top-weighted financials sector was also kept afloat as the major banks increased mortgage rates after last week’s RBA rate hike. Nikkei 225 rose above 28,500 as Japan mulls steps to open its borders including scrapping its daily limit of 50k arrivals of overseas visitors by October and waiving visa requirements. Hang Seng, Shanghai Comp and KOSPI were closed for the Mid-Autumn Festival. Top Asian News US is reportedly planning to broaden curbs on sales to China of semiconductors used for AI and chipmaking tools, according to Reuters sources. Chinese President Xi will visit Central Asia and meet with Russian President Putin in his first trip outside of China since the pandemic began, according to Reuters. PBoC called for efforts to facilitate the broader use of the digital yuan, according to Xinhua. Japanese Deputy Chief Cabinet Secretary Kihara said the government must take steps as needed against excessive, one-sided currency moves. Kihara also said they won’t rule out issuing government bonds to fund an expected increase in defence costs and they are ready to consider steps in the not-so-distant future to further open Japan’s borders to overseas visitors including scrapping its daily limit of 50k arrivals of overseas visitors by October, according to Nikkei. Japan is eyeing allowing foreign visitors to travel freely without travel agency bookings and waiving visa requirements, with PM Kishida to make the decision as early as this week, according to FNN. European bourses extend on the upside seen at the open despite a lack of news catalysts during the European morning. European sectors are mostly firmer, with Autos & Parts outperforming closely followed by Banks, Retail, and Basic Resource, whilst the flip side sees defensive sectors, with Healthcare, Food & Beverages, and Telecoms in the red. Stateside, US equity futures are posting gains, with marginal outperformance seen in the NQ vs peers. Top European News EU offers to reduce Northern Ireland border controls, with EU's Sefcovic encouraged by the UK's intention for a negotiated settlement on trade, while the EU could cut customs checks across the Irish Sea to just a few lorries a day. Furthermore, Sefcovic said the border would be 'invisible' under European Commission plans provided that the UK gave the EU real-time data on trade movements, according to FT. However, Senior UK officials are reportedly downplaying EU's offer on Brexit this weekend, with one reason being that the offer does not go far enough, according to Eurasia's Rahman. ECB's de Guindos said the 75bps hike last week was aimed at anchoring inflation expectations; higher rates may also weigh on economic growth, via Bloomberg. ECB's de Guindos said he does not know how much rates will climb. Orpea Slumps 21% After Suprise Profit Warning Bulgaria Says in Talks to Double Gas Supplies From Azerbaijan Russia Strikes Power Plants as Ukrainian Forces Extend Advances Euro Climbs Most in Five Months as Traders Eye Hawkish ECB Speak FX DXY recoiled further from 108.860 at best, through 108.500 and 108.00, to 107.800 and its lowest level since late August. EUR/USD saw a boost to levels close to 1.0200 from a 1.0061 low on a combination of factors, including hawkish ECB rhetoric and reports that Russian troops withdrew from key areas in Eastern Ukraine following a counterattack over the weekend. The JPY sits as the G10 laggard following hefty recovery gains on Friday, whilst Deputy Chief Cabinet Secretary Kihara was the latest to join the Japanese verbal intervention. Fixed Income Recovery momentum is building towards a breach of big figures in the major contracts, with no major catalyst for the upside. Bunds, Gilts and the 10 year T-note recently topped out at 144.01, 105.87 and 115-30 respectively. Commodities WTI and Brent futures are once again choppy as prices initially fell at the resumption of electronic trade, before recovering as European players entered the fray. Spot gold is firmer amid the softer Dollar, and eyes its 21 and 50 DMAs to the upside at USD 1,733.70/oz and USD 1,741.62/oz. Base metals in general are boosted by the weaker Dollar; 3M LME copper eyes USD 8,000/t to the upside. Russian official reiterates that some aspects of the grain deal need to be reviewed, via Interfax. US Event Calendar Nothing on deck DB's Jim Reid concludes the overnight wrap Keep an eye out for the monthly survey results published soon after this email arrives this morning. It's fair to say that respondents are pretty bearish. Overall the whole report, which is in presentation form for the first time, should be a good guide to current sentiment. One bit of potentially positive news over the weekend was that a Ukrainian counter offensive operation in the north-east of the country seems to have led to it successfully claiming back land. Although this will be greeted well by markets, the surprise success does increase the chances of a more aggressive response from Russia. In market terms, actual war developments have been relatively quiet of late with most of the focus on Russian gas (or lack of it) into Europe. So this brings the military progress back in some focus. So all eyes back on the next step from both sides. For the rest of the week, there's only one focal point and that's the US CPI report tomorrow, the last before the Fed's September 21st meeting. The Fed are now in their blackout period so that will reduce the central bank chatter somewhat this week. Our economists last week raised their forecast to a 75bps hike at next week's meeting while keeping the terminal rate at 4.1% for early next year. They believe the risks are on the upside. See here for more on their latest thinking. Importantly for the Fed, on Friday, we will also get inflation expectations from the University of Michigan consumer survey. US Retail sales data on Thursday will also be closely watched too but is unlikely to move the dial for the Fed. For US inflation, our economists expect a slight decline in the headline CPI number (-0.09% MoM) but an acceleration of +0.30% in core, which would continue the pattern from July's reading (unchanged and +0.3%, respectively) which came in lower than expected. They believe the YoY headline CPI should fall five-tenths to 8.0%, while core should tick up a tenth to 6.0%. The recent slump in commodities, with WTI firmly below $100 per barrel throughout the month, is likely to put downward pressure on the headline number as are gas prices being down -12% over the month. However, the resilience of the labour market is among the forces that could propel the core gauge higher. Expect a fair amount of attention on what now seems to be sharp falls in used cars after runaway price rises during covid. On the flip side our models suggest rents should continue to climb for a few more months before falling. So they'll likely be a few opposing forces in the release. Speaking of the consumer, we will get retail sales data for August on Thursday and our US economists expect a +0.6% MoM reading, up from last month's flat print. As gasoline prices continue their downward trend, whether this assuages the inflationary pressures on consumer spending will be important. US PPI (Wednesday), business inventories and industrial production data (both Thursday) will provide more insight into supply-side pressures. Turning to Europe now, and the BoE planned meeting has been postponed a week due to the period of mourning following the Queen's death. However the UK will remain in the spotlight when it comes to economic data, with inflation (Wednesday), monthly GDP (today), retail sales (Friday) and labour market data (tomorrow) all due. For the record headline UK CPI is expected to stay at 10.1% YoY. Elsewhere in the region, we will also get the ZEW survey for Germany and the Eurozone tomorrow. Late on Friday our economists updated their GDP forecasts and with the NS1 gas shut off now looking terminal they expect 2023 GDP to fall -3 to -4%. To be fair their zero gas scenario earlier in the summer suggested -5 to -6% growth for 2023 but the impressive gas build over the intervening period means the worse case isn’t quite as bad as feared. Lots of moving parts though. See here for their update. At the end of the week, an array of economic activity indicators will be out in China, in their usual monthly data dump, including industrial production, retail sales, new home prices and property investment (Friday). The gauges will follow this week's downside surprises in trade data and inflation, so markets will be parsing the numbers to assess the magnitude of the economic softness. Our Chief China economist overviews the impact of China's covid policy on its economy and mobility here and the team has downgraded their Q3 GDP forecast to 2.5% YoY (previously 3.5%). Overnight in Asia equity markets have kicked off higher building on Friday’s broad-based rally on Wall Street amid thin trading this morning. As I type, the Nikkei (+1.11%) is trading higher while the S&P/ASX 200 (+1.09%) is also trading in positive territory on improved risk sentiment. Elsewhere, in mainland China, Hong Kong and South Korea markets are closed for a holiday. In overnight trading, US stock futures are flat with contracts on the S&P 500 (-0.07%) and NASDAQ 100 (-0.06%) just below flat, so not much market reaction to the news out of Ukraine in the earliest hours of the week. Meanwhile, yields on the 10yr USTs (3.32%) are less than a basis point higher in Asia. Over the weekend, Seiji Kihara a senior Japanese government official, expressed concerns about the yen’s slide by opining that the government must take necessary steps to counter excessive declines in the Japanese yen as the currency has weakened to a 24-year low versus the US dollar. Crude oil prices are trading lower at the start of the week in early Asian trade as the imposition of strict COVID-19 restrictions in China is dampening the commodity’s demand outlook from the world’s second largest economy. As we go to print, Brent futures are down -1.41% at $91.53/bbl with the WTI futures (-1.47%) lower trading at $85.51/bbl. Looking back at last week now and the magic number was 75, with the ECB and BoC delivering 75bp hikes, and pricing moving closer to certainty that the Fed would do the same at their September meeting next week. In line sovereign yields legged higher in advanced economies. Notably, risk sentiment held in though, driving equities up on the week. Starting with bonds, the ECB raised rates +75bps, with President Lagarde hinting more rate hikes were still forthcoming, noting inflation was “far too high” and policy rates were “far away” from adequate levels to bring inflation down. The entire bund curve shifted higher, albeit with some flattening, given the stricter stance in policy. 2yr bunds climbed +22.6bps (-0.7bps Friday) and 10yr bunds were +17.3bps higher (-1.9bps Friday) on the week. 10yr BTPs kept the pace, increasing +17.6bps over the week (+4.4bps Friday). EU energy ministers met Friday, agreeing a comprehensive plan was necessary to combat the current gas crisis. While specifics weren’t agreed upon (as expected), they noted a wide suite of tools – including gas price caps, emergency liquidity for utilities, and further demand reduction plans – would be leveraged. In the first trading week since the announcement that Nord Stream 1 flows would not resume due to a “leak”, European natural gas futures prices actually fell -3.53% on the week (-6.10% Friday). Part of that was probably from the tough talk from energy and fiscal ministers, but there was probably also an element of taking out risk premium; NS1 flows can’t go below zero so we are possibly getting closer to peak bad news. However as my CoTD (link here) showed on Friday, next winter could also be pretty tough for gas supplies in Europe. But I suppose at least we should know that by now. The lack of upward follow through in gas prices contributed to better risk sentiment over the week with the STOXX 600 climbing +1.06% (+1.52% Friday), and the DAX scraping out a modest +0.29%, helped by a +1.43% bump on Friday. In the US, Chair Powell took his last opportunity before the September meeting blackout period to express a steadfast resolve in the fight against inflation, which left the market pricing +72.7bps of tightening at the September meeting, so pretty close to a full +75bp hike priced in, and pricing of terminal rates breaching 4% early next year, finally catching up closing to the long standing house view. Treasury yields sold off and the curve flattened like their European counterparts. 2yr Treasuries were +16.9bps higher (+5.3bps Friday) and 10yrs increased +12.0bps (-0.7bps Friday), leaving the 2s10s curve at -25.3bps. The S&P 500 was strong, increasing +3.65% (+1.53% Friday), while the interest rate sensitive NASDAQ was very resilient in the face of tighter Fed policy and up +4.14% (+2.11% Friday). Tyler Durden Mon, 09/12/2022 - 07:49.....»»

Category: worldSource: nytSep 12th, 2022

Futures, Global Markets Rise As Europe Unleashes Energy Hyperinflation Bailout Bazooka

Futures, Global Markets Rise As Europe Unleashes Energy Hyperinflation Bailout Bazooka Following a flat Monday futures session when the US was closed for Labor Day and European stocks slumped as Russia confirmed it would halt NS1 pipeline flows indefinitely, on Tuesday European stocks and US equity futures rose as governments attempted to blunt the growing energy crisis, injecting tens of billions in fiscal stimulus to offset soaring energy prices and undoing central bank attempts to crush demand with tighter financial conditions. S&P futures rose 0.6% as Wall Street was set to resume trading after the long weekend, while Nasdaq futures rose 0.7%, ignoring - for now - news of more Chinese lockdowns. Meanwhile, as traders eyes the flood of fiscal "energy support", Treasuries fell across the board, taking the two-year yield to 3.46%, while oil edged down reversing yesterday's OPEC+ production cut gains on demand risks from fresh Chinese Covid lockdowns. The pound rebounded as traders assessed the agenda of incoming PM Liz Truss. European natgas prices eased with politicians scrambling to find solutions after Moscow switched off its main pipeline to the continent. In premarket trading, Bed Bath & Beyond shares tumbled as much as 25% after Chief Financial Officer Gustavo Arnal fell to his death Friday from a Manhattan skyscraper. Other meme stocks were also drifting lower, including GameStop, which declined 5%. US-listed Chinese stocks also slumped premarket, with the drop led by Alibaba which tracked moves in Hong Kong-listed shares in the past two sessions, as lockdowns hit more cities amid an increase in Covid cases. Alibaba (BABA US) falls 2%, Pinduoduo (PDD US) -1.3%, JD.com (JD US) -1.8%, Baidu (BIDU US) -0.6%Here are some other notable premarket movers: FedEx (FDX US) shares decline 1.7% in US premarket trading as Citi downgraded the stock to neutral, noting that it’s concerned about the pace of freight activity heading into year-end. Ciena (CIEN US) shares drop as much as 1.4% in US premarket trading after JPMorgan downgrades the communications equipment company to neutral from overweight on “limited upside” for the stock. Digital World Acquisition (DWAC US) shares slump as much as 33% in US premarket trading, after the blank-check firm that is set to merge with former President Donald Trump’s social media group reportedly failed to get enough shareholder support to extend the deadline to complete the deal. Transocean (RIG US) gains 1.4% in premarket trading as the stock was upgraded to buy from neutral by BTIG, which said in a note that improving day rates in the floater market would help the company recharter rigs at higher levels. CVS Health (CVS US) stock could be in focus as the company agreed to buy Signify Health for $30.50 per share in cash in a transaction valued at ~$8 billion. Watch tanker shares as Jefferies says it remains positive on the outlook for the sector in a note raising PTs across its coverage and upgrading four stocks to buy. Euronav, Frontline (FRO US), Nordic American (NAT US) and Tsakos Energy (TNP US) upgraded to buy from hold, with PTs raised on all. Keep an eye on Rollins (ROL US) stock as it was raised to outperform from sector perform at RBC, with the broker saying the pest-control firm offers a “recession- resilient” model against a tough current backdrop. Soaring energy costs have added to the complexities for monetary policymakers attempting to manage surging price pressures and the risk of recession. The focus turns next to the ECB, with economists at some of Wall Street’s top banks expecting it to announce a hike of 75 basis points on Thursday. “The global economy, and in particular the European economy is really faced with a number of very difficult challenges, of which energy is sitting at the heart of everything,” Seema Shah, chief global strategist at Principal Global Investors, said on Bloomberg Television. “It does unfortunately mean that Europe despite all the help that governments are trying to provide for families and businesses, it’s simply not going to be enough to stave off a pretty significant downturn.” And speaking of Europe, the Stoxx 50 rose 0.4%; Germany's DAX outperformed peers, adding 0.7%, FTSE MIB lags, dropping 0.1% despite a massive a massive energy bailout plan announced by the new PM, Liz Truss, which amount to over €170 billion, and is meant to freeze houshold energy bills as well as rescue small businesses. Retailers, travel and autos are the strongest-performing sectors. Here are some of the biggest European movers today: Delivery Hero shares rally as much as 10% after Morgan Stanley raises the stock to overweight, saying the firm is set for the biggest margin improvement in the food delivery sector into 2023 and the most resilient top-line growth. Consumer stocks Greggs rises as much as +7.6%, Asos +8.5%, J D Wetherspoon +6.8% Volkswagen shares rise as much as 3.2% in Frankfurt after the German company decided to push ahead with its plan to list a minority stake in the Porsche sports-car maker this year. Commerzbank shares rise as much as 5% on Warburg upgrade, with the broker seeing good earnings and revenue growth prospects for the German lender. The Stoxx 600 Energy index falls, lagging the broader benchmark, as weaker gas prices and a stalled rally for crude weigh. Gas-exposed names Equinor drop as much as -6.1% and OMV -3.5%, among the biggest decliners Shell decline as much as -2.6% , BP -2.8%, TotalEnergies -2.2% and Eni -4.1% as Brent slipped following the OPEC+ meeting on Monday, with traders weighing the output cut alongside the impact of new lockdowns in China Remy Cointreau shares drop as much as 3.4% after Kepler Cheuvreux analyst Richard Withagen cut the recommendation to reduce from hold, citing slowing global spirits-market growth. BT shares fall as much as 2.8% to the lowest level since November 2021 after Berenberg downgraded the UK carrier to hold from buy, saying 1Q results raised “a multitude of questions” about the investment case. Earlier in the session, Asian stocks turned lower as concerns over global monetary tightening and the impact of Europe’s energy crisis kept risk appetite in check. The MSCI Asia Pacific Index slid 0.4%, reversing an earlier gain of as much as 0.5%. Energy shares were the biggest advancers after oil rallied overnight, while most other sectors fell.  Stocks in China rebounded after days of losses, while key measures of Hong Kong equities were the biggest laggards in the region. Australian stocks declined after the central bank raised its key rate by 50 basis points. Indonesia’s benchmark narrowly missed a fresh record high. The threat of a global economic slowdown continues to weigh on market sentiment, along with worry over inflation amid climbing commodities prices. The most recent earnings season has done little to quell concerns around the region, with MSCI’s main Asia gauge on track for its fifth-straight quarterly loss and volatility surging.  “Monetary tightening and accelerating inflation have weighed on investor sentiment and market returns,” Germaine Share, director of manager research of Morningstar wrote in a report. “We have also seen fund managers turn overweight China in the recent months to buy structural growth opportunities at attractive valuations.” Japanese stocks closed mixed as uncertainty over the global economy countered optimism over the benefits of the weaker yen for exporters.  The Topix fell 0.1% to close at 1,926.58, while the Nikkei was little changed at 27,626.51. Oriental Land Co. contributed the most to the Topix decline, decreasing 6.3% as the stock failed to be added to the blue-chip Nikkei 225. Out of 2,169 stocks in the index, 1,002 rose and 1,014 fell, while 153 were unchanged. “The markets are assuming that the US and European economies are going to be facing difficult situations,” said Hideyuki Suzuki, a general manager at SBI Securities. “Japanese stocks are in a relatively more favorable situation as the country has been late in restarting its economy, so there is still much room for growth.” Indian stocks ended marginally lower, after swinging between gains and losses for most of Tuesday’s session, as the US Fed’s tightening bias and concerns about a worsening energy crisis in Europe remained an overarching themes in Asia.   The S&P BSE Sensex fell 0.1% to 59,196.99 in Mumbai, erasing gains of as much as 0.5%. The NSE Nifty 50 Index dropped by a similar magnitude. Of the 30 members on the Sensex, 10 rose, while 20 fell. Twelve of 19 sector indexes compiled by BSE Ltd. advanced, led by a measure of power companies.  “Markets are still in a range and rotational buying across sectors is helping the index to hold strong amid mixed global cues,” Ajit Mishra, vice president for research at Religare Broking Ltd. wrote in a note. “Since all sectors, barring IT, are contributing to the move, the focus should be more on stock selection.”  In FX, the Bloomberg Dollar Spot Index erased a decline as the greenback traded mixed versus its Group-of-10 peers. GBP and SEK are the strongest performers in G-10 FX, JPY and AUD underperform. Yen trades above 142 as Japan's failed MMT experiment slowly comes to a close. The euro inched up to trade around 0.9950. Leveraged investors were heavily positioned for a lower euro versus the dollar, but they see scope to partially unwind some of that exposure and bet on further pound weakness. Sterling climbed as much as 0.8% to $1.1609 after sliding to the lowest since March 2020 on Monday. The rebound was fueled by a report that incoming UK Prime Minister Liz Truss has drafted plans to fix annual electricity and gas bills for a typical UK household at or below the current level of £1,971 ($2,300). The gilt curve bear steepened. Australia’s sovereign bonds gave back an advance after the central bank raised interest rates by a half- percentage point for a fourth consecutive meeting and signaled further hikes ahead in its drive to rein in inflation. The Reserve Bank took the cash rate to 2.35%, the highest level since 2015, in a widely expected announcement on Tuesday. The Australian dollar slumped. The yen fell to a new 24-year low against the dollar as rising Treasury yields highlighted the policy divergence between the Federal Reserve and Bank of Japan. Bonds were little changed. In rates, TSY 10-year yield rose 6bps to 3.25%, while front-end-led losses flatten 2s10s, 5s30s by 1bp and ~3bp on the day; in 10-year sector bunds outperform by nearly 10bp with 10-year German yields richer by ~3bp on the day. The yield on 10-year bunds is up about 1.4bps to 1.54% while German 2-year yields remain 10bp lower on the day following dovish comments from ECB’s Centeno, Kazaks and Stournaras. UK short-end bonds gain, benefiting from new PM’s plan to freeze energy bills, while long-end gilts declined amid concerns about how the proposal will be funded. Treasury cash market was closed Monday for US Labor Day holiday, and few events are slated for Tuesday. Wednesday has several Fed officials slated to speak.  In commodities, brent fell 3% to near $93, paring its post-OPEC+ meeting gains, effective assuring that more production cuts are coming. Spot gold is little changed at $1,712/oz. Bitcoin has been oscillating under the USD 20,000 mark throughout the European session. Looking to the day ahead now, and in the political sphere the main event will be that Liz Truss succeeds Boris Johnson as UK Prime Minister. Otherwise on the data side, we’ll get German factory orders for July, the German and UK construction PMI for August, and from the US there’s the final services and composite PMIs for August, and the ISM services index too. Market Snapshot S&P 500 futures up 0.5% to 3,944.00 STOXX Europe 600 up 0.2% to 414.17 MXAP down 0.3% to 153.07 MXAPJ little changed at 503.42 Nikkei little changed at 27,626.51 Topix down 0.1% to 1,926.58 Hang Seng Index down 0.1% to 19,202.73 Shanghai Composite up 1.4% to 3,243.45 Sensex up 0.1% to 59,320.84 Australia S&P/ASX 200 down 0.4% to 6,826.54 Kospi up 0.3% to 2,410.02 Gold spot up 0.2% to $1,714.18 U.S. Dollar Index up 0.13% to 109.68 German 10Y yield little changed at 1.57% Euro up 0.3% to $0.9956 Top Overnight News from Bloomberg German factory orders fell for a sixth month in July. Demand slipped 1.1% from June, driven by a slump in consumer goods, particularly pharmaceutical products. That’s worse than the 0.7% drop economists had predicted European households will benefit from at least 376 billion euros ($375 billion) in government aid to stem whopping energy bills this winter, yet there’s a risk the smorgasbord of spending won’t bring enough relief Switzerland and Finland joined Germany in offering credit facilities to energy companies as the worsening supply crunch and surging prices threaten to create financial havoc in Europe China set a stronger-than-expected exchange-rate fixing for a 10th straight day and said it will allow banks to hold less foreign currencies in reserve, its most substantial moves yet to stabilize a weakening yuan China sealed off parts of Guiyang, capital of the mountainous southern Guizhou province, as an increase in virus cases triggered a stringent response Egypt’s government now favors a more flexible currency to support an economy that’s come under pressure from Russia’s invasion of Ukraine, a top official said A more detailed look at global markets courtesy of Newsquawk Asaia-Pac stocks traded somewhat mixed following the holiday lull stateside and as participants braced for this week's central bank decisions beginning with an expected 50bps rate increase by the RBA. ASX 200 lacked firm direction with strength in the energy and tech sectors offset by mixed data releases and an unsurprising 50bps rate increase by the RBA. Nikkei 225 was contained following disappointing household spending and softer wage growth data. Hang Seng and Shanghai Comp were mixed with Hong Kong pressured as losses in tech overshadowed the strength in property names, while the mainland was underpinned after further support pledges by Chinese authorities and with the PBoC cutting its FX RRR which is seen as a measure to stem the recent currency depreciation. Top Asian News PBoC set USD/CNY mid-point at 6.9096 vs exp. 6.9304 (prev. 6.8998) China's Shanghai reportedly added one high-risk area and two middle-risk areas Tuesday after report of one local asymptomatic COVID case outside of quarantine. Japanese Finance Minister Suzuki confirmed fund requests from ministries for FY23 reached JPY 110tln and said they will decide on a fuel subsidy extension based on prices and other factors. Japan is poised to shorted its COVID isolation time to seven days, Nikkei reported. Japan Arrests Kadokawa Executives in Olympic Bribery Probe MUFG to Sell $600 Million of Marelli Debt to Deutsche Bank PBOC Seen Easing Monetary Policy Despite Yuan Slump Evergrande to Exit Shengjing Bank in $1.1 Billion Forced Sale Nomura India’s Head of Debt Shantanu Sahai Is Said to Leave European bourses kicked off Tuesday’s trade in the green following a mixed APAC session, which saw no lead from Wall Street amid the US Labor Day holiday. Sentiment this morning was somewhat choppy and bourses trade off highs. Sectors in Europe are mostly firmer and now portraying a mildly anti-defensive/pro-cyclical tilt, with Healthcare, Utilities, Telecoms, and Food & Beverages towards the bottom of the bunch. Stateside, US equity futures remain firmer across the board with the NQ narrowly outpacing the ES, YM, and RTY. Top European News Europe’s Lehman Warning on Energy Prompts Flurry of Cash Help Retail Rally on Truss Could Be Short-Lived as ‘Storm Is Brewing’ UK Utilities Up on Truss Plans to Cap Electricity, Gas Bills Handelsbanken Recruits From Citi, Penser, Dagens Industri European Gas Drops as Governments Move to Fix Energy Crisis FX The Dollar and index lost upward momentum in low-key US holiday trade on Monday, but found underlying bids to keep the latter propped around 109.50 EUR sees some respite and consolidation on either side of 0.9950 against the USD, whilst several ECB headlines were released in the blackout period, albeit from a monthly publication. JPY declined further on yield differentials, with USD/JPY rising above 141.00 and closer to 142.00. Yuan came under renewed pressure irrespective of a firmer than forecast onshore midpoint fix, with China's COVID situation continuing to be a headwind. Russia's Sberbank said they are beginning to lend the Chinese Yuan, seeing large demand for the currency, according to Reuters. Fixed Income Bunds are off recovery highs, but remain firm within 145.75-144.74 parameters for the Dec contract Gilts have pulled back below parity after rebounding in sympathy to 106.79. 10yr T-note remains depressed towards the bottom of a 116-00/27+ range awaiting the return of US cash markets from the long Labor Day weekend Commodities WTI and Brent futures have declined below the levels seen at the reopening of electronic trade, but divergence is seen in terms of intraday changes between the contracts as the former saw no settlement on account of the US Labor Day holiday. Spot gold hovers around recent levels just above USD 1,700/oz - gold sees key support at 1699.1 and 1678.4, whilst resistance levels include 1,729 and 1,745. Base metals are mostly firmer with 3M LME copper posting mild gains above USD 7,500/oz but off best levels. France's Aluminium Dunkerque is to cut production by one-fifth amid power costs, according to sources cited by Reuters Central Banks ECB's Centeno said monetary policy must be patient, ECB may achieve inflation goal with slow normalisation via Eurofi Magazine. ECB's Kazaks said broad of protracted recession could slow rate hikes' ECB will have above the neutral rate if needed via Eurofi Magazine ECB's Scicluna said determining when to use Transmission Protection Instrument (TPI) is a major challenge, via Eurofi Magazine. ECB's Stournaras sees energy costs moderating and bottle easing; EZ inflation is close to its peak, inflation will start steady deceleration via Eurofi Magazine. BoE's Mann said a fast and forceful approach to tightening, potentially followed by a hold or reversal is better than a gradualist approach, while she added that a 75bps rate hike by the BoE is an important question and that they must ensure inflation expectations do not drift further from the target. RBA hiked rates by 50bps to 2.35%, as expected. RBA reiterated that the board is committed to doing what is necessary to ensure inflation returns to the target and it expects to increase rates further in the months ahead but is not on a preset path. Furthermore, it stated that the size and timing of future interest rate increases will be guided by the incoming data and the Board's assessment of the outlook for inflation and the labour market, while it noted that the Australian economy is continuing to grow solidly and national income is being boosted by a record level of the terms of trade. US Event Calendar 09:45: Aug. S&P Global US Services PMI, est. 44.2, prior 44.1 09:45: Aug. S&P Global US Composite PMI, est. 45.0, prior 45.0 10:00: Aug. ISM Services Index, est. 55.4, prior 56.7 DB's Jim Reid concludes the overnight wrap US markets might have been closed for the Labor Day holiday, but there was plenty of action in Europe as markets finally reacted to the closure of the Nord Stream gas pipeline on Friday evening. Unsurprisingly it wasn’t a happy one and European assets slumped across the board, with the Euro itself falling beneath $0.99 for the first time since 2002 as we went to press yesterday, whilst the STOXX 600 managed to claw back its initial losses to “only” close -0.62% lower. Those countries most exposed to Russia’s gas were particularly affected, with the DAX falling -2.22% on the day. In the meantime, the prospect that the latest shock would force the ECB into even more aggressive rate hikes saw sovereign bonds yields move higher across the continent. Of course, the one asset class these losses didn’t apply to were energy itself, and European natural gas futures surged by +14.56% on the day, albeit down from +35% up just after 9am London time. That still leaves them at €246 per megawatt-hour, which is still someway beneath their closing peak at €339 a week and a half ago, but is nevertheless almost five times the level they were trading at a year ago. German power prices for next year also rebounded +12.10% (after falling -48.35% last week), which came as Bloomberg reported people familiar with the matter saying that Germany was now unlikely to meet their target to hit 95% gas storage by November following the recent news on Nord Stream. In terms of the next policy steps, EU energy ministers are set to meet on Friday, and EU Commission President von der Leyen tweeted that the Commission was “preparing proposals to help vulnerable households and businesses to cope with high energy prices”. She said the aim was to reduce electricity demand, as well as “Enable support to electricity producers facing liquidity challenges linked to volatility”. Let’s see what they come up with, but we also heard from French President Macron, who said he was in favour of an EU-wide windfall tax on energy profits. Against this backdrop, Brent crude oil prices (+2.92%) moved higher for a second day after the OPEC+ group announced that they would cut production by 100k barrels per day next month. That reverses the increase from September that was one factor helping to lower oil prices, and won’t be welcome news for policymakers as Europe grapples with its own energy issues. In particular, it’ll be interesting to see how this week’s ECB forecasts are affected by the latest energy shock, and how long they expect it to take before inflation returns back to target. In early Asian trade, Brent futures (-0.74%) have reversed a bit of yesterday's gains. Speaking of the ECB, the latest shock from the Nord Stream headlines led markets to price in a further +6bps of rate hikes over the rest of 2022, which brings the total amount expected to +174.9bps. That takes the expected rate implied by year-end to its highest level yet, and means that markets are pricing the equivalent of a 75bps move this week, and then two further 50bps moves in October and December, so a pace unlike anything we’ve been used to seeing over recent years. And in turn, with investors expecting more aggressive rate hikes and faster inflation, sovereign bonds also sold off significantly, with yields on 10yr bunds (+4.0bps), OATs (+4.6bps) and BTPs (+10.8bps) all moving higher on the day. Here in the UK, we got confirmation that Foreign Secretary Liz Truss would become the next Prime Minister today, after she defeated former Chancellor Rishi Sunak in the Conservative leadership election. Truss’ victory was somewhat narrower than recent polls had implied, with a 57%-43% win among party members, and it was also the smallest margin of victory for a new leader with Conservative members since the current system was brought in over 20 years ago. UK assets were unaffected by the news, since it had been widely expected in advance, but they’ve significantly underperformed over the last month as the contest has proceeded, with gilts down -8.2% over August (vs. -5.1% for Euro Sovereigns and -2.6% for Treasuries). Furthermore, since Prime Minister Johnson announced his resignation on July 7, sterling has been the worst performer among the G10 currencies, having fallen -4.21% against the US Dollar. Our FX strategist Shreyas Gopal even put out a report yesterday assessing the risks of a UK balance of payments crisis (link here). In terms of what happens now, Truss will be invited to become PM by the Queen after Johnson resigns today. After that, she’s expected to deliver a speech from 10 Downing Street, and start putting together her new cabinet. The key post of Chancellor of the Exchequer (the UK’s finance minister) is widely expected to go to current Business Secretary Kwasi Kwarteng, who wrote in an FT op-ed on Sunday evening that the Truss government would “take immediate action” on the cost of living, and that there would “need to be some fiscal loosening to help people through the winter”. There were also some lines to reassure markets, saying that they would “work to reduce the debt-to-GDP ratio over time”, and they “remain fully committed to the independence of the Bank of England”. Overnight all the newspapers are reporting that Truss is close to sanctioning the freezing of energy bills for the next 18 months which could cost an eye watering £130bn. For context the entire covid spending has been estimated at somewhere between £300-400bn. Asian equity markets are trading higher this morning following yesterday’s announcement by Chinese officials that they will speed up stimulus efforts in the third quarter to boost the economy as evidence points to a further loss of momentum for an economy marred by pandemic related losses and a property slump. The RRR cut yesterday is also helping. As I type, Chinese stocks are leading gains across the region with the Shanghai Composite (+0.96%) and CSI (+0.54%) both moving higher while the Kospi (+0.10%) is also up. Elsewhere, the Nikkei (+0.02%) is recovering from its earlier losses whilst the Hang Seng (-0.33%) is sliding after its opening gains this morning. S&P 500 (+0.50%) and NASDAQ 100 (+0.63%) futures are edging higher after the holiday. Meanwhile, 2 and 10yr US Treasuries are +6.8bps and +4bps higher respectively, following the global move yesterday. In monetary policy news, the Reserve Bank of Australia (RBA) raised its official cash rate (OCR) to the highest level since 2015, increasing it by 50 bps to 2.35%, its fifth hike in a row to curb soaring inflation that is pushing up prices in the nation. In a statement, the RBA Governor Philip Lowe indicated that the central bank would continue to adjust rates as inflation continues to run above its 2%-3% target range. He added that prices are expected to increase further over the months ahead before peaking later this year. Our economists think the move and comments leans slightly more hawkish which is reflected by Aussie yields rising as I type. In terms of data releases yesterday, we got the final services and composite PMIs for August from Europe, where there were generally downward revisions relative to the flash readings. In the Euro Area, the composite PMI was revised down to 48.9 (vs. flash 49.2), and in the UK, it was revised down to a contractionary 49.6 (vs. flash 50.9), which is the first time in 18 months that the UK composite PMI has been in contractionary territory. Otherwise, Euro Area retail sales grew by +0.3% in July (vs. +0.4% expected). To the day ahead now, and in the political sphere the main event will be that Liz Truss succeeds Boris Johnson as UK Prime Minister. Otherwise on the data side, we’ll get German factory orders for July, the German and UK construction PMI for August, and from the US there’s the final services and composite PMIs for August, and the ISM services index too. Tyler Durden Tue, 09/06/2022 - 07:51.....»»

Category: smallbizSource: nytSep 6th, 2022

Semiconductors Emerge As Battleground In US-China Race

Semiconductors Emerge As Battleground In US-China Race Authored by Jessica Mao via The Epoch Times (emphasis ours), 300-millimeter wafers are pictured in a machine for coating with gold in a clean room during the mass production of semiconductor chips at the Bosch's semiconductor plant in Dresden, eastern Germany, on July 12, 2022. (Photo by Jens Schlueter/AFP via Getty Images) As every aspect of modern life becomes more and more digitized, not just the economies of nations but their sovereign influence will rely more and more on the command of technology. Although the United States and China are not engaged in traditional warfare, they are engaged in a war of ideas, trade, and technology, especially in semiconductor hegemony, where both sides are battling for supply and advancement. In recent years, the United States has made a series of moves to hinder and outpace Chinese development in semiconductors, including persuading Asian semiconductor powerhouses to join its alliance, passing a massive spending bill to aid domestic chip production, and banning exports of high-end chipmaking equipment to China. In late July, the United States expanded its bans on exports to China of equipment that can make semiconductors up to 14 nanometers in size, according to major U.S. chipmaking equipment suppliers, such as Lam Research Corp. and KLA, who were notified by the government about the expanded restrictions. Previously, the United States had banned the sale of equipment that can produce chips of 10 nm or smaller to Chinese chip manufacturers. Generally in semiconductor fabrication, the smaller the process technology, the more advanced the chip. The smaller the technology node, the higher the transistor density and the lower the chip power consumption, resulting in higher performance. However, the smaller manufacturing process requires more advanced material and equipment, and will incur a greater cost in R&D and production. Semiconductors are seen on a circuit board that powers a Samsung video camera at the Samsung MOBILE-ization media and analyst event in San Jose, Calif., on March 23, 2011. (Justin Sullivan/Getty Images) The development follows a historic $52 billion bill passed by U.S. congress on July 27 to aid domestic chip makers in research, development, and production volume. One of the conditions is that the companies receiving the funds will not increase advanced chip production in mainland China. The U.S. Department of Commerce said the tightening policies impair “PRC efforts to manufacture advanced semiconductors to address significant national security risks to the United States.” Meanwhile, the United States is also reportedly planning to ban the exports of U.S. chipmaking equipment that produces advanced NAND chips to major Chinese chipmakers, such as Yangtze Memory Technologies Corp (YMTC). YMTC is a state-owned company and China’s only storage NAND flash memory manufacturer competing with major U.S. manufacturers. Its global market share is about 5 percent. In a report released by the White House in June 2021, YMTC was identified as the “national champion” enterprise of the Chinese regime, having received $24 billion in subsidies from the Chinese government. NAND chips are used to store data in a wide range of electronic devices such as smartphones and personal computers, as well as in the data centers of companies such as Amazon, Facebook, and Google. If the NAND chip initiatives are officially issued, they will be the first time that the United States uses trade restrictions to contain China’s ability to produce non-military use memory chips, broadening the scope of protecting the U.S.’s national security and dealing a massive blow to Chins’s memory chip industry. On Aug. 1, U.S. senators, including Senate majority leader Chuck Schumer (D-N.Y.), requested that the Department of Commerce add YMTC to the U.S. trade blacklist. The move could further hamper the growth of China’s semiconductor industry and protect American companies; the only two U.S. memory chip makers, Western Digital and Micron Technology. The two account for about a quarter of the NAND chip market share. According to a Bloomberg report, the United States is also pushing the Netherlands and Japan to stop the chipmaking equipment suppliers, ASML and Nikon, from selling lithography machines to China. The move could potentially deal a severe blow to major Chinese chipmakers such as Semiconductor Manufacturing International Corp. (SMIC) and Hua Hong Semiconductor Ltd. US CHIPS Act On July 26, the U.S. Senate voted to advance its Chips and Science Bill aimed at boosting domestic semiconductor production and improving technological competitiveness with China. The bill was later passed in the U.S. House of Representatives on July 28 and signed into law by President Joe Biden on Aug. 2. Senate Majority Leader Chuck Schumer (D-N.Y.) speaks alongside a bipartisan group of U.S. Senators, including (L-R) Roger Wicker (R-Miss.); Mark Warner (D-Va.); Todd Young (R-Ind.), and Maria Cantwell (D-Wash.), following the passage of the CHIPS Act, providing domestic semiconductor manufacturers with $52 billion in subsidies to cut reliance on foreign sourcing, at the U.S. Capitol in Washington, D.C., on July 27, 2022. (SAUL LOEB/AFP via Getty Images) The legislation will provide $280 billion in funding to prop up and kickstart domestic semiconductor manufacturing and research; the price tag is far above previous legislation that aimed to provide just $52 billion to manufacturers. Officially dubbed the CHIPS [Creating Helpful Incentives to Produce Semiconductors for America] Act of 2022, the measure would provide tens of billions of dollars in subsidies and tax breaks to technology corporations in an effort to spur new market growth, as well as funding for government-backed tech research. Proponents of the legislation have long said that it’s necessary in order to maintain a competitive edge with China, which is pouring money into its own domestic chip production. The legislation also clarifies that entities receiving U.S. government funding are prohibited from engaging in transactions involving substantial expansion of semiconductor manufacturing in China or any other foreign country of concern for at least ten years after the Act takes effect. These restrictions are designed to prevent chipmakers from significantly expanding the production of chips more advanced than 28nm in China within the next decade. Even though the 28-nanometer chips are a few generations behind today’s advanced semiconductors, they are still widely used in cars, lower-end smartphones, appliances, and more. Chip 4 Alliance The United States has also been working to persuade Asian semiconductor powerhouses to participate in its “Chip 4 alliance.” The U.S.-led alliance aims to strengthen cooperation in the semiconductors industry among the United States and the East Asian powerhouses of Taiwan, South Korea, and Japan to build a secure supply chain that excludes China. Taiwan and Japan have already agreed to participate in the Chip 4 alliance proposed by the United States this March, pending South Korea’s decision to join. The United States has reportedly given South Korea a deadline to decide whether it will join the “Chip 4 alliance” by Aug. 31, according to local South Korean reports citing unnamed sources in Washington. Read more here... Tyler Durden Mon, 08/08/2022 - 16:50.....»»

Category: smallbizSource: nytAug 8th, 2022

Futures Jump, Bonds Slump As Taiwan Tensions Ease

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

Category: blogSource: zerohedgeAug 3rd, 2022

Furious Rally Pauses As Sentiment Turns Metaworse Amid Record Earnings Barrage

Furious Rally Pauses As Sentiment Turns Metaworse Amid Record Earnings Barrage One day after the Nasdaq 100 posted its biggest jump since November 2020 when the market exploded higher after it interpreted Powell's forward guidance purge and comment that it is "likely appropriate to slow rate increases at some point" as more dovish than expected, US stocks were set to pull back as downbeat earnings and a dire outlook from bad to Metaworse weighed on demand. Futures contracts on the technology-heavy Nasdaq 100 dropped 0.5% by 7:15 a.m. in New York, after the underlying gauge rallied 4.3% in the previous session. S&P 500 futures were down 0.2% after the benchmark index jumped to its highest level in seven weeks. Treasury yields were little changed and the dollar and bitcoin edged up. In premarket trading, Facebook parent Meta tumbled after it reported its first-ever quarterly sales decline as ad spend by businesses cooled, leading to a far worse than expected forecast. Qualcomm also slipped as it issued a lackluster forecast.  Renewable energy companies soared in Europe and premarket trading following a deal by Democrats and Senator Manchin to advance a bill that will spend hundreds of billions of dollars on energy security and climate change. Vestas Wind Systems A/S surged more than 14% as oil also rose.  Spirit Airlines Inc. rose in premarket on a deal with JetBlue Airways Corp. Among other individual movers, Best Buy dropped in premarket trading as analysts slashed their price targets on the retailer after it cut its profit and sales outlook. Ford Motor on the other hand, jumped after reporting better-than-expected adjusted earnings per share for the second quarter. Here are some other notable premarket movers: Qualcomm (QCOM US) shares fall 4.5% in premarket trading after the chipmaker issued a lackluster forecast for the current quarter as it expects weakening economy to weigh on consumer spending on mobile devices. Watch shares of US chipmakers and semiconductor capital equipment stocks, including Lam Research (LRCX US), Applied Materials (AMAT US), Nvidia (NVDA US), Advanced Micro Devices (AMD US), Intel (INTC US), after Samsung’s quarterly profit missed estimates and Qualcomm’s forecast. Meta Platforms (META US) shares are down 5.9% in premarket trading, after the Facebook parent reported its first- ever quarterly sales decline as ad spend by businesses cooled. Ford (F US) shares jumped as much as 7.7% in US premarket trading after the carmaker’s adjusted earnings per share for the second quarter beat the average analyst estimate. Solar energy and renewables stocks gain in US premarket trading after Senator Joe Manchin and Senate Majority Leader Chuck Schumer struck a deal on a tax and energy policy bill. First Solar (FSLR US) +10%, SunRun (RUN US) +12%, Enphase Energy (ENPH US) +3.6%, SolarEdge (SEDG US) +4.0% Etsy (ETSY US) rises 6.1% in premarket trading on Thursday after the company posted stronger-than-expected second- quarter results, with most analysts seeing the online retailer retaining its market-share gains made during the pandemic ServiceNow (NOW US) shares fall 7.5% in US premarket trading, after the software company cut its full-year revenue forecast due to a stronger dollar and a potential pull back in demand. Spirit Airlines (SAVE US) shares climb 4.5% in premarket trading as JetBlue Airways is said to be close to an agreement to buy the carrier. Best Buy (BBY US) shares drop 4.4% in US premarket trading as analysts slashed their price targets on the retailer after it cut its profit and sales outlook, with brokers blaming the macroeconomic backdrop. Teladoc Health (TDOC US) shares fall about 25% in premarket trading after the virtual- care company’s 3Q Ebitda guidance came in below expectations, with analysts saying the outlook for Teladoc is likely to be revised downward. Community Health Systems Inc. (CYH US) shares plummet 52% in premarket trading after the hospital company reported a surprise loss per share for the second quarter. US stocks have rallied in July, putting the S&P 500 Index on course for its biggest monthly gain since October 2021, as the market finally grasps what we have been saying since January, namely that the weaker macroeconomic will prompt the central bank to "pivot" to easier policy, coupled with bets that much of the bad news was now priced in. It could get even worse, er better, today when the US reports Q2 GDP which may confirm that the world's largest economy is in a technical recession further shortening the Fed tightening phase. To be sure, the knee-jerk relief in markets on possible crumbs of comfort from the Fed outlook echoes a pattern seen after earlier hikes. Those bouts of optimism stumbled on recession risks from a global wave of monetary tightening, Europe’s energy woes and China’s property sector and Covid challenges. “We do feel the hikes are going to slow from these levels,” Laura Fitzsimmons, JPMorgan Australia’s executive director of macro sales, said on Bloomberg Television. But financial-industry participants are skeptical about the pricing indicating Fed rate cuts in 2023, she added. “As the tug-of-war between inflation and recession fears plays out in the second half of the year, we expect to see highly volatile markets,” Richard Flynn, UK Managing Director at Charles Schwab, wrote in a note. All eyes have also been on corporate earnings for signs of resilience in profit margins to surging inflation and weaker sentiment. A record number of US and European firms worth more than $9.4 trillion will report their results on Thursday. Of these $6.8 trillion are 55 S&P500 companies if constituents of the Nasdaq 100 are included. That comes on the heels of the Fed raising rates by 75 basis points for a second month, saying such a move is possible but that the pace of hikes will slow at some point. Chair Jerome Powell said policy will be set meeting-by-meeting as he tries to control rising prices amid signs of an economic slowdown. Big Tech will be a particular focus again with results from Amazon, Apple and Intel. “We see the earning season as a mixed bag and it’s not necessarily very good news looking forward because we have an economic momentum that is this decelerating very fast and we also have central banks all around the world hiking interest rates,” Geraldine Sundstrom, portfolio manager for asset allocation strategies at Pimco, said on Bloomberg TV. “For financial markets, the risk of the Fed taking an overly aggressive stance has eased over the past week due to mixed growth and inflation data,” said Gurpreet Gill, macro strategist of fixed income and liquidity solutions at Goldman Sachs Asset Management. “Growing evidence of slowing demand has curbed the need for speed –- hence the Fed did not provide forward guidance on its policy path.” The dovish Fed euphoria also helped lift European stocks, which initially faded a strong opening bounce only to recover all gains. Euro Stoxx 600 rose 0.5%, with the FTSE MIB outperforming, adding 0.8%, IBEX lags, dropping 1.3%. Telecoms, food & beverages and utilities are the worst-performing sectors. The Stoxx 600 Basic Resources index rose as much as 3.6%, the top-performing sub-index in the benchmark, following well-received results and with metals prices gaining. ArcelorMittal jumped following a cash flow beat and new buyback in its results, while Anglo American gains as its earnings and dividend both topped expectations. Other steel stocks SSAB, Voestalpine higher after ArcelorMittal and after beat from Acerinox. Copper miners KGHM and Antofagasta the biggest gainers with copper price up for fifth day. Here are some of the most notable market movers: Shell rises as much as 2.2% after the company reported what RBC Capital Markets described as strong results and announced that it will repurchase a further $6 billion of shares in the third quarter. Renewable energy companies’ shares soared following a deal by US senators to advance a bill that will spend hundreds of billions of dollars on energy security and climate change. Vestas Wind Systems stock gained as much as 15%, Nordex +12%, Orsted +6.5%, SMA Solar +7.6%, Meyer Burger +9.3% Schneider Electric shares were up as much as 5.2% after it reported a strong set of results; analysts welcome the increased FY growth targets and the company’s ability to pass on inflation. Diageo rises as much as 2.7% after the British distiller’s FY22 organic sales beat estimates. The group reiterated its medium-term guidance even as it expects a challenging environment for FY23. Stellantis shares gain as much as 4.3%, after the carmaker reported 1H results that Jefferies called “impressive and clean.” TotalEnergies declines as much as 3.8%, after its plan to maintain the pace of buybacks disappointed some analysts amid expectations for accelerated share repurchases in the industry. Airbus shares fall as much as 6.6% in Paris after the aircraft maker cut its full-year delivery projections and pushed back ramping up the A320 build rate to 65 a month from summer 2023 until early 2024. Nestle shares drop as much as 2.2% after the company cut its margin outlook for the year. The results are “mixed,” given the sales beat and increased FY organic revenue forecast, but there are questions around margin, according to analysts. Fresenius Medical Care shares slide as much as 15% after the dialysis services firm issued a guidance downgrade that showed significant cost pressures on many fronts, Truist says in a note. Ironically, as Europe edges toward a full-blown energy crisis and recession, its manufacturing giants are raking in the cash. Luxury-car leader Mercedes-Benz joined Europe’s biggest chemicals maker BASF, Swiss building-materials producer Holcim, shipping company Hapag-Lloydand others to report a jump in profit and raise earnings forecasts for the year. The results offered a stark contrast to the wave of grim economic news sweeping across Europe. Confidence in the euro-area fell to the weakest in almost 1 1/2 years as fears of energy shortages haunt consumers and businesses, and the European Central Bank’s first interest-rate increase in a more than decade feeds concerns that a recession is nearing. Earlier in the session, Asian stocks also advanced after the Federal Reserve said it will slow the pace of interest-rate increases at some point. The MSCI Asia Pacific Index climbed as much as 1.1%, driven by gains in material and energy stocks. Equity benchmarks in the Philippines and New Zealand led gains in the region as a weakening dollar boosted risk appetite. “The stock markets may reverse their recent falls” following the Fed’s decision, said Heo Pil-Seok, chief executive officer at Midas International Asset Management in Seoul. “Starting today, we should see if there’s any changes in foreign fund flows, as outflows have somewhat eased recently,” he said, adding however that the stock rally may be short-lived as investors remain cautious on earnings. Gains in Asia were small relative to the rally in US stocks overnight, as investors monitored the latest local earnings along with China’s property crisis and the Covid situation. Asian tech bellwether Samsung Electronics provided a weak demand forecast Thursday, citing uncertainties following a rare earnings miss. Chinese benchmarks were flat amid the Politburo meeting and a possible call between Xi Jinping and Joe Biden. Elsewhere, traders are awaiting a phone call between President Joe Biden and China’s Xi Jinping, which could touch on US tariffs and other points of tension. Japanese equities climbed, following US peers higher on relief after the Federal Reserve raised interest rates by 75 basis points and indicated that monetary policy tightening will eventually slow down. The Topix rose 0.2% to 1,948.85 as of the market close in Tokyo, while the Nikkei 225 advanced 0.4% to 27,815.48 as the yen gained against the dollar, weighing on exporters such as Toyota. Recruit Holdings Co. contributed the most to the Topix’s gain, increasing 4.4%. Out of 2,169 shares in the index, 1,406 rose and 652 fell, while 111 were unchanged. “It does seem as if the market bottomed out at the end of June,” said Hitoshi Asaoka, a strategist at Asset Management One. “There is a sense that a rise in interest rates is receding worldwide and stocks are also calming down along with that.” Fed Hikes by 75 Basis Points as Powell Sees No US Recession Now In FX, the Bloomberg dollar spot index revered a drop of 0.6% to trade higher. SEK and DKK are the weakest performers in G-10 FX, JPY maintains outperformance, trading at 135.33/USD.  The yen was around 135.40 per dollar, after strengthening more than 1% to 135.11 in Asia, extending an overnight rise to hit a three-week high. It jumped by a similar amount against the euro and the Australian dollar. In rates, Treasury yields were little changed to 3bps lower in European trading after dropping on Wednesday. The Treasury curve extended Wednesday’s post-FOMC steepening move as short end leads recovery from losses during European morning. Declines followed a large downside options trade, while gilts and bunds have underperformed over the London session. Focal points of US session include first estimate of 2Q GDP and 7-year note auction.US long-end yields remain cheaper by ~2bp while front-end and belly yields are richer on the day, steepening 2s10s by ~2bp, 5s30s by ~3bp; 10-year yields around 2.79% are little changed with bunds cheaper by ~2bp, gilts by ~4bp. Bunds lag following German regional CPI data, with national gauge due at 8am ET. German curve steepens with two-year yields lower after some state inflation gauges slow, while rates at the longer end rise. US 10-year yields are steady at 2.79%. In commodities, WTI drifts 1.7% higher to trade below $99. Spot gold rises roughly $10 to trade near $1,745/oz. Most base metals trade in the green; LME zinc rises 3%, outperforming peers. Looking the day ahead, in addition to the US GDP we get core PCE, consumption, and jobless claims in the US. In Europe, German CPI and France PPI are due with the first German regional numbers out just after we press send this morning. Our economists expect MoM CPI at +0.8% in Germany, and +0.5% on the EU harmonized MoM measure. Market Snapshot S&P 500 futures down 0.3% to 4,011.25 STOXX Europe 600 up 0.2% to 428.98 MXAP up 1.0% to 160.34 MXAPJ up 0.8% to 524.61 Nikkei up 0.4% to 27,815.48 Topix up 0.2% to 1,948.85 Hang Seng Index down 0.2% to 20,622.68 Shanghai Composite up 0.2% to 3,282.58 Sensex up 1.7% to 56,792.04 Australia S&P/ASX 200 up 1.0% to 6,889.75 Kospi up 0.8% to 2,435.27 German 10Y yield little changed at 0.98% Euro little changed at $1.0206 Gold spot up 0.7% to $1,746.23 U.S. Dollar Index down 0.18% to 106.26 Top Overnight News from Bloomberg Chair Jerome Powell said the Federal Reserve will press on with the steepest tightening of monetary policy in a generation to curb surging inflation, while handing officials more flexibility on coming moves amid signs of a broadening economic slowdown. The yen catapulted higher against major peers on Thursday as lowered expectations for rate hikes caused hedge funds to cover short bets from one of the biggest global macro trades of the year. US Stocks Set to Dip After Biggest Tech Gain Since November 2020 Meta Disappoints With Forecast Miss, First-Ever Revenue Drop China Leaders Call for ‘Best’ Growth Outcome at Key Meeting US Offers Russia to Swap Jailed Basketball Star for Arms Deale US Aircraft Carrier Enters South China Sea Amid Taiwan Tensions US Offers Russia to Swap Griner and Whelan for Arms Dealer Bout Barclays Latest Bank to Make Provision for US WhatsApp Fine Yen Roars Back as Hedge Funds Cut and Run From Big Macro Short China-US Deal Needed Soon to Avoid Delistings, Gensler Says Alibaba’s Gains From Primary Listing Plan Wiped out in Two Days Samsung’s Profit Is Latest Tech Casualty to Recession Fears Senate Deal Includes EV Tax Credits Sought by Tesla, Toyota Manchin Backs $369 Billion Energy-Climate Plan, Rejects SALT A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks eventually traded higher across the board following the firm lead from Wall Street. ASX 200 saw firm gains across its Tech, Gold, and Mining sectors. Nikkei 225 gained in early trade and briefly topped the 28k mark before recoiling as the JPY saw a sudden bout of strength. KOSPI benefited from Samsung Electronics' rise post-earnings, although the firm echoed recent remarks from SK Hynix regarding weaker H2 memory demand. Hang Seng moved on either side of breakeven but later saw an upside bias as Hong Kong Finance Secretary said Hong Kong's H2 economic performance will be better than H1. Shanghai Comp eventually gained despite the recent cautious commentary from Chinese President Xi. Top Asian News Chinese Politburo says it will keep economic operations in a reasonable range. Australian Treasurer Chalmers said the final budget outcome for 2021/22 likely to show a dramatically better-than-expected outcome. Samsung Electronics (005930 KS) - Q2 2022 (KRW): Revenue 772tln (Co. exp. 77tln); operating profit 14.1tln (exp. 14tln). Net profit 11.1tln (exp. 10.3tln); Chip operating profit 9.98tln (exp. 11.08tln); expects weaker H2 phone/PC memory chip demand. South Korean President Yoon has ordered to take steps against illegal activities regarding stock short selling, via Yonhap. Hong Kong Finance Secretary said Hong Kong's H2 economic performance will be better than H1; property market fundamentals remain sound. Hong Kong Monetary Chief expects overnight and one-month interbank rate to continue to rise at a much faster pace; says HKD has been stable and has been operating in an orderly manner; public should be prepared for interbank rate to climb further, via Reuters. PBoC injected CNY 2bln via 7-day reverse repos with the maintained rate of 2.10% for a net drain of CNY 1bln. PBoC set USD/CNY mid-point at 6.7411 vs exp. 6.7425 (prev. 6.7731). Japanese government spokesperson says there is currently no plan to impose restrictions on people's movements following increasing COVID cases; Tokyo COVID cases reach 40,406 vs. previous record of 34,995. European bourses are modestly softer, Euro Stoxx 50 -0.10%, but relatively contained now after fading initial gains from the FOMC-inspired upside. Amid numerous earnings updates from Europe & in the US aftermarket. US futures are relatively stable but continue to post modest losses with the NQ -0.8% lagging amid pre-market downside in Meta post-earnings, -6.0%. Meta Platforms Inc (META) Q2 2022 (USD): EPS 2.46 (exp. 2.59), Revenue 28.82bln (exp. 28.95bln), Advertising revenue 28.15bln (exp. 28.53bln). Outlook reflects continuation of weak advertising demand environment it experienced throughout Q2. Guidance assumes FX will be about a 6% headwind to Y/Y total revenue growth in Q3. Co. said the economic downturn will have a broad impact on digital advertising business, says the situation seems worse than it did a quarter ago. -6.0% in the pre-market. Jack Ma intends to relinquish control of Ant Group, via WSJ sources; to transfer some voting power to executives, could push-back IPO timing by over a year. Top European News German consumer energy bill to increase by EUR 1k/year, following a cost shift, via Bloomberg; Effective from October 1st, via Reuters sources; levy will cover 90% of costs. Subsequently, German Economy Minister says the gas level would cost several hundred EURs per household. India to Restart Ukraine Sunflower Oil Imports as Trade Eases Wind, Solar Stocks Surge After US Energy Bill Agreement Vanguard Europe MD Says Climate Is Now ‘the Most Material Risk’ Schroders Up; Jefferies Says Results Show Resilience of Platform EDF Posts $1.3 Billion Loss as State Readies Nationalization Turkey Raises 2022 Inflation Forecast to 60.4% on Imports, Lira Central Banks BoJ Deputy Governor Amamiya said we must not loosen our grip in keeping monetary policy easy as there is no prospect yet of sustainably meeting the 2% inflation target. He added that consumer sentiment has been worsening due to rising energy and food prices. BoJ must be vigilant to financial and forex moves and their impact on economy and prices. ECB's Visco refrains from saying whether markets should expect a 25bps or 50bps hike in September; not prepared to say the ECB would go for 50bps in September in order to reach its target quicker. Adds, the ECB doesn't really know where its target is. BoK to strengthen monitoring of FX and capital flows following the FOMC hike, according to Bloomberg. HKMA raised its base rate by 75bps to 2.75%, as expected, following the earlier Fed rate hike. NBH hikes the one-week deposit rate to 10.75% (prev. 9.75%) at tender. CBRT Governor says the bank has enough FX reserves to meet high energy costs and reserves continue to increase. FX Fed leaves Dollar in limbo with no firm forward guidance and reliant on unfolding macro fundamentals, DXY depressed within 106.580-050 range vs pre-FOMC high of 107.430. Yen outperforms on prospect of less BoJ vs Fed policy divergence, USD/JPY sub-135.50 and key Fib level. Kiwi outpaces Aussie as NZ business outlook and activity turn less downbeat, while Australian retail sales miss consensus and slow to softest pace in 2022 so far; AUD/NZD retreats through 1.1150 as AUD/USD and NZD/USD hover just under 0.7000 and 0.6300 respectively. Pound extends gains against Euro through 0.8400 and chart trend line, but both fade from post-FOMC peaks vs Buck, Cable unable to reach 1.2200 and EUR/USD fails to hold above 1.0200. Lira and Forint flounder irrespective of supportive CBRT rhetoric and NBH raising 1-week deposit rate by 100bp, USD/TRY touches 17.9300 in wake of jump in year end Turkish CPI forecast and EUR/HUF approaches 408.00. Fixed Income Bonds remain volatile post-Fed, but curve steepening the clear trend as markets reset rate expectations to data rather than forward guidance. Bunds choppy within wide 154.75-155.87 extremes, Gilts between 116.70-117.19 parameters and T-note from 119-23+ to 120-08+. US Treasuries also conscious of looming 7 year supply after potentially pivotal Q2 GDP and jobless claims. Commodities WTI and Brent are firmer by over 1.5% on the session after spending much of the European morning relatively contained. European gas prices are significantly more contained when compared to price action earlier in the week but remain at elevated levels comfortably above EUR 200/MWh for TTF. Gazprom continues shipping gas to Europe via Ukraine, Thursday's volume is 42.1MCM (vs Monday's 42.2MCM). Shell (SHEL LN) has cut gas use at the Rotterdam Pernis (404k BPD) facility by 40% and at German sites by ~70%, due to the ongoing gas situation. India's gold demand in H2 is seen falling Y/Y due to lower disposable income; H1 gold demand rose 42% Y/Y, according to World Gold Council. Magnitude 6.3 earthquake hits Tocopilla in Chile, according to the EMS; 5.5 magnitude earthquake occurs near Nicaragua coast, via EMSC. Nornickel Q2 production: Nickel 48k tonnes, Palladium 709/koz, via Reuters. Spot gold is bid by just over USD 10/oz but, again, remains subject to USD action as while the index is bid it has dipped markedly. Amidst the USD’s relative weakness, base metals are similarly supported. US Event Calendar 08:30: 2Q GDP Annualized QoQ, est. 0.5%, prior -1.6% Personal Consumption, est. 1.2%, prior 1.8% PCE Core QoQ, est. 4.4%, prior 5.2% GDP Price Index, est. 8.0%, prior 8.2% 08:30: July Initial Jobless Claims, est. 250,000, prior 251,000 Continuing Claims, est. 1.39m, prior 1.38m 11:00: July Kansas City Fed Manf. Activity, est. 4, prior 12 DB's Jim Reid concludes the overnight wrap Just before the June FOMC, the surprise last minute leak that the Fed were about to hike rates by 75bps shocked yields much higher and equities much lower. However last night's routine 75bps July FOMC hike was cheered to the rafters by the equity market with yields also falling, especially at the front end. So how times change! Today we could see confirmation of the start of a technical recession in US with Q2 GDP out, and also German CPI which might show some signs of falling before we think it hits new highs again in the autumn. So a busy day. Back to the Fed and the expected 75bps hike brings the rate into territory that some Committee members may deem ‘neutral’ (Our full US econ review, here). The statement maintained guidance that the Committee sees further rate hikes, and thus moves into restrictive territory, as appropriate, even as the statement opened by acknowledging that some activity data had softened. Nothing in the statement came as a particular surprise, leaving equities and rates little changed upon release with the bulk of the rally after the press conference started. At the press conference, the Chair left open the possibility of another super-charged 75bp hike (or larger) in September, but demurred on providing forward guidance, saying that the Committee would be making policy decisions on a meeting-per-meeting basis. A tacit acceptance of what they have already been doing, to an extent. Nevertheless, the Chair did note that the SEP from June, that shows policy getting to between 3% and 3.5% by the end of year, and a terminal rate of 3.8% was probably still the best guide for the path of policy. Despite the continued insistence on more hikes being necessary, and inflation being much too high, markets instead latched onto the fact that the Committee was cognisant of the signs of slowing growth in the economy, and that the Fed would logically slow the path of tightening at some point. Upon this, markets priced in a shallower policy path, which saw 2yr Treasuries -5.5bps lower on the day, with 10yr yields down -2.2bps, and no more rate hikes in 2023 after hitting a terminal rate of 3.3%. What was left unsaid is that slowing growth has to translate to slowing inflation for the FOMC to pivot policy. That cuts are being priced in within six months when inflation is still climbing from lofty levels seems too optimistic. However this very much fits it with the current market narrative so this doesn't feel the time to fight it. That optimistic pricing path drove US equities through the roof after the FOMC, with the NASDAQ ending the day +4.06% higher, climbing around +1.58% after the FOMC events, it’s best daily return since April 2020, while the FANG+ was up +5.30%, its best day in two months. Tech stocks outperformed given the sensitivity of their valuations to rate policy, but the broad S&P 500 climbed +2.62% as well, with every sector in the green. After the FOMC, Meta missed analyst estimates, posting its first ever decline in sales over a quarter, and traded around -4.5% lower in after-hours trading. In the release the company also noted hiring has slowed this year much like its other mega cap brethren. This morning, S&P 500 futures are trading -0.14% lower, with Meta having taken some shine out of the post-FOMC glow. Elsewhere overnight, Senator Joe Manchin reportedly reached a deal with Senate Majority Leader Chuck Schumer on a tax and spending plan focused on climate spending, capping health care costs, while raising additional tax revenue. This will be a huge story out of Washington heading into the fall midterms, and the overall impact of the bill – which is being structured to pass through the reconciliation process and thus with a simple majority – will be assessed over coming days as more people get eyes on it. An announcement that came out of the blue after Senator Manchin shot down reconciliation efforts in light of growing inflation time and again. One we will surely be talking about more over the near-term. Ahead of the FOMC, equities were higher on both sides of the Atlantic on buoyant sentiment following optimistic forecasts from tech giants Microsoft and Alphabet the night before. European equities closed modestly higher across the board, with the STOXX 600 closing up +0.47%, the DAX +0.53% higher, and the CAC up +0.75%. The big focus in Europe remained on the gas situation. A German government spokesperson acknowledged there had been a reduction of gas supplies from Russia and noted there was no technical reason for Russia to cut supplies. European natural gas futures climbed another +2.54% on the day to €205. Core European and Treasury yield curves were flatter heading into the Fed, with 2yr bund yields climbing +8.7bps and 10yr bunds +2.0bps higher to 0.94%. The spread widening in BTPs continued, with 10yr BTPs +5.5bps wider to bunds at 236bps, just under 5bps from their widest levels reached in mid-June. Meanwhile, Treasury yields were lower across the curve, with the curve even more inverted. The data out before the Fed was never going to be the main driver of rates on the day, and they painted a mixed picture. Housing continued its torrid run, with pending home sales down -8.6% MoM versus expectations of -1.0%. Meanwhile, Durable Goods Orders expanded 1.9% versus -0.4% expectations, while inventories increased 1.9% as well versus 1.5% expectations. Those data helped some GDP trackers, with the Atlanta Fed’s nowcast for 2Q GDP increasing to -1.2% from -1.6% following the data. We get the first advance reading of US 2Q GDP today, but know today’s reading will be subject to many revisions before we have the final figure. 10yr TSY yields are little changed at 2.78% as we go to press this morning. Brent crude futures climbed +2.13% to $107/bbl, following EIA data that showed inventories fell by 4.52mln barrels, while demand for gasoline in the US looks more robust than some recent survey measures have suggested, putting more upward pressure on energy. Finally, a Biden aide said the Iran deal was not likely to return in the near future, effectively keeping potential additional supply from hitting the market for longer. Asian equity markets are trading higher this morning following the Fed. Stocks in mainland China are gaining with the Shanghai Composite (+0.89%) and the CSI (+0.95%) both up whilst the Nikkei (+0.32%), the Hang Seng (+0.20%) and the Kospi (+0.97%) all edging higher. Early morning data showed that retail sales in Australia rose +0.2% m/m in June, its slowest pace this year and down from May’s downwardly revised +0.7% pace of growth and falling short of markets expectations of a +0.5% increase. The soft data represents that soaring inflation and rising interest rates may be finally hampering consumer demand. To the day ahead, in addition to the US GDP we get core PCE, consumption, and jobless claims in the US. In Europe, German CPI and France PPI are due with the first German regional numbers out just after we press send this morning. Our economists expect MoM CPI at +0.8% in Germany, and +0.5% on the EU harmonized MoM measure. Tyler Durden Thu, 07/28/2022 - 08:04.....»»

Category: blogSource: zerohedgeJul 28th, 2022

Futures, Oil Jump As Record Dollar Rally Fizzles

Futures, Oil Jump As Record Dollar Rally Fizzles US futures and European stocks advanced, shaking off data that showed China’s economy expanded slowest pace since the initial 2020 Wuhan outbreak amid pervasive lockdowns... ... while the dollar’s record surge stalled at the end of a week in which markets have been whipsawed by shifting expectations for monetary tightening by the Federal Reserve and worries over global economic growth. S&P futures traded at session highs, rising 0.38% or 14 points to 3807.50 signaling a higher open for US stocks after Wall Street closed with a small drop as investors dialed back expectations of how aggressively the Fed will hike interest rates to combat inflation. Europe's Estoxx50 gained 1% in quiet trading while Asian stocks closed mixed after lower-than-forecast China GDP data. Oil reversed recent losses which briefly dragged it below the 200DMA, and was also near session highs, up 3% even as WTI is poised to end the week below $100 a barrel for the first time since April.  Commodity metals remained under pressure, with copper touching below $7,000/t, its lowest level in 20 months, as growth data from China fueled concern around the demand outlook for commodities while gold tested support at $1,700/oz. Treasuries rose and the the yield curve between two-year and 10-year maturities remained inverted, something viewed as recession signal. The Bloomberg Dollar Spot Index dipped from a record high. In premarket trading, Wells Fargo dropped after missing analysts’ second-quarter profit estimates, adding to worries about the outlook for corporate profits after disappointing results yesterday from JPMorgan Chase & Co. and Morgan Stanley. Here are some other notable premarket movers: Pinterest (PINS US) shares surge as much as 16% in premarket trading after the Wall Street Journal reported that activist investor Elliott Management has acquired a stake in the social- media company. Codexis (CDXS US) tumbles 21% in premarket trading after the enzyme engineering company cut its sales guidance for the year and reported preliminary quarterly revenue that trailed the average estimate. Vonage (VG US) rises 7% in premarket trading after Ericsson receives all the necessary approvals from regulators to buy the cloud-based communications provider. Solar stocks could be active on Friday after Senator Joe Manchin told Democratic leaders he wouldn’t support new spending on climate measures or tax increases. First Solar (FSLR US) falls 2% in premarket trading. Investors are evaluating how hawkish the Fed must be to curb inflation and the likely toll on the economy. Bets on a one-percentage-point July rate hike have been scaled back after the latest commentary pointed toward 75 basis points; a retail sales miss in this morning's data should take a 100bps rate hike off the table. “It seems most market operators are buying the news after selling the rumor of more monetary tightening brought by a higher US CPI,” said Pierre Veyret, a technical analyst at ActivTrades. Investors now expect a 0.75-1% rate hike from the Fed at the end of the month, he said adding that the tightening cycle is projected to end with the benchmark rate at about 3.2% in 2023, with monetary policy then seen as easing to combat slower economic conditions. The pace of monetary tightening along with ebbing liquidity still threatens to stir more market volatility after steep losses for stocks and bonds in 2022. In his latest comments, Fed Governor Christopher Waller backed raising rates by 75 basis points this month, nixing Nomura's base case of a 100bps rate hike, though he said he could go bigger if warranted by the data. St. Louis Fed President James Bullard echoed some of those comments, saying he favored hiking by the same amount. “We need liquidity to dry up in order to reduce inflation,” Erin Gibbs, chief investment officer at Main Street Asset Management, said on Bloomberg Radio. “It’s a challenge, it’s a difficult situation, transition. I don’t envy the Federal Reserve, but we’ve known there has been too much money out there and that’s why we’re here in this position.” In Europe, the Stoxx 50 rallied 1.2%. DAX outperforms adding 1.7%. Autos, energy and retailers are the strongest-performing sectors, while luxury stocks got hit after data showed China’s economy grew at the slowest pace since the country was first hit by the coronavirus outbreak two years ago. LVMH led the declines in European luxury stocks while Richemont and Burberry slide as China’s Covid Zero policy weighs on results. Louis Vuitton owner LVMH down 2.2%, while Birkin handbag maker Hermes and watch maker Swatch fall 1.1% and 3.1%, respectively, as China is a key market for luxury houses. Italy’s benchmark index rallied after the country’s president rejected an offer from Mario Draghi to resign as prime minister. Here are the biggest European equity movers: European automakers and car-parts suppliers lead gains in Europe with the Stoxx 600 Autos sub-index up as much as 3.8%. BofA analysts say current sector concerns are overdone. Uniper gains as much as 12% on Friday as Goldman Sachs upgraded the stock and progress was said to be made on its rescue package. Fortum, which owns 75% of Uniper, up 3.4%. Fevertree shares fall as much as 33%, the most on record, after the high-end tonic maker cut its outlook for the year. RBC said the profit warning raises questions about the company’s pricing power and long-term earnings potential, while UBS pointed to concerns about the “visibility on 2022 and beyond.” Burberry shares drop as much as 7%, the most since March 4, after the British fashion brand surprised investors by reporting a weak 1Q in the Americas. The operating environment in China remains “extremely volatile,” according to Morgan Stanley. Richemont shares fall as much as 6%, the most since May 20, with the 1Q sales beat not enough to quell investor concern over the broader macro-economic backdrop, including what Citigroup calls an “uncertain recovery in China.” TomTom shares gained as much as 9.8%, most since Feb. 7, after company reported “satisfactory results given challenging circumstances,” writes ING. Hapag-Lloyd shares drop as much as 7.1% after Morgan Stanley cuts its recommendation to underweight from equal-weight on expectations that demand for containers will decline in 2023. Direct Line shares rise as much as 3.6% following a 12% drop for the motor insurer in the prior session. Berenberg upgrades its rating to buy, saying the decline has created an opportunity, while JPMorgan cuts its ratings on both Direct Line and peer Admiral. Rio Tinto shares fall as much as 2.9% in London after the miner’s 2Q production report, with the company noting headwinds from a global economic slowdown and China’s Covid outbreaks. Aston Martin shares jump as much as 28%, reversing an early decline, after the luxury car-maker announces a funding package. Friday’s gain is the biggest since May 2020. Earlier in the session, Asian stocks declined as renewed fear of a crackdown on enterprises battered Chinese internet names while traders assessed the market impact from weaker-than-expected China growth data and corporate earnings.  The MSCI Asia Pacific Index fell as much as 0.6%, on track for a weekly decline. Alibaba dragged down the Asian benchmark and the Hang Seng Tech Index following a report that said some company executives were summoned for talks by authorities in Shanghai in connection with the theft of a vast police database. All but two sectors slipped.  Stocks in China declined after data showed that the world’s second-largest economy grew 0.4% in the second quarter, the slowest pace since the country was first hit by the coronavirus outbreak two years ago. While the lower-than-expected expansion extended hopes that Beijing would maintain its easing stance, the latest figure puts its GDP target out of reach. According to Jack Siu, Greater China chief investment officer at Credit Suisse, the government’s current fiscal stimulus on tax rebate and the front loading of special purpose bonds issuance should bring 2022 GDP to 4.8%. READ: Fresh Scrutiny of Alibaba Sends China Tech Stocks Into Tailspin “While disappointing growth data gave views that the current easing stance would be maintained, traders are waiting for the government’s further response as banks, property and other sectors are hit by regulations and growth concerns,” said Kim Kyung Hwan, a Chinese equity strategist at Hana Financial Investment. Asian stocks are poised for their worst week in about a month amid worries about resurging virus cases in China and a possible global recession. Central banks in the region and elsewhere have been tightening their policy to curb high inflation, with decisions by Singapore and the Philippines surprising investors earlier in the week. Japan’s Nikkei 225 rose as the yen held near a fresh 24-year low, remaining close to 140 per dollar.  The Nikkei 225 advanced 0.5% to 26,788.47 at the 3 p.m. close in Tokyo, while the Topix index was virtually unchanged at 1,892.50. Out of 2,170 shares in the index, 745 rose and 1,334 fell, while 91 were unchanged. “The yen’s depreciation to 139 yen provided support, but there is a limit to that,” said Mamoru Shimode, chief strategist at Resona Asset Management. In Australia, the S&P/ASX 200 index fell 0.7% to close at 6,605.60, dragged lower by miners and energy stocks as commodities from iron ore to copper declined. Pendal was the worst performer after reporting net outflows for the third quarter of A$4.2 billion. Iron ore miners dropped on weaker prices for the steelmaking ingredient. Goldman analysts also cut their rating on peer BHP, while Rio Tinto warned of headwinds emerging from a global economic slowdown and China’s Covid-19 outbreaks. In New Zealand, the S&P/NZX 50 index fell 0.6% to 11,122.61. In FX, the Bloomberg Dollar Spot Index slumped with AUD and NZD the weakest performers in G-10 FX, while CHF and SEK outperform. The euro held above parity, rising to session highs as US traders walked in. Sterling hovered near a two-year low against the US dollar, which remains broadly supported by demand for the safe-haven greenback. Markets will be keeping an eye on a debate between UK Conservative party candidates later in the day for a steer on who could become the country’s next prime minister. The Aussie weakened for a second day after Westpac trimmed its forecast for RBA rate hikes, and iron-ore prices tumbled. The yen rose from a 24-year low as risk sentiment was subdued amid weak Chinese economic data and concerns over aggressive policy tightening in the US. In rates, Treasuries rose, led by the belly, while gilts jumped at the open and bunds extended gains. Treasuries were slightly richer across the curve with front-end lagging, mildly flattening 2s10s and 2s5s spreads. Yields richer by 2bp to 3bp across the curve with 10-year around 2.93%, trading broadly inline with bunds and outperforming Italian bonds by 4bp. Peripheral spreads widen to Germany with 10y BTP/Bund adding 6.5bps to 213.4bps. Italian bonds yields rose at the front end of the curve as political uncertainty prevailed: indeed, the focus remains on Italian bonds after President Sergio Mattarella rejected Prime Minister Mario Draghi’s resignation late Thursday. US session includes a packed data slate and three Fed speakers before blackout ahead of July 27 policy meeting.  In commodities, crude futures rose. WTI trades within Thursday’s range, adding 0.3% to trade near $96.05. Brent rises 0.7% near $99.83. Metals remain under pressure, with copper touching below $7,000/t and gold testing support at $1,700/oz. To the day ahead now, and data releases include US retail sales, industrial production and capacity utilisation for June, along with the Empire State manufacturing survey for July, and the University of Michigan’s preliminary consumer sentiment index for July. Central bank speakers include the ECB’s Rehn, and the Fed’s Bostic and Bullard. Earnings releases include UnitedHealth Group, Wells Fargo, BlackRock and Citigroup. Finally, G20 finance ministers and central bank governors will be meeting in Indonesia. Market Snapshot S&P 500 futures little changed at 3,795.50 STOXX Europe 600 up 0.9% to 410.06 MXAP down 0.5% to 153.77 MXAPJ down 0.8% to 505.79 Nikkei up 0.5% to 26,788.47 Topix little changed at 1,892.50 Hang Seng Index down 2.2% to 20,297.72 Shanghai Composite down 1.6% to 3,228.06 Sensex up 0.1% to 53,490.31 Australia S&P/ASX 200 down 0.7% to 6,605.57 Kospi up 0.4% to 2,330.98 German 10Y yield little changed at 1.11% Euro little changed at $1.0026 Gold spot down 0.4% to $1,702.69 US Dollar Index little changed at 108.58 Top Overnight News from Bloomberg China’s economy grew at the slowest pace since the country was first hit by the coronavirus outbreak two years ago, making Beijing’s growth target for the year increasingly unattainable as economists downgrade their forecasts further. The 0.4% expansion in GDP reported for the second quarter, when dozens of cities including Shanghai and Changchun imposed lockdowns, was the second weakest ever recorded With Italy on the brink of chaos, Mario Draghi has less than a week to forge some difficult compromises with the populists in his government that have reluctantly backed him for the past 18 months The ECB will unveil an unlimited bond-buying tool next week to help markets better adjust to steeper and faster interest-rate increases than previously thought, economists surveyed by Bloomberg say Copper is heading for its steepest weekly decline since the early months of the coronavirus pandemic, with fears mounting of a recession that could destroy global demand for industrial commodities A more detailed looked at global markets courtesy of Newsquawk Asia-Pac stocks traded mixed after the 100bps Fed rate hike bets unwound and with headwinds from China's GDP miss. ASX 200 was dragged lower by the mining sector amid losses in Rio Tinto shares despite an increase in its quarterly output and shipments, as it also warned of headwinds to its business and higher costs. Nikkei 225 swung between gains and losses but was ultimately higher intraday amid recent currency weakness and with index heavyweight Fast Retailing boosted by strong 9-month results. Hang Seng and Shanghai Comp. were indecisive after disappointing Chinese growth data which showed weaker than expected GDP and Industrial Production, although Retail Sales surprisingly expanded and the Unemployment Rate declined. Top Asian News PBoC injected CNY 100bln via 1-year MLF vs CNY 100bln maturing with the rate kept at 2.85%. China's Foreign Minister Wang also commented that China-Australia relations currently face challenges and opportunities, while he added that China is willing to recalibrate relations in the spirit of mutual respect, according to Reuters. China NBS official said downward pressure on the domestic economy increased substantially during Q2 and that the foundation for a sustained economic recovery is not solid, while the economy is facing shrinking demand and supply shock, according to Reuters. China's Huaiyuan county has announced a lockdown amid COVID, according to local TV; 151 prelim cases were reported on July 14th, according to CCTV. China Traders Pile Into Carry Trades While Easy Money Lasts Telkom Indonesia Jumps Most in Seven Months on 2Q Bet MTN in Talks to Buy Rival Telkom in Cash & Shares: M&A Snapshot SK Hynix Is Said to Weigh Slashing Spending by 25% in 2023 European bourses are firmer across the board, as initial jittery performance dissipated with participants looking to US data and Fed speak. US futures are in the green, but only modestly so, and have been relatively contained awaiting further guidance from upcoming Fed  officials on the 75bp/100bp discussion. UnitedHealth Group Inc (UNH) Q2 2022 (USD): Adj. EPS 5.57 (exp. 5.20/4.98 GAAP), Revenue 80.30bln (exp. 79.68bln). BlackRock Inc (BLK) Q2 2022 (USD): EPS 7.06 (exp. 7.90) Revenue 4.53bln (exp. 4.65bln). AUM 8.49tln (exp. 8.86tln). Net inflows 89.57bln (exp. 116.78bln). Top European News ECB's Rehn says ECB likely to go 25bps in July and 50bps in September. Note, the ECB is in its quiet period at the moment. Burberry Upbeat on Outlook But Concerns About China Remain Aston Martin Stock Jumps as Carmaker’s Fundraising Calms Nerves Euro Extreme Bearish Bets Have Room to Grow on NatGas Shut Off UBS Wealth Sees 15% Downside for European Stocks in Recession FX Dollar in need of consumption or production boost after two Fed hawks lean against 100bp hike expectations that were becoming embedded for forthcoming FOMC meeting, DXY retreats through 108.500 after setting new 2022 peak at 109.290 yesterday. Franc outpaces fellow majors as yields retreat and curves re-steepen, while retaining bid against Euro, USD/CHF sub-0.9800 vs high near 0.9900 on Thursday, EUR/CHF depressed largely under 0.9850. Aussie underperforms as Chinese GDP data disappoints and iron ore dumps in response; AUD/USD top heavy above 0.6750, AUD/NZD reverses around 1.1000 handle. Loonie pares declines from new y-t-d low vs Greenback as crude prices stabilise, USD/CAD close to 1.15bln option expiries at the 1.3100 strike compared to 1.3200+ high yesterday. Euro attempts to consolidate back on a par with Buck after fleeting if not false break below. Yuan nurses losses after further depreciation on growth concerns and latest Covid lockdowns -Usd/Cnh and Usd/Cny slip from overnight peaks circa 6.7840 and 6.7690 respectively. Fixed Income Bonds back off following further retracement from lows on less hawkish Fed vibes that prompted bull re-steepening Bunds sub-153.00 vs new 153.80 WTD peak, Gilts under 116.00 from 116.39 and 10 year T-note midway between 118-29+/118-13 stalls BTPs stage impressive recovery to 124.30 from 121.96 trough on Thursday awaiting next chapter in Italian political drama Commodities Crude benchmarks are firmer, tracking sentiment, but cognizant of the Saudi-Biden meeting though an immediate production increase is not anticipated; WTI +USD 0.20/bbl. The US is not expecting Saudi Arabia to immediately boost oil production, US eyes the next OPEC+ meeting, according to a US official cited by Reuters. UAE says it wants more stable oil markets, will abide by OPEC+ decision; idea of a confrontational approach re. Iran is not something they buy into, via Reuters. Spot gold remains pressured near, but yet to breach, the USD 1700/oz handle; despite a pull-back in the USD as sentiment turns incrementally more constructive. US Event Calendar 08:30: June Import Price Index YoY, est. 11.4%, prior 11.7%; MoM, est. 0.7%, prior 0.6% June Export Price Index YoY, est. 19.9%, prior 18.9%; MoM, est. 1.2%, prior 2.8% 08:30: June Retail Sales Advance MoM, est. 0.9%, prior -0.3% June Retail Sales Ex Auto MoM, est. 0.7%, prior 0.5% June Retail Sales Ex Auto and Gas, est. 0.1%, prior 0.1% June Retail Sales Control Group, est. 0.3%, prior 0% 08:30: July Empire Manufacturing, est. -2.0, prior -1.2 09:15: June Industrial Production MoM, est. 0.1%, prior 0.2%, revised 0.1% June Capacity Utilization, est. 80.8%, prior 79.0%, revised 80.8% June Manufacturing (SIC) Production, est. -0.1%, prior -0.1% 10:00: May Business Inventories, est. 1.4%, prior 1.2% 10:00: July U. of Mich. Sentiment, est. 50.0, prior 50.0; Expectations, est. 47.0, prior 47.5; Current Conditions, est. 53.7, prior 53.8 1 Yr Inflation, est. 5.3%, prior 5.3% 5-10 Yr Inflation, est. 3.0%, prior 3.1% DB's Jim Reid concludes the overnight wrap The last 24 hours have seen another major risk-off move in financial markets, with worries about a potential recession getting fresh support from a weak round of US bank earnings as we kick off the latest results season, followed by much weaker than expected Chinese GDP growth in Q2. To be honest, it was hard to find an asset class where recession signals weren’t flashing red, with yesterday seeing the S&P 500 (-0.30%) lose ground for a 5th consecutive session, peripheral bond spreads widen in Europe, and oil prices seeing their lowest intraday levels since Russia’s invasion of Ukraine began. In terms of the specific moves, equities declined across the board yesterday with the S&P 500’s losses led by energy and the more cyclical sectors. Banks were a major contributor to that, and JPMorgan (-3.49%) suffered, hitting a 20-month low after their earnings missed expectations and they announced the suspension of share buybacks, whilst Morgan Stanley (-0.39%) saw investment banking revenue down -55% on the previous year. European equities also suffered significant losses, with the STOXX 600 coming down -1.53% on the day. However, the final losses by the US close were far from where they had been at the open, with the S&P 500 recovering from intraday losses of -2.11% after the FOMC’s resident hawks walked back the prospects of a super-sized 100bps hike in July, and signalled that a 75bp increase remained preferable despite the CPI beat. Tech shares were a particular beneficiary, and the NASDAQ managed to eke out a +0.03% gain by the close as a result. In terms of the comments, Governor Waller said that “with the CPI data in hand, I support another 75-basis point increase”. However, he did say that if upcoming retail sales and housing data were “materially stronger than expected it would make me lean towards a larger hike”. And then St Louis Fed President Bullard was quoted in a Nikkei interview that he “would advocate 75 basis points again at the next meeting.” In response, futures dialled back their expectations for a 100bp move, with pricing moving down from a peak of +94bps not long before Waller’s remarks came out, to +82.5bps by the close of trade. Those remarks helped trigger a recovery among US Treasuries, with the 2yr yield falling back from an intraday high of 3.27% to end the day at 3.13%, and this morning it’s fallen further to 3.12%. Yield curves also steepened on the back of the remarks, although the 2s10s curve (+4.9bps yesterday) still remains well in inversion territory at -18.1bps as we go to press. Yields on 10yr Treasuries were up +2.6bps yesterday to 2.96%, although this morning have also fallen back to 2.94%. Today we’ll get further comments from Atlanta Fed President Bostic, St Louis Fed President Bullard and San Francisco President Daly, which will be important as today is the last day before the FOMC’s blackout period begins ahead of their next meeting, so all eyes will be on their thoughts about a 100bps move. Over in Europe, Italian assets lost significant ground yesterday amidst ongoing political turmoil in the country. Prime Minister Draghi tried to tender his resignation after the Five Star Movement boycotted a confidence vote in the Senate, saying that “The loyalty agreement that was the foundation of my government has gone missing”, but President Mattarella rejected it, and it’s uncertain what exactly will happen next. Draghi is set to address parliament next week, although early elections remain a possibility if an agreement is unable to be reached. In terms of the market reaction, Italy’s FTSE MIB underperformed all the other major European indices, with a -3.44% decline that leaves the index at its lowest level since November 2020 just before Pfizer announced their positive vaccine news. Meanwhile the spread of 10yr Italian yields over bunds widened +7.7bps to 206bps yesterday, which is their highest level in nearly a month. That theme of widening spreads was echoed on the credit side too, where iTraxx Crossover widened +22.2bps to 626bps, which is its highest level since April 2020. Yields on 10yr bunds themselves were up +3.3bps. That negative tone has persisted in Asia overnight after China’s Q2 GDP data showed economic growth slowed to just +0.4% year-on-year in Q2 (vs. +1.2% expected). On a quarter-on-quarter basis, there was even a -2.6% contraction (vs. -2.0% expected), which marks the first quarterly contraction since Q1 2020 when the Covid-19 pandemic started. The data for June alone was better however, with retail sales up +3.1% year-on-year (vs. +0.3% expected), and industrial production up +3.9% year-on-year (vs. +4.0% expected). Separately, China have reported their highest number of daily Covid-19 cases in 7 weeks, with 432 infections yesterday, of which 165 were in Guangxi province. A number of equity indices have lost ground against that backdrop, including the CSI 300 (-0.05%), the Shanghai Comp (-0.24%) and the Hang Seng (-1.19%), although the Kospi (+0.22%) and the Nikkei (+0.58%) have advanced, whilst Brent crude oil prices are back above $100/bbl. US and European equity futures are also pointing to a positive start, with those on the S&P 500 (+0.32%), the NASDAQ 100 (+0.41%) and the DAX (+0.99%) all up. Yesterday’s other data releases didn’t exactly help sentiment either, with US producer price inflation beating expectations as well at a monthly +1.1% (vs. +0.8% expected), although core inflation did fall to +0.4% (vs. +0.5% expected). That pushed the headline year-on-year PPI reading up to +11.3% (vs. +10.7% expected), and core fell to +8.2% as expected. Separately, the weekly initial jobless claims for the week through July 9 came in at 244k (vs. 235k expected), which is their highest level since November. Furthermore, the 4-week moving average of claims rose to 235.75k, which was its highest level since December. Instead, the main positive news came from the continuing claims data for the week through July 2, which fell to 1331k (vs. 1380k expected). Here in the UK, the second ballot of Conservative MPs took place yesterday as they select their next leader and the country’s next Prime minister. Former Chancellor Sunak remained in the lead with 101 votes, but trade minister Penny Mordaunt maintained her momentum with an increase to 83 votes, whilst Foreign Secretary Truss won 64 votes. There are now just 5 candidates remaining with the next ballot scheduled for Monday, and there are also a couple of TV debates taking place before then, so there’s still the potential for things to change over the weekend. To the day ahead now, and data releases include US retail sales, industrial production and capacity utilisation for June, along with the Empire State manufacturing survey for July, and the University of Michigan’s preliminary consumer sentiment index for July. Central bank speakers include the ECB’s Rehn, and the Fed’s Bostic and Bullard. Earnings releases include UnitedHealth Group, Wells Fargo, BlackRock and Citigroup. Finally, G20 finance ministers and central bank governors will be meeting in Indonesia. Tyler Durden Fri, 07/15/2022 - 07:57.....»»

Category: personnelSource: nytJul 15th, 2022

Futures Tumble As Dollar Hits Record High; JPM, Morgan Stanley Slide

Futures Tumble As Dollar Hits Record High; JPM, Morgan Stanley Slide US futures were already sliding fast as the reality of the Fed's upcoming 100bps rate hike was fully appreciated by the market, as even Goldman was shocked by the kneejerk move higher yesterday, saying "Does it makes sense for mkt to move higher after a 9.1% print and BOC hiking by 100bps...of course not...but that was max pain trade today and this market seeks max pain." Well, this morning the max pain was clearly lower, as US equity futures fell along with stocks in Europe and Asian, while the Bloomberg dollar index rose to a record Thursday, surpassing the record hit during the covid 2020 crash when the Fed launched unlimited swap lines to ease the global dollar crunch... ... after high US inflation hardened expectations for more aggressive Federal Reserve monetary tightening that could trigger a recession. S&P 500 futures tumbled more than 1%, down almost 200 points since Friday, as the US second-quarter earnings season got underway. All risk assets were lower, as well as gold and oil, while all non-USD currencies are getting steamrolled by the relentless surge in the dollar. 10Y yields dropped to 2.93% after rising just shy of 3.00% overnight. The inversion between two-year and 10-year yields -- a potential recession indicator -- is the deepest since 2000 But wait there's more, because while markets are freaking out over soaring inflation, Fed hikes and crashing earnings, Europe is about to enter the 9th circle of hell: France's Macron warns that citizens and companies will need to reduce energy usage as Germany reports that gas storage is already being withdrawn, even before peak usage in the winter. Meanwhile, Italian bonds and banks are tumbling amid speculation Mario Draghi’s government is about to collapse as coalition partner Five Star threatens to pull out. Looking at premarket movers, JPMorgan plunged more than 5% in premarket trading after reporting results that missed analyst  expectations. Tesla also dipped after the company’s top artificial-intelligence executive and an architect of its Autopilot self-driving system announced plans to depart the maker of electric vehicles and as Morgan Stanley makes “material” cuts to its forecasts across its auto portfolio. Some other notable premarket movers: Theravance Biopharma (TBPH US) shares jump as much as 25% in premarket trading after the biotech firm agrees to sell royalty interests in Trelegy Ellipta to Royalty Pharma. ContraFect (CFRX US) sinks as much as 77% in US premarket trading after the biotech company said that the Data Safety Monitoring Board recommended stopping its Exebacase phase 3 study. Netflix’s (NFLX US) decision to pick Microsoft (MSFT US) as a technology and sales partner for its new advertising-supported streaming service was a surprise to the industry. Analysts say the move makes sense. Netflix slips 1% in premarket trading, Microsoft -0.9%. As discussed yesterday, Fed officials will be debating a historic one percentage-point rate hike later this month in an attempt to combat inflation. Markets price in 69% odds that the Fed will raise interest rates by 100 basis points when it meets July 26-27, which would be the largest increase since the Fed started directly using overnight interest rates to conduct monetary policy in the early 1990s. Technology stocks will be in focus as higher rates mean a bigger discount for the present value of future profits, hurting growth stocks with the highest valuations. A 100 basis points hike is now likely and the “inflation reading should also raise the odds of recession, which we now estimate is likely sooner rather than later and possibly more severe,” said Tiffany Wilding, an economist at Pacific Investment Management Co. “The market has already priced in the unexpected extreme tightening, so there isn’t that much more the Fed can do to prepare the markets,” said Mehvish Ayub, a senior strategist at State Street Global Advisors. “We need to position portfolios accordingly and expect volatility to continue as it has since the beginning of the year,” she said in an interview with Bloomberg Television. “It is clear that central banks around the world are laser-focused on fighting the entrenched inflation they helped to create, growth-be-damned,” said Jeffrey Halley, a senior market analyst at Oanda Asia Pacific Ltd. “US markets are pricing in faster Fed tightening, and a recession is on the way imminently.” In Europe, the Stoxx 50 index slumped 1.2%. DAX outperforms peers, dropping 0.9%, FTSE MIB lags, dropping 2.3%. Miners, energy and telecoms are the worst-performing Stoxx 600 sectors. Here are the biggest European movers: Ericsson tumbles as much as 12% to the lowest level since March 2020, after a mixed quarterly report with revenue ahead of expectations but margin and earnings missing estimates. Sabre Insurance plunged more than 30% after warning that everything related to an insurance claim -- the car parts, paint, labor and the cost of replacing the vehicle -- has risen faster than expected. Peers Admiral and Direct Line dropped 13% and 7.9%, respectively. Hugo Boss shares rise as much as 3.2% to the highest since late February after what analysts say was a “blow- out” second-quarter for the luxury apparel firm. Entain rises as much as 5.2%, rallying after last week’s heavy losses, as the owner of the Ladbrokes and Coral betting brands publishes a video updating on the progress of Enlabs since last year’s acquisition of the firm. Technogym shares fall as much as 6.8% as Goldman Sachs cuts its PT on the Italian gym-equipment maker on a weaker medium-term growth outlook and low visibility on near- term consumption patterns. Acciona slumped after newspaper Expansion said the Spanish government is analyzing 16 companies, including renewable unit Acciona Energia, to impose a new windfall profit levy announced earlier in the week. Storebrand rises as much as 4% in Oslo trading after second-quarter pretax profit beat the average analyst estimate. SBB posted a surprise pretax loss and the Swedish property company’s stock price tumbled as much as 17%. SEB shares gain as much as 4.7% in early European trading after the lender posted 2Q earnings that showed higher deposit margins and decent loan growth, Handelsbanken writes in a note. Hunting’s steep slide since its June 30 trading update offers a good entry point, Berenberg writes in note, upgrading the stock to buy from hold. Hunting shares up as much as 7.1%. Asian stocks declined, as markets in Singapore and the Philippines fell after surprise monetary tightening by the two Southeast Asian nations, while Chinese bank shares weighed amid a property crisis.  The MSCI Asia Pacific Index dropped as much as 0.6%, with the financials gauge weighing the most on the measure. Ping An Insurance was the single biggest drag, leading a fall among Chinese lenders as home buyers in China refused to pay mortgages on delayed construction projects.    Shares in Singapore and Manila declined after local monetary authorities unexpectedly tightened policy rates to tackle inflation. Their declines helped put a key Southeast Asian equities gauge on track for a bear market. Taiwan’s benchmark rose for a second day after a government support pledge, while Chinese tech firms also climbed.   The region’s mixed performance comes as investors continue to digest the prospect of a recession on hardened expectations of more aggressive Federal Reserve monetary tightening after sizzling US inflation data. Traders in Asia also are waiting for Friday’s release of China’s second-quarter GDP growth figure.  “Even while central banks in most of the rest of the world are moving in one direction, here in Asia we’ve got a very, very large player doing something different,” said Alexander Treves, head of investment specialists for Asia Pacific equities at JPMorgan Asset Management, referring to China in an interview with Bloomberg TV. “The government has got quite ambitious growth targets for this year and it might be they don’t meet them but they are going to try very, very hard to stimulate in that direction.” The higher-than-expected consumer prices data from the US overnight was “lagged bad news,” according to David Kelly, chief global strategist at J.P. Morgan Asset Management.  “But we do expect lagged good news in the coming months, with energy prices diving lower, food prices cooling and consumer demand stepping back,” Kelly wrote in a note. “This should provide some inflation relief to the Fed and consumers, and hopefully lead sentiment to recover from its record-lows.” Japanese equities erased earlier losses as the yen weakened after US inflation data hardened expectations of more aggressive Federal Reserve monetary tightening.  The Topix index closed 0.2% higher at 1,893.13 in Tokyo, while the Nikkei 225 advanced 0.6% to 26,643.39. Keyence Corp. contributed the most to the Topix’s gain, increasing 3.5%. Out of 2,170 shares in the index, 1,229 rose and 803 fell, while 138 were unchanged. “The weak yen and continuation of monetary easing in Japan, which is completely different from the situation in the US and Europe, will help to support stock prices,” said Tomo Kinoshita, a global market strategist at Invesco Asset Management.  Australia's S&P/ASX 200 index rose 0.4% to close at 6,650.60, climbing for a third session. Miners contributed the most to the benchmark’s gain. EML Payments was the top performer, bouncing back after three days of losses. Lake Resources was the biggest laggard after responding to a short-seller report. Investors also assessed jobs data. Australia’s hiring boom gathered pace in June, sending the unemployment rate to the lowest in almost 50 years and bolstering the case for a supersized interest rate hike next month.  In New Zealand, the S&P/NZX 50 index rose 0.7% to 11,187.97 India’s benchmark equity index erased early gains to close at its lowest level in more than a week as shares of technology firms Infosys and TCS weighed.  The S&P BSE Sensex fell 0.2% to 53,416.15 in Mumbai, while the NSE Nifty 50 Index declined by the same magnitude. Axis Bank was the worst performer on the Sensex, which saw 17 of its 30 member stocks trading lower. India’s biggest technology company TCS fell to the lowest level since March last year, setting the pace for a tech selloff.  India’s headline inflation rose 15.18% compared to last year, which was below estimates for the first time since June 2021. In FX, the Bloomberg Dollar Spot Index rose by around 0.5% hitting an all time high, as the greenback advanced against all of its Group-of-10 peers. AUD and DKK are the strongest performers in G-10 FX, JPY and CAD underperform. COP (+3%), RUB (+1.4%) lead gains in EMFX. The euro fluctuated, but held above parity. An early decline in the face of widespread dollar demand paused at buy orders from a reserve manager based in Asia seeking to diversify away from the greenback, according to Asia-based FX traders. One-week volatility in euro-dollar rallied as the tenor now captures the next ECB decision on July 21, the same day when a key Russian gas pipeline is scheduled to reopen. German and UK short-end bonds fell, led by the front-end, underperforming on their curves as money markets cranked up ECB and BOE rate-hike wagers for a second day. Investors were dumping Italian assets as political turmoil puts Prime Minister Mario Draghi’s government at risk of collapse and complicates efforts by the European Central Bank to support the market. Swedish 2-year bonds slumped after inflation rose faster than forecast in June. The yen approached 140 per dollar as the currency is decoupling from its close relationship with US bonds amid a broad rally in the dollar. In rates, the treasuries curve extends Wednesday’s flattening move with 2s10s spread reaching -27bp during European morning, as political turmoil in Italy has investors dumping its bonds. US yields cheaper by up to 5bp in front end and belly of the curve, flattening 2s10s, 5s30s spreads by ~2bp and ~5bp on the day; 10-year yields around 2.95%, cheaper by ~3bp vs Wednesday’s close; Italian bonds underperform by more 20bp in the sector. In front end, investors continue to anticipate front-loaded and aggressive Fed hikes to peak by year-end; swaps price 92bp of hikes into the July policy meeting and 213bp of additional hikes into the December FOMC, where policy rate is expected to peak.  Bund, and gilt curves bear-flatten; UST 2s10s yield-curve inversion deepens. Peripheral spreads widen to Germany with 10y BTP/Bund adding 9.7bps to 209.2bps. Bitcoin is bid but has reverted below the USD 20k mark once more, despite a brief foray to USD 20.4k initial highs. In commodities, crude futures decline. WTI trades within Wednesday’s range, falling 2.3% to trade near $94.08. Brent falls 1.9% near $97.66. Most base metals trade in the red; LME nickel falls 5.1%, underperforming peers. Spot gold falls roughly $19 to trade near $1,717/oz. Spot silver loses 1.4% near $19. To the day ahead now, data releases include the US PPI reading for June and the weekly initial jobless claims. Otherwise, central bank speakers include the Fed’s Waller and the ECB’s Centeno. Earnings releases include JPMorgan Chase and Morgan Stanley. The European Commission will be publishing their latest economic forecasts, and UK Conservative MPs will hold another ballot on their next leader. Market Snapshot S&P 500 futures down 0.9% to 3,768.75 MXAP down 0.6% to 154.55 MXAPJ down 0.2% to 510.23 Nikkei up 0.6% to 26,643.39 Topix up 0.2% to 1,893.13 Hang Seng Index down 0.2% to 20,751.21 Shanghai Composite little changed at 3,281.74 Sensex down 0.4% to 53,290.44 Australia S&P/ASX 200 up 0.4% to 6,650.62 Kospi down 0.3% to 2,322.32 STOXX Europe 600 down 0.7% to 409.97 German 10Y yield little changed at 1.24% Euro down 0.4% to $1.0023 Gold spot down 1.0% to $1,717.77 US Dollar Index up 0.57% to 108.57 Top Overnight News from Bloomberg The three-month euribor’s seven-year foray in to negative territory ended as money markets prepared for the ECB’s first rate hike in more than a decade Italy’s Five Star Movement will refuse to back Mario Draghi’s government in a confidence vote on Thursday, raising the prospect that the prime minister offers to resign, potentially leading to an early election. A financial- market crisis focused on Italy might augur the worst turmoil in the history of the euro Singapore’s central bank unexpectedly tightened monetary policy on Thursday, its second surprise move this year, as rising inflation fanned the risk of economic contraction China will take further measures to stabilize employment as the country grapples with a flagging economy battered by the Covid-19 pandemic and a crumbling real-estate market Chinese regulators have been asked to exercise greater caution when it comes to reviewing new overseas spending and investment plans amid concerns among senior leaders that higher US interest rates could spur capital outflows, according to people familiar with the matter The euro area’s rebound from the pandemic will be weaker than anticipated while inflation will be faster because of Russia’s war in Ukraine, according to draft projections by the European Commission Central banks across the globe are speeding up interest-rate hikes, seeking to crush an inflation surge partly of their own making. Wednesday saw Canada’s central bank hike a greater-than-expected full percentage point following two half-point moves, South Korea raise by a half point after several quarter-point moves, and New Zealand increase by a half point for a third straight meeting A more detailed look at global markets courtesy of Newsquawk Asia-pac stocks mostly traded with cautious gains after the recent hotter-than-expected US inflation data which printed at a fresh 40-year high and spurred hawkish market pricing with Fed Fund Rate futures leaning towards a 100bps Fed rate hike this month. ASX 200 was kept afloat amid strength in the commodity-related sectors although gains were capped as blockbuster jobs data raised the odds for the RBA to deliver a more aggressive 75bps hike at its next meeting. Nikkei 225 outperformed its major counterparts on the back of further currency depreciation. Hang Seng and Shanghai Comp. were initially pressured by weakness in the property sector although the downside in the broader market was cushioned and eventually reversed after recent policy support pledges in which the PBoC said it will step up support for the real economy and deepen interest rate reforms. STI and PSEi were the laggards and traded in the red after both the Monetary Authority of Singapore and the Philippines Central Bank tightened their monetary policies in unscheduled announcements. Top Asian News Tokyo is expected to raise the COVID warning to its highest level, according to FNN. Monetary Authority of Singapore announced to re-centre the mid-point of the SGD NEER policy band up to the prevailing level in an unscheduled meeting, while there was no change to the slope and width of the band. MAS said the move is to help slow the momentum of inflation and that inflation pressures are to remain elevated in months ahead, while it is appropriate to further tighten monetary policy further. Philippines Central Bank raised its key rates by 75bps to 3.25% in an unscheduled policy decision. Philippines Central Bank Governor said they recognised that a significant further tightening of monetary policy was warranted by sustained broadening price pressures, while they are ready to take further action and said the economy can accommodate further tightening. Chinese authorities reportedly met with banks regarding the mortgage payment boycott, according to Bloomberg sources European bourses are pressured across the board, Euro Stoxx 50 -0.8%, but off worst levels while the FTSE MIB -1.9% languishes on domestic turmoil. Sectors are essentially all in the red with Tech giving up its initial TSMC-driven strength and succumbing to risk/yield moves. Stateside, futures are off lows but in-fitting European benchmarks awaiting guidance from the key banking names due to report imminently. TSMC (2330 TT) Q2 (TWD): Net Profit 237bln (exp. 219bln), Revenue 534bln (prev. 372bln YY), Operating Income 262bln (prev. 145bln YY); excess inventory in chip supply will take a few quarters to rebalance; expect capacity to remain tight this year; expects some capex this year to be pushed into next year due to tool supply issues. 2022 Capex closer to the lower end of prior guidance of USD 40-44bln. 2023 will see more of a typical downcycle in chip demand, unlike the large downcycle in 2008. Intel (INTC) has reportedly informed customers it will increase prices on a majority of its microprocessors and peripheral chip products later this year, citing rising costs, via Nikkei; Increases have not been finalized, likely to range from a minimal single-digit increase to over 10% or 20% in some cases, according to sources. Top European News The first round of the Conservative leadership ballot saw Sunak, Mordaunt, Truss, Tugendhat, Badenoch, and Braverman make it to the next round, while Hunt and Zahawi were eliminated. Italy's 5-Star leader Conte said the party will not participate in the confidence vote on Thursday, according to Reuters. EU draft report cut 2022 EU GDP forecast to 2.6% from 2.8% and for 2023 to 1.4% from 2.3%. FX Yen yields to inevitable further widening in BoJ/Fed policy rates as markets place 2/3 probability on 100bp July FOMC hike; USD/JPY jumps through 139.00 towards October 1998 peak at 139.50, but pares back below 1.48bln option expiry interest at the round number. DXY rebounds firmly after post-US CPI retreat to set new YTD peak before fading, index tops out at 108.650 vs 108.190 bottom and 107.470 midweek low. Loonie loses all and more BoC boost as oil tanks, USD/CAD close to 1.3100 compared to Wednesday's sub-1.2950 trough. Euro is still defiant above parity vs the Buck but facing Italian political risk via a vote of no confidence. Aussie underpinned by upbeat labour market report and more speculation that China may lift embargo on coal, UAD/USD holds around 0.6750. Kiwi flanked by decent option expiry interest either side of 0.6100. Yuan unable to avoid broad Dollar revival, as CNH slips under 200 WMA circa 6.7330. Fixed Income Debt under renewed pressure post-US CPI as 100bp hike odds continue to shorten and keep curves in bear-flattening mode Bunds down to 151.21 from 153.01 at best, Gilts reverse from 116.05-115.14 and 10-year T-note retreats to 118-10+ from 118-30 Italian bonds underperform awaiting no-confidence vote in PM Draghi's coalition Government Commodities The complex is broadly pressured amid the general risk tone and ongoing USD strength, crude benchmarks lower by over USD 2.00/bbl. China is said to be mulling ending the Australian coal ban on Russian supply fears, according to Bloomberg. White House Economic Adviser Rouse said President Biden is focused on getting more oil into the market and his Saudi visit will help get more oil into the market. Spot gold is dented on the USD move which is far outweighing any possible haven allure thus far; base metals broadly lower. US Event Calendar 08:30: June PPI Final Demand YoY, est. 10.7%, prior 10.8%; MoM, est. 0.8%, prior 0.8% 08:30: June PPI Ex Food and Energy YoY, est. 8.2%, prior 8.3%; MoM, est. 0.5%, prior 0.5% 08:30: June PPI Ex Food, Energy, Trade YoY, est. 6.6%, prior 6.8%; MoM, est. 0.5%, prior 0.5% 08:30: July Initial Jobless Claims, est. 235,000, prior 235,000; Continuing Claims, est. 1.38m, prior 1.38m DB's Jim Reid concludes the overnight wrap There are just 9 days to go until the happiest day of my life. It’ll be the most expensive too but I’m trying not to dwell on that. However, the final balances were all paid at the weekend, so I’ve figured that in purely accounting terms the wedding is now a sunk cost. For those who’ve been asking, preparation is going well. At long last we finally chose our first dance with less than a month to spare. But there’s still a few more things left on the agenda, including wearing in my new shoes. So if you saw a guy walking to the supermarket yesterday evening in casual summer clothes with oddly formal footwear, that might have been me. For markets, the agenda yesterday was set by another stronger-than-expected US CPI print, which led to a sizeable reaction across asset classes as investors pondered whether it might lead the Fed to move even more aggressively than anticipated. In terms of the details, there wasn’t much good news at all for those hoping to see signs of weaker price pressures, with the headline CPI reading coming in at a monthly +1.3% in June (vs. +1.1% expected), which is the highest monthly reading since September 2005. There was little respite on core CPI either, which came in at its fastest in a year at +0.7% (vs. +0.5% expected). And on top of that, the Cleveland Fed’s Trimmed-Mean measure (which removes the biggest outliers in either direction) rose to +0.80% on the month, which is the fastest since that series began in 1983, and just shows how broad inflationary pressures have become. Thanks to the strength of the monthly print, year-on-year CPI rose to its highest level since 1981, at +9.1% (vs. +8.8% expected). And in turn, that’s led to serious speculation among investors that the Fed could hike by 100bps at their next meeting, which would be even faster than the 75bps we saw in June that itself was the biggest hike since 1994. Fed funds futures for the July meeting are pricing in a growing chance of that, with the hike being priced for that meeting going up from +74.5bps on Tuesday to +90.7bps by the close yesterday, to +92.0bps this morning. So that’s noticeably closer to 100bps than 75bps now. We did hear from a few Fed speakers yesterday after the release, including Atlanta Fed President Bostic, who said that “Everything is in play”, whilst Cleveland Fed President Mester referred to the report as “uniformly bad – there was no good news in that report at all”. All eyes will be on the remaining FOMC speakers over the next couple of days and what they have to say about a potential 100bps move. Remember this is also the last chance we’ll get to hear from them ahead of the decision, since the blackout period ahead of their next meeting begins on Saturday. With investors pricing in an increasingly front-loaded hiking cycle by the Fed, that led to a further bout of yield curve steepening, with the 2yr Treasury yield up +10.6bps to 3.15%, whilst the 10yr yield came down -3.5bps to 2.93%. That left the 2s10s yield curve at an inverted -22.7bps, which is the most inverted that it’s been at any point in this cycle, and this morning it’s inverted even further to -24.9bps, which is the most inverted since 2000. The prospect that the Fed might make a larger than expected move was only bolstered by what then happened in Canada, where the central bank hiked by a surprise +100bps that marked their most rapid increase since 1998. In his statement, BoC Governor Macklem said that “By front-loading interest rate increases now, we are trying to avoid the need for ever higher interest rates down the road”. After the CPI release came out, the prospect of more aggressive tightening from the Fed sent the Euro down to parity against the dollar for the first time since 2002, hitting an intraday low of $0.9998, although it’s since recovered and is trading this morning at $1.0033. To be fair, the CPI report was merely the catalyst for the final move lower, since the Euro’s decline had been building for some time, not least with the threat of a Russian gas cut-off looming. As our FX strategists have pointed out, parity in itself is more psychologically significant rather than economically significant, but the significant weakening over recent weeks will add to inflationary pressures, and an ECB spokesman said that although the ECB “does not target a particular exchange rate”, they mentioned how “we are always attentive to the impact of the exchange rate on inflation, in line with our mandate for price stability”. In spite of the turbulence elsewhere, US equities managed to avoid a major slump yesterday, with the S&P 500 recovering from its initial losses of -1.56% to only close -0.45% lower. Meanwhile the NASDAQ (-0.15%) managed to modestly outperform, as did the small-cap Russell 2000 (-0.12%). In Europe however, there was a much weaker performance and the STOXX 600 shed -1.01% along with other indices on the continent, including German’s DAX (-1.16%). Sovereign bond yields also moved higher across much of the Euro Area, with those on 10yr bunds (+1.1bps), OATs (+1.1bps) and BTPs (+2.4bps) all rising on the day. Overnight in Asia, equity markets have fluctuating this morning with the major indices opening lower before recovering. As we go to press, the Nikkei (+0.70%), the Hang Seng (+0.17%), Shanghai Composite (+0.31%), CSI (+0.44%) and Kospi (+0.10%) are all in positive territory. Meanwhile in Australia, the S&P/ASX 200 (+0.45%) has also gained following the release of strong employment data, with the unemployment rate down to a post-1974 low of 3.5% in June (vs. 3.8% expected). Looking forward however, US equity futures have posted modest losses in early trading with contracts on the S&P 500 (-0.10%) and the NASDAQ 100 (-0.17%) slightly lower. Otherwise overnight, oil prices have rebounded somewhat, with Brent Crude moving just back above $100/bbl. Here in the UK, we had the first ballot of MPs in the Conservative leadership contest yesterday, which will also decide the country’s next Prime Minister. Of the 8 candidates on the ballot, former Chancellor Rishi Sunak came out on top with 88 votes, followed by trade minister Penny Mordaunt on 67 votes, and Foreign Secretary Liz Truss on 50 votes. At the other end, both former Foreign Secretary Jeremy Hunt and Chancellor Nadhim Zahawi were eliminated for not achieving the 30 votes required, so there are just 6 candidates left now. Today will see another ballot take place, and the candidate with the lowest votes will be eliminated. Looking at yesterday’s other data, UK GDP grew by +0.5% in May (vs. +0.1% expected), and the decline in April was positively revised to show a -0.2% contraction (vs. -0.3% previously). Separately in the Euro Area, industrial production in May grew by +0.8% (vs. +0.3% expected). To the day ahead now, and data releases include the US PPI reading for June and the weekly initial jobless claims. Otherwise, central bank speakers include the Fed’s Waller and the ECB’s Centeno. Earnings releases include JPMorgan Chase and Morgan Stanley. The European Commission will be publishing their latest economic forecasts, and UK Conservative MPs will hold another ballot on their next leader.   Tyler Durden Thu, 07/14/2022 - 08:24.....»»

Category: blogSource: zerohedgeJul 14th, 2022

Futures, Yields, Oil And Gold Slide As German Confidence Plummets To 2011 Lows, Euro Hits Parity

Futures, Yields, Oil And Gold Slide As German Confidence Plummets To 2011 Lows, Euro Hits Parity US index futures, global markets, Treasury yields, bitcoin and oil all fell on Tuesday as the dollar continued its relentless ascent to  levels just shy of the March 2020 global crash record high... ... highlighting pervasive trader unease about the economic outlook as high inflation and a looming recession are set to unleash a catastrophic global recession coupled with a worldwide dollar shortage, now with the added boost of China’s renewed struggles with Covid. S&P and Nasdaq 100 emini futures dropped about 0.5% each having slumped as much as 0.9% earlier, as traders brace for an ugly Q2 earnings season which may provide clues on how companies are weathering inflation and recession concerns. The US 10-year Treasury yield falls to about 2.91% amid a broad-based flight to safety; bonds also rallied in Europe. German bonds surged, sending the benchmark 10-year yield to the lowest since May, after data showed investor confidence plunged to a 2011 low. As shown above, the dollar rose just shy of record highs last seen at the height of the 2020 market panic over Covid and the yen strengthened, underlining investor caution. The euro meanwhile briefly touched parity (technically, it was 1.00003 but that's semantics for purists who have nothing better to do) hammered by the region’s energy crisis and acute recession fears. Dollar strength will not only “affect this quarter’s earnings, but more likely it’s going to affect the revenue generation outlook for the next couple of quarters and that, I think, is a big problem,” Kimberly Forrest, founder and chief investment officer of Bokeh Capital Partners, said on Bloomberg Radio. PepsiCo, one of the first major corporations to report, rose in premarket trading after lifting its revenue forecast. The soft-drinks maker said demand remained robust despite inflation, though it expected headwinds from the strong dollar. Bank stocks, meanwhile, were lower in premarket trading amid a broader slump in risk assets. Cryptocurrency stocks drop in premarket trading as Bitcoin drops below $20,000 in its fourth straight day of declines amid a stronger dollar. In corporate news, LoanDepot said it will cut about 2,000 additional staff by the end of the year. Here are the other notable premarket movers: Gap (GPS US) shares fall 6.4% in premarket trading after the apparel retailer fired CEO Sonia Syngal and said it expects rising costs and deepening discounts to erase this quarter’s operating profit. American Express (AXP US) shares are down 2.2% in premarket trading after Morgan Stanley cut the recommendation on the stock, as well as on Capital One (COF US), to equal- weight from overweight as inflation takes a larger share of household disposable incomes. STORE Capital (STOR US) shares fall 3.3% in premarket trading after Morgan Stanley downgrades it to underweight from equal-weight and cuts National Retail Properties (NNN US) to equal-weight from overweight, saying that US triple net REITs could see a headwind from the rising cost of capital. Ginkgo Bioworks (DNA US) shares are up 9% in premarket trading after exchange-traded funds managed by Cathie Wood’s Ark Investment Management bought 860,480 shares in the company. Meanwhile, the latest Fed commentary highlighted both the central bank’s hawkishness and the risks that come with aggressive interest-rate hikes. Fed Bank of Atlanta President Raphael Bostic said the US economy can copewith higher interest rates and repeated his support for another jumbo move this month. Fed Bank of Kansas City President Esther George, who dissented last month against the central bank’s 75 basis-point rate increase, cautioned that rushing to tighten policy could backfire. European bourses are also deep in the red. Euro Stoxx 50 falls 0.7% with the Stoxx Europe 600 sliding for a second day, though it pared the decline with utilities outperforming as EDF jumped after a report that the French government will pay a premium to take control of the electricity company. The DAX lags, dropping 0.8%. Banks, travel and autos are the worst performing sectors. German bonds surged, sending the benchmark 10-year yield to the lowest since May, after data showed investor confidence plunged to a level not seen since the sovereign debt crisis in 2011. Asian stocks fell to a new two-year low as China’s technology shares continued to face selling pressure amid regulatory jitters and a resurgence of Covid cases in the nation.  The MSCI Asia Pacific Index slipped as much as 1.5%, dragged by tech and consumer discretionary shares. The Hang Seng Tech Index fell 11% from a June high to enter a technical correction as regulatory fines for the country’s tech giants continued to damp sentiment. In China, investors are concerned more Covid lockdowns may lie ahead as Beijing continues with a strategy of mass testing and mobility curbs. Chinese benchmarks took a hit from renewed lockdown fears from a fresh virus outbreak in Shanghai. Japan and Taiwan were among the region’s worst performing markets on lingering concerns of a global economic slowdown. Market participants are hoping that key US inflation data due Wednesday and China’s GDP figures on Friday will provide clues on the global economy’s direction. Asia’s stock benchmark has slumped 20% this year amid worries about higher interest rates and the prospect of an economic downturn.  Investor sentiment continued to weaken in Asia despite remaining positive in China, said Olivier d’Assier, the head of APAC applied research at Qontigo. “Within an inflationary background, hopes of continued high profit margins in developed markets can only be balanced with fears of a margin squeeze among the developing world’s supply chain.” In FX, the Bloomberg Dollar Spot Index rose a second day as the greenback was steady or higher against all of its Group-of-10 peers apart from the yen amid rising recession concerns. The euro fell to a low of 1.00003 per dollar but struggled to go below parity. Options traders are still preparing for life below this psychological support level. The pound lagged all of its Group-of-10 peers. UK retailers reported another drop in sales, while economists see the risk of a UK recession in the next 12 months at almost 50-50. Australian and New Zealand fell gradually. Iron ore prices sank to a seven- month low, with the demand outlook dimming on fears China may again impose strict Covid-19 curbs that hurt construction activity. In rates, Treasuries were underpinned following gains for bunds and gilts after German ZEW expectations gauge dropped to -53.8 vs -40.5 estimate. Treasury yields richer by up to 7.5bp across intermediates, flattening 2s10s spread by 1.4bp on the day to -10.3bp, deepest inversion since 2007; German 10s outperform Treasuries by ~5bp, gilts by ~7bp. German 10-year yields dropped to lowest since May, dragging Treasury yields lower. German curve bull-flattens, richening 12-14bps across the back end. Gilts bull-steepen, with short-dated yields dropping over 15bps. Peripheral spreads widen to Germany with 10y BTP/Bund widening ~3bps to 199bps. In bond auctions we get a $33BN reopening of 10-year notes at 1pm ET follows good demand for Monday’s 3-year new issue, which stopped 0.5bp through. WI 10-year yield around 2.92% is ~11bp richer than June result, which tailed by 1.2bp. Crude futures decline. WTI falls ~2.5% to trade near $101.60. Base metals are mixed; LME tin falls 3.1% while LME aluminum gains 0.3%. Spot gold is little changed at $1,735/oz. Spot silver loses 1.1% near $19. Bitcoin drops over 3.5% to trade back below $20,000. Looking at the day ahead now, and data releases include the US NFIB small business optimism index for June. Central bank speakers include BoE Governor Bailey, the Fed’s Barkin and the ECB’s Villeroy. Finally, earnings releases today include PepsiCo. Market Snapshot S&P 500 futures down 0.6% to 3,835.50 STOXX Europe 600 down 0.4% to 413.46 MXAP down 1.3% to 154.65 MXAPJ down 1.3% to 508.44 Nikkei down 1.8% to 26,336.66 Topix down 1.6% to 1,883.30 Hang Seng Index down 1.3% to 20,844.74 Shanghai Composite down 1.0% to 3,281.47 Sensex down 0.6% to 54,067.35 Australia S&P/ASX 200 little changed at 6,606.28 Kospi down 1.0% to 2,317.76 German 10Y yield little changed at 1.16% Euro down 0.3% to $1.0008 Brent Futures down 2.1% to $104.83/bbl Gold spot up 0.2% to $1,736.88 U.S. Dollar Index up 0.43% to 108.48 Top Overnight News from Bloomnerg Investor confidence in Germany’s economy slumped to the lowest since 2011 as the country faces the growing prospect of a recession and risks mount that it’s shut off from Russian energy supplies US Treasury Secretary Janet Yellen agreed with her Japanese counterpart Tuesday that volatile exchange rates pose a risk, and pledged to consult and cooperate as appropriate A global squeeze on energy supply that’s triggered crippling shortages and sent power and fuel prices surging may get worse, according to the head of the International Energy Agency A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were mostly negative after the weak performance across global counterparts as China's COVID flare-up and Europe's energy concerns added to the headwinds for the growth outlook. ASX 200 bucked the trend with the index kept afloat by defensives although the upside was capped by weak consumer and business confidence data. Nikkei 225 underperformed as the Japanese currency attempted to compose itself from recent rapid depreciation and with automakers pressured after Toyota flagged a potential cut to its output plan citing a chip shortage and COVID impact. Hang Seng and Shanghai Comp. were lower amid the ongoing COVD concerns which overshadowed reports that China’s authorities will increase financial support for manufacturers, as well as the recent stronger than expected aggregate financing and loans data. Top Asian News China is to lockdown Wugang city in Henan for 3 days due to 1 COVID case, according to Bloomberg. Japanese Finance Minister Suzuki said they will conduct necessary economic steps taking prices and economy into account, while he added that they are watching the FX market even more closely while working with the BoJ and will take necessary steps against the FX market with FX authorities from other nations, according to Reuters. Japanese Finance Minister told US Treasury Secretary Yellen that Japan is concerned about the rapid JPY weakening recently; watching currency markets with a sense of urgency; agreed to continue consulting in foreign exchange. European bourses are pressured in a broad China-COVID driven risk move, Euro Stoxx 50 -0.5%; alongside known concerns and a dismal ZEW. Stateside, futures are lower across the board with the NQ somewhat more choppy than peers amid pronounced rate activity this morning and on PEP earnings. Back to Europe, sectors are mixed and feature IT as the laggard while Energy is green despite benchmark pricing amid outperformance in EDF. PepsiCo Inc (PEP) Q2 2022 (USD): EPS 1.86 (exp. 1.74), Revenue 20.2bln (exp. 19.51bln). FY Revenue view 82.7bln (exp. 82.72bln) Top European News UK's Heathrow airport is imposing a capacity cap of 100k departing passengers a day, until September 11th. Beleive further action is needed now; cap means some summer journeys will be rescheduled, relocated or cancelled. Asks airline partners to stop the sale of summer tickets in order to limit the passenger impact. Former UK Chancellor Sunak confirmed his commitment to fiscal discipline and will stand firm on taxes until he has 'gripped inflation', according to FT. German ZEW Economic Sentiment (Jul) -53.8 vs. Exp. -38.3 (Prev. -28.0); ZEW Survey Expectations (Jul) -51.1 (Prev. -28.0) ZEW: current major concerns about energy supply, ECB's announced rate hikes, restrictions in China, led to a deterioration in the outlook; economic situation significantly more negative than in previous month, experts further lower their already unfavourable forecast for the next six months. Fixed Income Bonds breach recent resistance levels, with Bunds up to new July highs at 153.48 after a bleak German ZEW survey Gilts back on the 116.00 handle from a 115.04 Liffe low awaiting more comments from BoE Governor Bailey and 10 year T-note towards top of 119-03/118-09+ range pre-USD 33bn refunding leg DMO's 2032 tap well received and German Schatz covered, but results mixed overall FX Pound underperforms awaiting UK political developments as Labour Party prepares no-confidence motion against Tories; Cable on the cusp of 1.1800, while EUR/GBP rebounds over 0.8450. Euro prods parity vs Dollar before and after dire German ZEW survey, while DXY breaches 108.500 amidst broad Buck gains. Yen regroups as risk sentiment remains sour and yields retreat further, with Japan’s Finance Minister also raising concern about rapid decline, USD/JPY closer to 137.00 than 137.50+ top and Monday's 137.75 peak. Loonie and Nokkie recoil alongside crude prices, but Kiwi holds up better than Aussie ahead of anticipated 50bp RBNZ rate hike on Wednesday, USD/CAD back up near 1.3050, EUR/NOK propped around 10.2600, NZD/USD holding just above 0.6100 and AUD/USD sub-0.6750. Yuan breaks below recent range as China’s Covid situation continues to deteriorate - USD/CNH and USD/CNY probe 6.7500 and 6.7350 respectively. Commodities WTI and Brent have extended on APAC pressure as the demand-side of the equation remains sensitive to lockdowns with the OPEC MOMR and EIA STEO due. Currently, benchmarks are in relative proximity to their respective USD 101.06/bbl and USD 104.35/bbl lows. IEA's Birol said the world is in the midst of the first energy crisis and it has not seen the worst of the energy crisis, according to Bloomberg. US senior official warned that a failure to implement a proposed price cap on Russian oil with the exemption of purchases below the cap, could see oil prices increase to around USD 140/bbl, while the official added that Treasury Secretary Yellen will speak to Japanese Finance Minister Suzuki on the proposed Russian oil price cap, according to Reuters. US Department of Energy announced a contract for 14 companies to purchase crude oil from the SPR with deliveries to take place between August 16th to September 30th, according to Reuters. China's NDRC says retail prices of gasoline and diesel will be cut by CNY 360/tonne and CNY 345/tonne respectively from July 13th. US National Security Adviser Sullivan responded that there is a capacity for further steps that can be taken when questioned about oil output, according to Reuters. Spot gold is relatively resilient despite broader price action, and the yellow metal is torn between COVID-driven haven allure and the USD’s ongoing advances. US Event Calendar 06:00: June SMALL BUSINESS OPTIMISM, 89.5, est. 92.5, prior 93.1 Central Banks 12:30: Fed’s Barkin Discusses the ‘Recession Question’ Government: President Biden will meet with Mexico President Andrés Manuel López Obrador at 11:15am ET House Jan. 6 select committee will hold a hearing on the extremists involved in the assault at 1pm ET DB's Jim Reid concludes the overnight wrap It's so hot, even at 5am, that I have two fans pointing at me as I type this. Electric ones not two people that have kindly voted for me in the II survey. Never has a commute to the office and the lure of aircon been so alluring. When we renovated 3-4 years ago we considered having some aircon fitted but decided that given the cost we would forgo that for the couple of days a year where Britain sweltered. Given that this spell looks set to last a couple of weeks I may sleep in the office, especially as the kids have now broken up and are running riot at home. The heat may have also tired markets out after a mini rally so far in July. The last 24 hours has seen sentiment become more gloomy once again as investors looked forward to multiple data releases and earnings reports this week that’ll set the stage for some important central bank meetings over the next couple of weeks. The US CPI report will be the main highlight tomorrow, but we shouldn’t forget the start of the Q2 earnings season either, which will shed some light on how corporates are faring as the market narrative has flirted with the view that the US economy might already be in a recession. One bit of “good” news yesterday was the NY Fed’s long-run consumer inflation expectations series which showed a decent dip and helped encourage a big rally in bonds as the tug of war in the asset class continues. More on that later but equities didn’t get that memo as they lost ground on both sides of the Atlantic yesterday with the S&P 500 shedding -1.15% by the close of trade, in what looked like a classic risk off rotation, with only Utilities and Real Estate higher, and the latter only barely up (+0.01%). Tech stocks led the declines, with the NASDAQ down by -2.26% whilst the FANG+ index of megacap tech stocks saw an even larger -4.52% decline as all 10 companies in the index lost ground. Along with a sour risk day, mega-cap shares were probably sluggish following the news over the weekend that Elon Musk would be pulling out of his Twitter deal. Small-caps were another underperformer, with the Russell 2000 down -2.11%, whereas the Dow Jones experienced a more modest -0.52% loss. Meanwhile in Europe it was much the same story, with the STOXX 600 (-0.50%) and Germany’s DAX (-1.40%) seeing decent losses of their own. Speaking of Europe, all eyes are on what’s going to happen with the gas situation now that the Nord Stream pipeline is undergoing scheduled 10-day maintenance. European natural gas futures (-6.10%) did come down yesterday after rising for 4 consecutive weeks, thanks to the news at the very end of last week that Canada would return a turbine for the Nord Stream pipeline after their government issued a “time-limited and revocable” permit that removed it from sanctions. That said there are still significant jitters as to whether the pipeline will be turned back on again after the maintenance concludes, which meant that the Euro itself fell even closer to parity against the US Dollar. In fact, the euro closed near its weakest levels of the day at $1.0040, and has hit a fresh low of $1.0010 as we go to press as markets face up to the prospect of what a full cut-off of Russian gas would mean for the European economy. Speaking to DB's Peter Sidorov yesterday, he tells me that the ambiguity over gas may linger as even if Russia did need this turbine part to restore stronger gas flows, the technical logistics may mean it would take an extra week or two to integrate into the pipeline. So the uncertainty may linger until early August. Another factor behind the Euro’s decline recently has been the growing divergence in interest rates between the Fed (who’ve already hiked by 150bps this year) and the ECB (who haven’t even begun yet and with worries as to how far they will get). If the upcoming moves this month are in line with our economists’ (and market) expectations, then that divergence will only grow as the Fed hikes by 75bps for a second consecutive meeting, while the ECB commences the hiking cycle with a much smaller 25bps move. However, yesterday brought some more dovish news from the Fed, with Kansas City President George warning against moving too fast on rate hikes, saying that moving “too fast raises the prospect of oversteering”. That may not be too surprising given that George was the only FOMC voters to dissent from the 75bps majority last month in favour of a smaller 50bps hike. George also warned that the extra volatility the Fed injects into the market when its policy path is so uncertain may hurt Treasury market functioning, which seems like she was not a fan changing policy guidance with such short notice before the June FOMC, perhaps another reason for her dissent. Elsewhere, as discussed at the top, we also received the New York Fed’s latest Survey of Consumer Expectations for June. And whilst 1-year ahead inflation expectations hit a record high since the series began at 6.8%, 3-year ahead expectations came down from 3.9% in May to 3.6% in June, and 5-year ahead expectations fell from 2.9% to 2.8%. That newsflow along with the more general risk-off tone helped support a major rally in Treasuries, with 10yr yields falling -8.8bps to 2.99%, as both inflation breakevens and real rates fell on the day. There was also a fresh flattening in the yield curve, with the 2s10s closing in inversion territory for a 5th day running, finishing at -8.5bps, which isn’t such a good sign as a recessionary indicator, and the length of the inversion now puts it ahead of the 3-day inversion back in late-March/early April, so this is getting harder to dismiss as just a blip. Furthermore, even the Fed’s preferred yield curve indicator of the near-term forward spread flattened to just 114bps, which is something we haven’t seen since early January after peaking at 270bps on April 1. This morning yields on 10yr USTs are another -3.34 bps lower at 2.954% as I type. In Europe there was much the same pattern, with yields on 10yr bunds (-9.9bps), OATs (-10.3bps) and BTPs (-7.3bps) all moving lower. But the risk-off move meant there was a widening in peripheral spreads, and the iTraxx Crossover was another to widen (+8.6bps to 585bps), thus reversing three consecutive moves lower. The losses in US and European equities are echoing in Asian this morning. The nervousness is not being helped by news of another Covid-19 surge in China as the renewed outbreak is raising fears of more lockdowns (see below). As I type, the Nikkei (-1.68%) is leading losses across the region followed by the Hang Seng (-1.57%) and the Kospi (-1.37%). In mainland China, the Shanghai Composite and (-0.83%) and CSI (-0.74%) are also lower. Outside of Asia, equity futures in DMs point to further losses with contracts on the S&P 500 (-0.54%), NASDAQ 100 (-0.68%) and DAX (-0.71%) all weaker. Oil prices are also lower overnight as recession fears and China’s Covid curbs weigh on demand prospects. As we go to press, Brent futures are -1.46% at $105.54/bbl and WTI futures -1.68% at $102.34/bbl. Over in China, Shanghai city reported 59 new infections for Monday, above 50 for the fourth day in a row thus prompting the city authorities to another mass testing effort after finding a highly transmissible Omicron subvariant. Early morning data showed that producer prices in Japan rose +0.7% m/m in June (v/s +0.6% expected) and against a +0.1% rise in May. In the UK, the ruling Conservative party are opening nominations for the next leadership today, with voting starting tomorrow. MPs will then, through a series of voting rounds over the next week choose their favourite two candidates, from which point the party membership will make their decision and with the new PM expected to be announced on September 5. There wasn’t much data to speak of yesterday, but Italian retail sales for May grew by +1.9% (vs. +0.4% expected), and the prior month was also revised positively. To the day ahead now, and data releases include the German ZEW survey for July, as well as the US NFIB small business optimism index for June. Central bank speakers include BoE Governor Bailey, the Fed’s Barkin and the ECB’s Villeroy. Finally, earnings releases today include PepsiCo. Tyler Durden Tue, 07/12/2022 - 07:59.....»»

Category: blogSource: zerohedgeJul 12th, 2022

Futures, Global Markets Rally, Bonds Slide As Traders Turn More Bullish

Futures, Global Markets Rally, Bonds Slide As Traders Turn More Bullish Following the best week for stocks in one month, global stocks extended gains on Monday on continued easing of fears for a hawkish Fed; US futures rose, with the Nasdaq 100 advancing 0.5% as by tech giants Amazon, Apple and Microsoft all rose in premarket trading. Tech shares also boosted indexes in Europe and Asia. Treasuries slipped, pushing the rate on the US 10-year note to 3.17%. Yields have retreated from June highs on growth worries, but whether that marks the end of the Treasury bear market is a live debate. The dollar fluctuated while oil and bitcoin rose. In the US premarket, major US technology and internet stocks were higher, poised to extend gains. The tech-heavy Nasdaq 100 closed up 7.5% last week, its best week since March. Among notable movers: Apple +0.6%, Microsoft +0.6%, Amazon.com +1%, Meta +0.8%, Nvidia +1.6% in premarket trading. Other notable premarket movers include: JD.com (JD US) is among the top performers in US-listed Chinese stocks, rising 5% in premarket trading, after tech investor Prosus disposed of its stake in JD.com for about $3.67 billion. Coinbase (COIN US) shares fall 4% in premarket trading as the stock was downgraded to sell from neutral, with a joint Street-low price target of $45 at Goldman Sachs, which cited the “continued downdraft” in crypto prices and drop in industry activity levels. Robinhood (HOOD US) shares rise 3.9% in premarket trading as Goldman Sachs analyst William Nance raised the recommendation on the stock to neutral from sell Epizyme (EPZM US) jumps 64% to $1.56 in US premarket trading after Ipsen announced the acquisition of the US biotech firm for $1.45/share in cash plus a contingent value right of $1/share. Selective Insurance Group (SIGI US) shares may be in focus after Morgan Stanley initiated an overweight rating on the stock, citing a favorable business model that will help the company’s margin to outperform peers. Keep an eye on WEC Energy Group (WEC US) as KeyBanc Capital Markets raised the recommendation on the stock to overweight from sector weight, citing “valuation dislocations” triggered by the recent industry volatility. As Goldman traders speculated over the weekend, Friday's massive Russell rebalance may have helped flush out any leftover liquidation trades, while the upcoming month- and quarter-end portfolio rebalancing by pensions could boost stocks by as much as 7% this week according to JPM's Marko Kolanovic. Further boosting bullish sentiment - if only temporarily - one of Wall Street’s biggest bears sees the rally in US stocks extending, prior to the selloff recommencing. Morgan Stanley's Michael Wilson say the S&P 500 Index may climb another 5% to 7%, before resuming losses. Meanwhile, investors are also parsing incoming data to work out if the highest inflation in a generation is close to topping out as that will give the Fed latitude to ease up on sharp interest-rate hikes, something the market last week aggressively repriced. A more troubling scenario is of lasting price pressures and tighter policy even as the global economy falters. “There’s a feeling that things aren’t as bad as we thought they were going to be,” Carol Pepper, founder of Pepper International, said on Bloomberg Radio. She added “there’s a hope that perhaps we’ve oversold, perhaps there’s not going to be a recession.” Traders are also monitoring a summit of the Group of Seven leaders, who plan to commit to indefinite support for Ukraine in its defense against Russia’s invasion. The G-7 in addition is weighing a price cap on Russian oil. As reported yesterday, the US, UK, Japan and Canada also plan to announce a ban on new gold imports from Russia during the G-7 summit. Prices for the precious metal naturally rose. European equities trade off session highs as an earlier rally in Asian tech stocks buoys sentiment. Miners, tech and autos are the strongest performing sectors in Europe. Euro Stoxx 50 rallies 1%. DAX outperforms peers, adding 1.2%, FTSE MIB lags, dropping 0.2%.  Among notable European stock moves, Prosus NV soared on plans to sell more of its $134 billion stake in Chinese internet giant Tencent Holdings Ltd. to finance a buyback program. Mediobanca SpA fell after the death of Italian entrepreneur Leonardo Del Vecchio, the single largest investor in the bank.  Here are some of the biggest European movers today: Prosus shares surge as much as 17% in Amsterdam after the tech investor said it will sell down its holding in Tencent to finance an open-ended share buyback program, which could help close the gap between the firm’s market value and the value of the Tencent stake, according to analysts. Mining stocks lead gains in the Stoxx 600 Index on Monday as iron ore and base metals recover ground amid signs of improvement in China’s economy. Rio Tinto shares rise as much as 4.4%, Anglo American +4.6%, Glencore +4.2% Nordex shares jump as much as 12% after the firm announced a EU139.2m cash injection from Acciona in a bid to increase liquidity and strengthen its balance sheet to shield itself against the risks of short term headwinds in the industry. Kion shares rise as much as 7.7% after Morgan Stanley upgraded the stock to overweight from underweight, saying that the structural case for warehouse and forklift companies remains intact even amid a de-rating for the stocks. Lundbeck soars as much as 15% after the Danish pharmaceutical company reported positive data in a clinical study of agitation in patients with Alzheimer’s dementia. Ocado shares fall as much as 3.1% after the stock was cut to neutral from outperform and PT slashed to 960p from 1,600p at Credit Suisse, with the broker saying new disclosures from the online grocer indicate that its prior assumptions were “too optimistic.” Ipsen shares drop as much as 5.1% after the pharmaceutical company announced the acquisition of US biotech Epizyme for $1.45/share in cash plus a contingent value right of $1/share. Analyst had mixed reactions to the deal. Mediobanca shares fall as much as 4.4% in Milan after news that Italian entrepreneur Leonardo Del Vecchio, the single largest investor in the bank with a stake of about 19.4%, has died. Wise shares drop as much as 5.3% after the money transfer firm said its CEO is facing a probe by UK regulators. Tecnicas Reunidas shares tumble as much as 17% after the company said it began arbitrage to recover excess costs in a dispute with the Sonatrach-Neptune Energy consortium over a contract for the Touat Gaz Plant in Algeria. Elsewhere, Russia defaulted on its foreign-currency sovereign debt for the first time in a century, the culmination of ever-tougher Western sanctions that shut down payment routes. Earlier in the session, Asian stocks advanced after battered technology shares rebounded as easing recession fears underpinned investor sentiment.  The MSCI Asia Pacific Index rose as much as 2.1%, its biggest intraday gain this month, as chip and internet companies including TSMC and Alibaba climbed. Tech-heavy markets such as Taiwan and South Korea extended gains made Friday, while an index of Asian tech stocks rallied for a second straight session after dropping to the lowest since September 2020.  Asian equities are bouncing back from a two-year low, as US Treasury yields retreat. Almost all markets in the region rose, with Hong Kong’s Hang Seng Index leading gains and China’s benchmark coming closer to a bull market as Shanghai’s leader declared victory in defending the financial hub against Covid. A Chinese tech index in Hong Kong advanced 4.7%. Still, the rally in technology shares may be short-lived, as global demand for consumer electronics remains fragile.  “Korea and Taiwan have high leverage to tech products, and we’ve seen a lot of that come under pressure so the end demand has slowed down,” Ray Sharma-Ong, investment director at Abrdn Asia, said in an interview with Bloomberg TV. “We expect continued outflows post this relief rally.” Japanese equities climbed as the latest comments from Federal Reserve officials buoyed sentiment on the economy and a reading on US inflation expectations eased.  The Topix Index rose 1.1% to 1,887.42 as of market close Tokyo time, while the Nikkei advanced 1.4% to 26,871.27. Sony Group Corp. contributed the most to the Topix’s gain, increasing 2.3%. Out of 2,170 shares in the index, 1,490 rose and 568 fell, while 112 were unchanged. Australia's S&P/ASX 200 index rose 1.9% to close at 6,706, the benchmark’s biggest daily gain since Jan. 28, as investors in Asia assessed whether inflation is bottoming and recession can be averted. The index’s biggest gains were seen in the financial, energy and tech sectors. In New Zealand, the S&P/NZX 50 index closed 1.7% higher at 10,997.92, the benchmark’s best day since March 1 Emerging-market stocks climbed to the highest in more than a week as China’s recovery from its virus-induced slump propels the Asian nation’s equities toward a bull market. Technology stocks led emerging-market equity gains, with China’s economy showing some improvement in June amid a further easing of pandemic curbs in Shanghai. Chinese shares look to be the best home for fresh money in Asia amid a tough investment environment, according to abrdn plc’s regional chairman Hugh Young. China plans to extend the yuan’s trading hours as it seeks to increase global investor participation in onshore currency trading as part of its internationalization push. In FX, the Bloomberg dollar spot index fell 0.2% as the greenback weakened against all of its Group-of-10 peers apart from the Australian dollar.  AUD and CHF are the weakest performers in G-10 FX, SEK and GBP outperform. The volatility term structures for the Group-of-4 currencies focus on the upcoming central bank meetings as there is little demand for long gamma in the front-end. The euro advanced, nearing $1.06 and European bonds fell broadly, with the exeption of Greece and Sweden, as focus turns to ECB President Christine Lagarde’s speech. Sterling rose for a second day, supported by a rally in global stocks that is limiting demand for the dollar. Gilts extended their slide across the curve, while money markets raised BOE tightening bets as haven- buying was unwound amid equity advances. In rates, Treasuries are weaker amid a selloff in core European rates, which extended losses after EU’s sale of EU2.5b four-year bonds. US yields are cheaper by nearly 4bp at long end, steepening 2s10s by ~2.4bp, 5s30s by ~1bp on the day; 10-year is up 3.6bp at ~3.17% with bunds and gilts lagging by additional 8bp and 5bp in the sector.  As Bloomberg notes, the broad risk-asset rally puts added cheapening pressure on Treasury yields with S&P 500 futures and Estoxx50 rising led by big gains for Asia stocks. Two coupon auctions slated for Monday may also weigh: Monday’s auctions include $46b 2- year at 11:30am ET and $47b 5-year notes at 1pm. The WI 2-year yield near 3.07% (vs 2.519% last month) is above auction stops since 2007; WI 5Y near 3.22% (vs 2.736% in May) exceeds results since 2008. IG dollar issuance expectations for the week are around $15b, although remain highly dependent on market conditions. The long- end of the curve may benefit this week from anticipated month- end demand; Bloomberg Indices estimated a 0.07yr Treasury index duration extension for July 1, slightly below 12-month average. In Europe, Gilts underperform Treasuries and bunds, cheaper by about 5-6bps at the long end. In commodities, industrial metals rebounded, while oil rose. Copper steadied and most other base metals rebounded after their worst week in a year as China’s economy showed signs of recovering and Goldman Sachs said global supplies were still constrained. Oil fluctuated near $107 a barrel in New York as investors monitored developments from the gathering of Group of Seven leaders; G7 leaders met to decide on a Russian oil price cap ahead of Iranian nuclear talks and on the week of the OPEC+ meeting. French CGT unions will participate in strikes at LNG terminals and gas storage facilities this week; strike in the energy sector on June 28th. Most base metals trade in the green; LME tin rises 6.8%, outperforming peers. LME zinc lags, dropping 0.9%. Spot gold maintains gains, adding ~$13 to trade near $1,840/oz. as some G-7 nations plan to announce ban on new gold imports from Russia Looking at today's US calendar, we get the May durable goods orders, capital goods orders, pending home sales, and June Dallas Fed manufacturing index. Market Snapshot S&P 500 futures up 0.7% to 3,944.50 STOXX Europe 600 up 1.2% to 417.68 MXAP up 1.6% to 161.83 MXAPJ up 1.8% to 538.51 Nikkei up 1.4% to 26,871.27 Topix up 1.1% to 1,887.42 Hang Seng Index up 2.4% to 22,229.52 Shanghai Composite up 0.9% to 3,379.19 Sensex up 1.2% to 53,368.36 Australia S&P/ASX 200 up 1.9% to 6,705.95 Kospi up 1.5% to 2,401.92 Brent Futures up 0.2% to $113.31/bbl Gold spot up 0.7% to $1,840.40 U.S. Dollar Index down 0.29% to 103.88 German 10Y yield little changed at 1.49% Euro up 0.3% to $1.0580 Top Overnight News from Bloomberg ECB policy makers gather on a Portuguese hillside on Monday with the sinking feeling that their rush to tackle the inflation shock they failed to forecast risks both a recession and echoes of the euro area’s sovereign debt crisis It was while sitting apparently alone in a London hotel basement that Christine Lagarde engineered a fix to the euro zone’s most alarming debt turmoil since the pandemic struck The ECB is pushing back its policy decisions and the timing of the subsequent press conferences by 30 minutes as of July The US, UK, Japan and Canada plan to announce a ban on new gold imports from Russia during a summit of Group of Seven leaders that’s getting underway Sunday. Prices of the precious metal climbed Monday President Joe Biden rebooted his effort to counter China’s flagship trade-and- infrastructure initiative after an earlier campaign faltered, enlisting the support of Group of Seven leaders at their summit in Germany China’s economy showed some improvement in June as Covid restrictions were gradually eased, although the recovery remains muted China plans to extend the yuan’s trading hours as it seeks to increase global investor participation in onshore currency trading as part of its internationalization push Russia defaulted on its foreign-currency sovereign debt for the first time in a century, the culmination of ever-tougher Western sanctions that shut down payment routes to overseas creditors The world economy risks entering a new era of high inflation which central banks need to keep in check, the Bank for International Settlements said Signs of distress flashing in bond markets suggest the world’s poorest nations are set to see a wave of debt restructurings. But a growing cohort of investors say that’s a buying opportunity A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were higher across the board as the region took impetus from last Friday's firm gains on Wall St heading closer into month-end. ASX 200 enjoyed broad gains across its sectors although gold miners lagged as Evolution Mining shares dropped by more than 20% due to a cut in its FY output guidance. Nikkei 225 was lifted after the BoJ’s Summary of Opinions reiterated that they must maintain easy policy and with Tepco among the biggest gainers on tight electricity supply amid the hot weather. Hang Seng and Shanghai Comp. conformed to the upbeat mood as Hong Kong benefitted from a rampant tech sector and with the mainland encouraged by further easing of restrictions in Shanghai and Beijing, while the PBoC also upped its liquidity efforts with a CNY 100bln injection. Top Asian News Beijing will permit schools to resume in-class teaching as soon as Monday, ending one of the last major curbs in the capital, according to Bloomberg. Shanghai is to gradually resume dining-in at restaurants from June 29th, according to an official cited by Reuters. PBoC injected CNY 100bln via 7-day reverse repos with the rate at 2.10% for a CNY 90bln net injection, according to Reuters. China requested that banks make preparations for longer trading hours for the CNY, with trading in the onshore CNY potentially to extend until 03:00 local time the following day (20:00BST/15:00CDT), according to Bloomberg. BoJ Summary of Opinions from the June meeting stated the BoJ must maintain easy policy and keep a close eye out on the market and FX impact on the economy and prices. It also noted the number of goods seeing prices rise is increasing due to higher raw material costs and a weak yen but it is appropriate to keep easy policy as inflation is not driven by a positive economic cycle. Furthermore, it said maintaining ultra-easy policy is effective in sustaining a rise in wages and that a sharp fall in Yen would hurt the economy and heighten uncertainty. Japanese government issued power shortage warnings for Tuesday, for a second straight day, according to Reuters. Japan has proposed removing reference to the goal of 50% zero-emission vehicles by 2030; wants less concrete target, according to a draft cited by Reuters. BoJ's holding of JGBs has reportedly topped 50% of its total, according to Nikkei. European bourses are kicking off the week on the front-foot as global equities see tailwinds from Wall Street’s bounce on Friday. Sectors in Europe are mostly positive – but Utilities and Insurance are subdued, with the overall picture being a cyclical one. Stateside, US equity futures track sentiment higher – with the NQ the current outperformer vs the ES, YM, and RTY. Top European News ECB says as of the July meeting, the policy decisions will be released at 14:15CET and presser at 14:45CET, according to Reuters. ECB’s Pivot Toward Rate Hikes Feeds Fears of New Bond Crisis; ECB to Announce Rate Decisions 30 Minutes Later From July EU Confronts Low Gas Storage Risk in Test of Unity on Russia Gas Jumps as Europe Struggles to Fill Russian Gap UK’s Battered Economy Is Sliding Toward a Breaking Point FX Greenback continues to gravitate as risk sentiment improves, but could get a month end boost given models indicating broad rebalancing requirement - DXY pivots 104.000 within 104.120-103.790 range just shy of last week's low. Yen benefits from all round fix buying ahead of final trading day of June and Q2 on Thursday - Usd/Jpy not far from 134.50 at one stage overnight alongside declined in Yen crosses. Pound perks up as IMM spec accounts trim short positions again and Euro tests technical resistance ahead of 1.0600 vs Buck amidst firmer rebound in EGB yields - Cable probes 1.2300 at best, Eur/Usd touches 21 DMA at 1.0591. Aussie lags on Aud/Nzd headwinds, but Loonie pares losses in tandem with oil - Aud/Usd sub-0.6950, cross under 1.1000, Nzd/Usd hovering over 0.6300 and Usd/Cad back below 1.2900. Yuan underpinned by net PBoC liquidity injection and easing of Covid restrictions in China - Usd/Cnh and Usd/Cny both beneath 6.6900. Lira knee jerks higher after Turkey cuts credit to firms with more than Try 15 mn FX cash assets - Usd/Try down to 16.1040 or so before rebound towards 16.8900. Fixed Income Debt futures unwind more recovery gains with EGBs leading the way. Bunds retreat towards 146.50 vs 149.00 at one stage last Friday. Gilts closer to 113.00 than 114.00 and 10 year T-note near the base of 116-31/117-13 overnight range. US durable goods data ahead and a double dose of issuance comprising Usd 46 bn 2 year and Usd 47 bn 5 year auctions. Commodities WTI and Brent futures consolidate with modest intraday losses as G7 leaders meet to decide on a Russian oil price cap ahead of Iranian nuclear talks and on the week of the OPEC+ meeting. French CGT unions will participate in strikes at LNG terminals and gas storage facilities this week; strike in the energy sector on June 28th. Spot gold piggy-backs off the softer Dollar – with the yellow metal currently eyeing its 21 DMA (1,841.60/oz) and 200 DMA (1,845.20/oz) to the upside Base metals are largely rebounding following the recent rout – also aided by the Buck. US Event Calendar 08:30: May Durable Goods Orders, est. 0.2%, prior 0.5%; -Less Transportation, est. 0.3%, prior 0.4% 08:30: May Cap Goods Orders Nondef Ex Air, est. 0.1%, prior 0.4% 08:30: May Cap Goods Ship Nondef Ex Air, est. 0.2%, prior 0.8% 10:00: May Pending Home Sales YoY, prior -11.5% 10:00: May Pending Home Sales (MoM), est. -3.9%, prior -3.9% 10:30: June Dallas Fed Manf. Activity, est. -6.5, prior -7.3 DB's Jim Reid concludes the overnight wrap This morning we are launching our monthly survey which hopefully comes at an opportune time to assess what you all think about recession risk, whether the next big move in markets will be up or down, whether the BoJ will be able to hold the line on YCC, whether your market view includes the risk of Russian gas being cut off from Europe, and whether you think negative rates will be seen again in the next decade after the ECB likely moves away from it by September. There are a couple of other repeat questions to answer. It should take 2-3 minutes, is all anonymous, with answers likely Thursday morning. The link is here and all help gratefully received. A reminder that my chart book was out last week with lots of charts on one of the worst H1s in history, recession risks and lots more. See here for more. Without having a blockbuster event to look forward to this week there are plenty of things to keep us occupied in what are highly uncertain times. Perhaps the ECB's Forum on Central Banking in Sintra will be the key event to watch, with a policy panel on Wednesday which will bring together Chair Powell, President Lagarde and Governor Bailey together the likely highlight. Staying in Europe, all eyes will be on the June CPI numbers released for Germany (Wednesday), France (Thursday) and Italy and the Eurozone on Friday. Consensus expectations don’t suggest we’re yet at peak headline inflation with CPI expected to pick up a few tenths YoY this week. With commodity prices fading sharply in June the hope is that we will be near the top soon. In fact, our US economists put out an inflationary chart book last week that suggested that the peak will be in September (9.1% headline and 6.3% core). The problem is that even if headline dips because of energy, core won’t necessarily fall as quickly with wages and second round effects in full force. We had a small indicator of that last week as our economists also pointed out that the recent acceleration in US hospital workers’ wage growth from around 2.5% to almost 5% should serve to add an additional 50bps to core PCE inflation next year (link here). On Thursday, we’ll get the latest reading of the US core PCE deflator within the personal income and spending data. Core PCE is the Fed's preferred inflation measure so this and the healthcare news is important. Staying with US data, we have a fair amount to look forward to with the all important ISM on Friday (53.2 expected vs 56.1 last month). We'll also see the Chicago PMI on Thursday and regional Fed's manufacturing indices throughout the week. Durable goods orders (today) and wholesale and retail inventories (tomorrow) will be key to assessing inventory pressures flagged by several firms in recent weeks as well as corporate behaviour amid some easing in supply-chain backlogs. How the consumer is faring under rising rates and stubborn inflation will be another key theme, with the Conference Board’s June consumer confidence index out tomorrow (99.9 expected vs 106.4 last month). Elsewhere, China's industrial data and PMIs (Thursday), as well as key economic indicators from Japan, will be in focus. Even though we at the very back end of Q2 earnings, this week will see some bellwether consumer spending companies such as Nike (Monday), H&M and General Mills (Wednesday) report. Other corporates releasing results will include Prosus (Monday), Micron and Walgreens Boots Alliance (Thursday). Overnight in Asia, equity markets are continuing last week’s rally with the Hang Seng (+2.72%) leading gains thanks to a strong performance in Chinese tech firms. The Kospi (+2.08%), Nikkei (+1.04%), Shanghai Composite (+0.89%) and CSI (+1.24%) are all also up. Outside of Asia, DM equity futures point to further gains with contracts on the S&P 500 (+0.19%), NASDAQ 100 (+0.44%) and DAX (+0.79%) moving higher. Bitcoin is above $21,000 after falling to as low as $17,600 last week for the first time since December 2020, while 10yr US yields are up around +2.5bps. Earlier today, data released showed that China’s industrial profits (-6.5% y/y) contracted at a slower pace in May following a big fall of -8.5% in April as companies resumed their activity in major manufacturing hubs amid easing Covid restrictions. In other overnight news, Russia has defaulted on its foreign-currency sovereign debt ($100 million) for the first time in more than 100 years, after the grace period for the payment deadline expired on Sunday. Recapping last week now, markets grew increasingly concerned about a recession as the week went on, thanks to weak economic data, hawkish central bank rhetoric, and the threat of a Russian gas cut-off in Europe. That led to a significant rally in sovereign bonds as investors sought out safe havens and cast doubt on whether central banks could keep hiking into a downturn. Indeed, yields on 10yr bunds came down by -21.9bps over the week as a whole (+1.0bps Friday), which is their 3rd biggest weekly decline in the last decade. Yields on 10yr Treasuries also saw a similar, albeit less marked decline, with yields down -9.6bps (+4.3bps Friday). That decline in yields came in spite of continued hawkish central bank commentary, and on Friday we saw San Francisco Fed President Daly say that a 75bps hike in July was “where I’m starting”, thus joining a growing number of officials who’ve openly backed a 75bps move again. Bear in mind if the Fed did move by 75bps in July, that would mean the hiking cycle since March would now be at 225bps, which matches the entire hiking cycle we saw in 3 years between 2015 and 2018. Nevertheless, when it came to monetary policy expectations, the growing fears of a recession led investors to take out the probability of more aggressive tightening, with the fed funds rate priced in by December’s meeting down by -16.0bps over the week (-5.0bps Friday). And looking at the entire profile of meetings ahead, futures are now expecting the peak Federal funds rate to come as soon as March 2023, before pricing in cuts after that. With investors expecting somewhat more dovish central banks, global equities rallied strongly last week as they recovered from their worst weekly performance since the pandemic began. The S&P 500 gained +6.45% on the week, and its Friday advance of +3.06% was the best daily performance for the index since May 2020. Europe’s STOXX 600 put in a weaker +2.40% advance (+2.62% Friday), but matters weren’t helped by German equities, with the DAX losing -0.06% (+1.59% Friday) as concerns grew about a potential cut-off in Russian gas. That’s sent natural gas futures in Europe to a 3-month high, with last week seeing a further +9.14% gain (-3.63% Friday). Lastly, after the poor mid-week data including the flash PMIs for June, Friday’s releases did bring some modest respite. First, the final reading of the University of Michigan’s long-term inflation expectations was revised down to 3.1% (vs. 3.3% previously). The unexpected jump in that measure before the Fed’s meeting was said to be a factor in their move to 75bps, as they’re very concerned about the prospect that longer-term inflation expectations could become unanchored, making inflation much harder to control. Furthermore, new home sales for the US in May rose to an annualised rate of 696k (vs. 590k expected), whilst the previous month also saw upward revisions. To be fair though, it wasn’t all positive on Friday, and Germany’s Ifo business climate indicator fell to 92.3 in June (vs. 92.8 expected), which marks an end to two successive monthly increases in April and May. Tyler Durden Mon, 06/27/2022 - 08:06.....»»

Category: blogSource: zerohedgeJun 27th, 2022

Communist China Has Thrown Out The Old Rules of War

Communist China Has Thrown Out The Old Rules of War Authored by Robert Spalding via RealClear Books & Culture, When I first read the Chinese war manual “Unrestricted Warfare” in 1999, I thought it was wacky. I was flying B-2 Stealth bombers out of Whiteman Air Force Base in western Missouri and reading a lot about war. As an Air Force officer, I thought it was part of my day job to understand the bigger picture – even though the prevailing attitude in the military was “Just fly the planes.” “Unrestricted Warfare” was one of those books that caused a stir among some military folks because it had recently been translated into English. It had that insider whiff of mystery and secrets, a peek into the mind of the Chinese Communist Party. (AP Photo/Pavel Golovkin, Pool) Despite that mystique, not a lot of people were finishing the book. For one thing, regardless of its title, no one thought we were ever going to be fighting a war with China, so it seemed like a lot of work for very little payoff. For another, the book itself is not a light read. It is a dense compendium of strategy, economics, social theory, and futuristic thoughts about technology. It imparts centuries of military history, particularly as it relates to the United States, but I already knew a lot of that. It seemed vague and also a little sci-fi, not relevant to a U.S. bomber pilot – even one with a fascination for military history. My mistake. If you look closely at everything China has done since 1999 – at all aspects of its economic, military, diplomatic, and technological relations with the rest of the world – it’s like watching “Unrestricted Warfare” come to life. One can find other glimpses into the secretive mentality of the CCP leaders, but this one is the single most important book for understanding the China of today. “Unrestricted Warfare” is the main blueprint for China’s efforts to unseat America as the world’s economic, political, and ideological leader. It shows exactly how a totalitarian nation set out to dominate the West through a comprehensive, long-term strategy that includes everything from corporate sabotage to cyberwarfare to dishonest diplomacy; from violations of international trade law and intellectual property law to calculated abuses of the global financial system. As one of the authors stated, “The only rule in ‘Unrestricted Warfare’ is that there are no rules.” The book is the key to decoding China’s master plan for world domination, which has been progressing more steadily and successfully than most Americans realize – even accelerating in the reign of Xi Jinping. The manipulation of COVID policies, stonewalling the world about its origins, and mounting a massive disinformation campaign to blame the United States are merely recent examples. So why is “Unrestricted Warfare” so obscure, even to people who study China professionally on behalf of the U.S. government, the Fortune 500, the investment world, the nonprofit world, academia, or the military? It’s not as if the book is some secret document that has never escaped the inner sanctum of the Chinese Communist Party. Just the opposite: The original translation by the U.S. government is in the public domain; you can google it and click on an English translation, for free, in less than a second. The problem is that “Unrestricted Warfare” is hard to read. While any American can access it, few can understand it. The prose is dense and confusing, even in the original Mandarin, and even more so in that crude, free translation you’ll find on the web. Its insights are clouded by endless repetitions and meandering discursions into military history, cultural theory, and attacks on U.S. policy. The colonels, Qiao Liang and Wang Xiangsui, get tangled in semantics and draw on faulty citations and unsourced references. They obsess about the Persian Gulf War of 1990-91 to an extent that puzzles Americans who consider that war to be a minor footnote to history. And the authors’ metaphors are so weird to our ears as to seem utterly baffling. Just consider two chapter titles: “The War God’s Face Has Become Indistinct” and “What Do Americans Gain by Touching the Elephant?” Huh? I mentioned “Unrestricted Warfare” several times in my previous book, “Stealth War: How China Took Over While America’s Elite Slept.” I noted that the book was well known to modern-day China scholars but that perhaps because of its strange complexity, Western strategists had failed to connect its strategic vision with the seemingly random actions of China’s misleadingly benign and smiling countenance. Although some of the text is pretty clear: “Using all means, including armed force or non-armed force, military and non-military, and lethal and non-lethal means to compel the enemy to accept one’s interest.” As I wrote at the time, that strategy can justify meddling in all manner of another country’s affairs: silencing ideas or promoting political discord, stealing technology, dumping products to disrupt markets. I was intrigued with the idea of creating an “army” of academics who could be used to gather medical, technological, and engineering information. The list of incursions goes on – and has grown since then. Consider just a small number of the things the Chinese Communists have done: Seized on COVID as a weapon to be used to their benefit, not a humanitarian crisis to be solved.   Viewed the climate change issue as a bargaining chip to win them economic concessions from global elites in return for reforms that they never intend to make.   Sponsored corporate espionage on a scale beyond what the United States acknowledges.   Launched unrelenting cyberattacks against Western companies and governments.   Fueled America’s deadly fentanyl drug crisis by allowing illegal smuggling of banned substances.   Used slave labor to produce goods such as clothing for sale to Western shoppers. Despite all of these actions by the CCP, since publication of “Stealth War,” I’ve encountered skepticism from some readers who simply can’t believe that China has been methodically undermining the rest of the world with a patient, long-term, multidisciplinary strategy. Some even dismissed “Stealth War” as the work of an alarmist. In the wake of that reaction, I realized how useful it would be to make the Chinese manual of war accessible to American readers so that they can see it for themselves. I set out to write a user-friendly guide that would explain “Unrestricted Warfare” chapter by chapter, adding examples while editing out the irrelevant and distracting parts of the original text. In the process I’ve drawn on history, military strategy, and Chinese culture to explain the context in which “Unrestricted Warfare” was written and then applied. My goal is to show how “Unrestricted Warfare’s” advice to the leadership of the CCP maps with terrifying consistency onto the events of the past two decades. This book has opened my eyes to how the CCP has essentially sneak attacked us in slow motion. And made me think hard about where they are going next. I hope it can have the same effect on others. I want to share with the men and women in our government, my respected former colleagues, who have to make some important – maybe life and death – decisions about how we deal with the Chinese government in the very near future. I know it can seem excessive to compare any country with Nazi Germany. But as we rethink our views on China, what other comparison is appropriate for a regime that casually and cold-bloodedly allowed COVID-19 to spread to the rest of the world at the same time it was forcing its Muslim citizens into concentration camps? Hong Kong parallels the takeover of Austria in 1938. And how do you account for the increasingly warlike rhetoric and military movements directed at Taiwan? Imagine the reaction during World War II if an American company had tried to export its goods to imperial Japan, or if a Wall Street firm had tried to underwrite the bonds of a Nazi arms manufacturer. Unthinkable, right? And yet today countless Americans are still trying to do business with and in China, misunderstanding or ignoring the CCP’s war without rules. I am deeply concerned that the Biden administration, despite some positive moves, is seriously underestimating the malevolence and power of the Chinese threat. Our adversaries wrote up their long-term plans in 1999 and have been executing them relentlessly ever since. Our leaders have a moral obligation to understand what’s happening, sound the alarm, wake up the country, and inspire Americans of all political stripes to do everything in their power to stop this totalitarian regime. I also want the average American to have access to this book. It’s time for every influential person in America – policy makers, diplomats, business executives, investors, journalists, scientists, academics, and more – to become part of the resistance to the Chinese Communist Party. My hope is that by explaining “Unrestricted Warfare” and its consequences, this book will make it impossible for my fellow Americans to continue to deny the reality of our existential conflict with China. The simple, chilling truth is that the CCP is doing everything in its power – mostly via economics, technology, diplomacy, and the media, not yet via military power – to destroy our way of life. To understand that plan, you need to understand “Unrestricted Warfare.” The stakes couldn’t be higher. *  *  * Robert Spalding retired from the U.S. Air Force as a brigadier general after more than 25 years of service. He is the CEO of SEMPRE and the author of “War Without Rules: China's Playbook for Global Domination” (Sentinel, 2022). Tyler Durden Fri, 04/22/2022 - 23:40.....»»

Category: worldSource: nytApr 23rd, 2022

Futures, Yields And Oil All Rise On Last Day Of Turbulent Week

Futures, Yields And Oil All Rise On Last Day Of Turbulent Week After several extremely volatile days, US equity futures are ending the week in the green (for now) with European equities snapping two days of declines sparked by the Federal Reserve’s plan for aggressive monetary-policy tightening, and Asian stocks trading higher. S&P 500 and Nasdaq 100 futures trimmed earlier gains to trade 0.3% higher as traders weighed the latest developments about the war in Ukraine. Contracts on U.S. stock benchmarks trim earlier gains as traders weigh developments about the war in Ukraine.Nasdaq 100 futures flat; S&P 500 futures +0.1%; Dow Jones futures +0.2%. The dollar rose for a 7th consecutive week and US Treasuries sold off across the curve; gold and bitcoin were flat. Oil was steady after three days of losses stoked by plans to release millions of barrels of crude from strategic reserves and China’s demand-sapping virus outbreak. Markets had a subdued session yesterday after sinking more than 4% in the previous two days as hawkish signals from the Federal Reserve sent Treasury yields surging. Among notable premarket moves, Robinhood slid 3% after Goldman Sachs, not too long ago the lead underwriter on the company's IPO, cut their rating on the stock to sell, saying softening retail engagement levels and profitability concerns will likely limit any outperformance. Some other notable premarket movers: Alcoa (AA US) is 1.2% lower as Credit Suisse analyst Curt Woodworth trims his recommendation to neutral as he views LME aluminum prices near peak levels. Quidel (QDEL US) gained in extended trading Thursday after it posted preliminary revenue for the first quarter that beat the average analyst estimate. CrowdStrike (CRWD US) advanced 4.1%. Analysts responded positively after management set a framework to reach $5 billion in annual recurring revenue (ARR) by 2026, during the cybersecurity company’s investor briefing. WD-40 (WDFC US) is poised to gain after producing a “solid” beat in the second quarter, Jefferies said, adding that an increased market share and new product launches would support volume growth of 3% in 2022. Kura Sushi (KRUS US) shares rose in postmarket trading after the restaurant chain reported a year-over-year jump in quarterly sales. ACM Research (ACMR US) edged lower in extended trading Thursday after saying in a release its first quarter revenue would be “significantly below” expectations, but reiterated full-year revenue guidance for 2022. U.S. stocks are on course to snap a three-week winning streak with investors shedding risk assets following indications from the Fed of a faster-than-expected pace of tightening in monetary policy. Concerns are also growing about the impact of high inflation and slowing economic growth on corporate earnings. The two-year Treasury yield rose five basis points and the 10-year yield climbed one point, reversing some of the curve steepening seen in the wake of the Fed minutes Wednesday, which outlined plans to pare the central bank’s balance sheet by more than $1 trillion a year alongside interest-rate hikes. Global equities are nursing losses for the week as markets grapple with the Fed’s campaign against elevated price pressures, Russia’s grinding war in Ukraine and China’s Covid travails. The lockdown in Shanghai -- which recorded more than 21,000 new daily virus cases -- has become one of President Xi Jinping’s biggest challenges. Expectations are growing that China will take steps to support its economy. “Stocks have had a little bit of a harder time this week digesting the fact that interest rates are going to be higher” amid a major shift in expectations around monetary policy, Anthony Saglimbene, global market strategist at Ameriprise Financial Inc., said on Bloomberg Television. Still, U.S. equities saw a second straight week of inflows at $1.5 billion, with large-cap and growth stocks outperforming small-cap and value sectors, according to Bank of America strategists. Marija Veitmane, a senior strategist at State Street Global Markets, also said stocks still appeared to be the safest option. “Cash gives you nothing with 7% inflation, bonds just had one of the worse quarters in history, and then if you look at stocks, we still have decent earnings outlook, and to me the biggest attraction is really strong balance sheets,” she said on Bloomberg TV. In the latest news out of Ukraine, dozens were killed Friday morning as Russian troops allegedly bombed civilians waiting at a train station to be evacuated from the Donetsk region. Meanwhile, U.S. officials warned that the war may last for weeks, months or even years, as Kyiv’s foreign minister pleaded for urgent military assistance. Here are the latest Ukraine war developments: Ukraine intends to establish up to 10 humanitarian corridors on Friday, those leaving Mariupol will need to use private vehicles. Ukrainian advisor Podolyak says negotiations with Russia continue online constantly, but the mood changed after Bucha events, via Reuters. Kremlin says it does not understand EU concerns about European countries paying for Russian gas in RUB, adds Commission President von der Leyen probably needs more information. On planned EU ban of Russian coal, says coal is in high demand. Special operation in Ukraine could be completed in the foreseeable future, given aims are being achieved and work is being carried out by peace negotiators and the military. EU ready to release EUR 500mln for arms to Ukraine, according to AFP citing EU chief. Russia says it has destroyed a training centre for foreign mercenaries within Ukraine, was located north of Odesa, via Tass. Japan's Industry Ministry plans to reduce Russian coal imports gradually while looking for alternative suppliers, according to Reuters. Ukraine PM says they have large stocks of grain, cereals and vegetable oil. Are able to provide themselves with food; this year's harvest will be 20% less YY. Ukraine gas grid warns that Russian actions could impact gas flows to Europe, via Reuters. On Thursday, St Louis Fed president James Bullard said he prefers boosting the policy rate to 3%-3.25% in the second half of 2022. Chicago Fed President Charles Evans and his Atlanta counterpart Raphael Bostic said they favor raising rates to neutral while monitoring the economy’s performance. The steepening in the Treasury yield curve contrasts with the flattening and inversions that have vexed markets this year. The two-year rate topped the 10-year last week for the first time since 2019, a possible warning of recession. “We’re seeing a tactical re-steepening right now but the curve is going to continue to flatten,” Kelsey Berro, fixed income portfolio manager at JPMorgan Asset Management, said on Bloomberg Television. “That’s because the Fed has told us, we’d like to get to neutral expeditiously. On top of that, they may need to tighten beyond neutral. Front-end yields can still go higher.” In Europe, Euro Stoxx 50 rallies over 1.8% before stalling while the Stoxx 600 index climbed 1.2% but drifted off best levels as investors took advantage of beaten-down stock valuations with energy, banks and autos the strongest-performing sectors. Banks outperformed as Banco BPM SpA surged after Credit Agricole SA bought a 9.2% stake in the Italian lender. An Asia-Pacific share index eked out a small increase.  Here are some of the biggest European movers today: Scout24 shares rise as much as 17%, the most intraday since December 2018, after a report that Hellman & Friedman, EQT and Permira have discussed taking the firm private. Banco BPM shares rise as much as 17% after Credit Agricole bought a 9.2% stake in the Italian lender, with Bank of America saying the deal is a reminder that real value should be based on fundamentals. Sodexo shares jump as much as 7.4%, their biggest single-day gain in a month, after RBC Capital Markets upgrades the French caterer to outperform from sector perform. K+S gains as much as 10% after JPMorgan double-upgraded the shares to overweight from underweight, seeing a very positive environment for fertilizers amid supply disruptions and high energy prices. Atlantia shares rise as much as 4.5% following a report in a Italian newspaper that the Benetton family and Blackstone may start their takeover offer for Atlantia at more than EU22 per share. Saab rise as much as 5% as SEB upgrades the shares to buy from hold on the Swedish defense firm’s sales potential in the coming decade in the wake of Russia’s invasion of Ukraine. Moncler shares rise as much as 4.2% after Barclays upgrades the Italian luxury company to overweight, citing an “attractive” defensive profile in the current environment. Genmab fall as much as 10%, the most since September 2020, after saying a tribunal decided in favor of Janssen Biotech over two issues surrounding the cancer drug daratumumab (Darzalex). Ahead of this weekend's French election, Macron's lead is shrinking: the current President led his rivals in the April 10 election with 26.2% support, down from 27.2% a day earlier, according to a polling average calculated by Bloomberg on April 8. Macron was 3.5 percentage points ahead of second-placed Marine Le Pen, down from 4.1 points. Asian stocks edged higher on Friday, poised to snap three days of declines as traders assessed the prospect of policy easing by Beijing.  The MSCI Asia Pacific Index erased early losses of as much as 0.4% to climb 0.2%. Chinese property and infrastructure-related stocks surged on hopes for fiscal as well as monetary easing as the government seeks to prop up growth.   For the week, the Asian benchmark was down 2% as investors turned cautious on risk assets after latest comments from the Federal Reserve suggested aggressive tightening lies ahead. Tech shares were hit hard in particular, with the MSCI Asia-Pacific Information Technology Index losing 4% this week, on track for its worst performance since end-January. “There appears to be speculation that monetary easing by the PBOC might be imminent,” said Kazutaka Kubo, senior economist at Okasan Securities. There are also expectations that once lockdowns are over, the economy could be supported by pent-up demand, he added.  Chinese authorities have repeatedly vowed to support the economy and markets in thet past few weeks, as rising Covid-19 infections and lockdowns darken the outlook for growth. The pledges have spurred bets that some form of monetary easing may come soon.  Movements in most national benchmarks in the region were modest on Friday, gaining less than 1%. Stocks in the Philippines and Indonesia outperformed, while Singapore shares fell.  Indian stocks gained after the Reserve Bank of India kept borrowing costs at a record low, while India’s 10-year bond yield hit 7% - the highest since 2019 - as the nation’s central bank boosted an inflation forecast. The central bank also announced the start of policy normalization as the pandemic’s impact fades. The S&P BSE Sensex climbed 0.7% to 59,447.18 in Mumbai to complete a second week of gains, while the NSE Nifty 50 Index rose 0.8%. Gauges of small- and mid-sized companies gained 1% and 0.9%, respectively. The Reserve Bank of India’s monetary policy panel held the benchmark rate at 4%, in line with predictions of all 36 economists surveyed by Bloomberg. RBI Governor Shaktikanta Das said the central bank will start focusing on withdrawal of banking liquidity accommodation to target inflation but such a move would be “multi-year” and carried out without disrupting the markets. “Equity markets will like the RBI’s continued focus on growth and its commitment to an accommodative stance,” said Abhay Agarwal, a fund manager at Mumbai-based Piper Serica Advisors Pvt.  The RBI’s commentary means adequate flow of liquidity will continue and immediate beneficiaries will be consumers who are borrowing to purchase real estate and autos, he added. All but one of 19 sectoral sub-indexes compiled by BSE Ltd. advanced, led by a gauge of power companies. Reliance Industries Ltd. was a key gainer on the Sensex, which saw 22 of its 30 components advance. The RBI has comforted markets by refraining from being aggressive, unlike its global peers, and by ensuring that the liquidity withdrawal will be gradual, Yesha Shah, head of equity research at Samco Securities wrote in a note.  “On the growth front, one can assume that the central bank expects private investment to ramp up now that capacity utilization has improved further,” she said, adding the policy lays the framework for a possible rate increase in coming reviews. Australian stocks advanced - the S&P/ASX 200 index rose 0.5% to close at 7,478.00 - supported by materials and industrial stocks. GrainCorp shares surged to a record high, after the firm upgraded its FY22 earnings guidance as high levels of rain in Australia lay a path for a bumper crop.  Platinum Asset plunged to an all-time low after the company reported net outflows of A$222 million in March. In New Zealand, the S&P/NZX 50 index was little changed at 12,066.27. In rates, Treasuries fell across the curve, with the front-end of the Treasuries curve pressured lower, flattening 2s10s spread by ~5bp as 2-year yields trade more than 7bp cheaper on the day at ~2.54%. S&P 500 futures near top of Thursday’s range, following bigger advance for European stocks after three straight declines. Yields across long-end of the curve are little changed on the day, as flattening extends out to 5s30s spread which is tighter by ~4bp; 10-year yields around 2.683%, cheaper by 2.5bp vs Thursday close; bunds and gilts outperform by 1bp-2bp in the sector. Bunds reversed opening gains, adding to a three-day run of declines; French debt underperformed bunds ahead of presidential elections beginning Sunday. The German curve bull-flattens, richening 2bps across the back end. Peripheral spreads widen to core with Italy underperforming. In FX, Bloomberg dollar index advanced a seventh consecutive day and neared the strongest level since July 2020 as the greenback advanced against all of its Group-of-10 peers apart from the Norwegian krone. The euro pared losses after touching a one-month low against the dollar in early London trading. The pound fell to the lowest in more than three weeks as bets for aggressive policy tightening by the Federal Reserve boost the dollar. Gilts rose across the curve as U.S. Treasury yields stabilized following the recent selloff. The Australian and New Zealand dollars were the worst-performing G-10 currencies; Australia’s yield curve steepened following a similar move in Treasuries on Thursday. Most Japanese government bonds rose, thanks to support from the central bank’s regular purchase operations. The yen briefly reversed early an Asia session loss after an ex-BOJ official said there’s likelihood of a policy shift as soon as this summer. Bitcoin is contained and unable to derive traction either way from the broader risk tone. Strike payment platform launches Shopify (SHOP) integration, which allows merchants to accept Bitcoin (BTC), according to Bloomberg. In commodities, crude futures trade within Thursday’s range; WTI holds above $96, Brent stalls near $102. Spot gold holds steady near $1,930/oz. Most base metals trade well: LME zinc and lead outperforming, tin lags. To the day ahead now. Central bank speakers include the ECB’s de Cos, Centeno, Panetta, Stournaras, Makhlouf and Herodotou. Italian retail sales for February and Canadian employment for March round out this week’s data. Market Snapshot S&P 500 futures up 0.5% to 4,517.00 STOXX Europe 600 up 1.4% to 461.27 MXAP up 0.2% to 176.33 MXAPJ up 0.3% to 584.66 Nikkei up 0.4% to 26,985.80 Topix up 0.2% to 1,896.79 Hang Seng Index up 0.3% to 21,872.01 Shanghai Composite up 0.5% to 3,251.85 Sensex up 0.9% to 59,558.63 Australia S&P/ASX 200 up 0.5% to 7,477.99 Kospi up 0.2% to 2,700.39 Brent Futures up 1.2% to $101.76/bbl Gold spot down 0.0% to $1,931.38 U.S. Dollar Index up 0.14% to 99.89 German 10Y yield little changed at 0.68% Euro down 0.1% to $1.0865 Top Overnight News from Bloomberg The Bank of Russia delivered a surprise cut in its key interest rate Friday, reversing some of the steep increase it made after the invasion of Ukraine as the ruble recovered. The central bank lowered the rate to 17% from 20% and said further cuts could be made at upcoming meetings if conditions permit EU countries agreed to ban coal imports from Russia, the first time the bloc’s sanctions have targeted Moscow’s crucial energy revenues. Japan is also looking to curb imports, in what could be a shift in policy from one of the world’s largest energy buyers The EU is aiming to lock in progress on trade and technology disputes with the U.S. during President Joe Biden’s first term amid concerns that any gains could otherwise be easily reversed The relationship between Australia’s equities and currency has become the closest in a decade as commodity prices surge. The 180-day correlation between the country’s stock benchmark and the Australian dollar has climbed to the highest level since late 2011, according to data compiled by Bloomberg. The strengthened ties come as rallies in materials from oil to iron ore have boosted both the nation’s equities and the Aussie The ECB will look past threats to economic growth from the war in Ukraine, ending asset purchases in the summer and setting the stage for a first interest-rate increase in more than a decade in December, according to a survey of economists Junk bond sales across Europe are experiencing their longest drought in more than 10 years, as the Russian invasion of Ukraine and the prospect of rising interest rates neuter risk appetite A more detailed look at global markets courtesy of Newsquawk: Asia-Pacific stocks were choppy and eventually conformed to a mixed picture; some weakness was seen shortly after the Chinese cash open. ASX 200 bucked the trend and was propped up by its energy and gold names. Nikkei 225 was choppy and moved in tandem with action in USD/JPY whilst the KOSPI was weighed on by its chip and telecoms sectors. Hang Seng remained pressured by losses across its large constituents - Alibaba and JD.com. Shanghai Comp swung between gains and losses but overall remained supported by reports from China's Securities Journal which noted of a potential PBoC RRR in Q2. Top Asian News Hong Kong Tycoons Heed China, Endorse John Lee to lead City Chinese Tech Stocks Fall as Tencent Shuts Game Streaming Site Abu Dhabi’s IHC Invests $2 Billion in Billionaire Adani’s Empire ADDX Rolls Out Private Market Services for Wealth Managers European bourses are firmer across the board, Euro Stoxx 50 +1.5%, bouncing in a morning of quiet newsflow with the broader tone modestly risk-on. Albeit, benchmarks are still negative on the week and some way from earlier WTD peaks; unsurprisingly, sectors are all in the green with defensive-bias names lagging. Stateside, futures are similarly in the green, ES +0.2%, though magnitudes are more contained ahead of a limited US schedule to round off the week. Top European News U.S. Sanctions Russian Miner Producing 30% of World’s Diamonds Atlantia Gains After Reports of Offer Price Above EU22/Share Generali CEO Says He Won’t Change Plan Challenged by Investors Baader Downgrades Six Chemical Firms, Citing Ukraine War In FX: DXY touches 100.000 as US Treasury yields continue to soar and curve steepen, but unable to break barrier. Kiwi underperforms awaiting NZIER Q1 survey, while Aussie holds up better after hawkish warning in RBA FSR; NZD/USD around 0.6950, AUD/USD nearer 0.7460. Yen sub-124.00 as Japanese export supply is absorbed, Euro supported by bids circa 1.0850 and Sterling treading water above 1.3000. Rouble relatively resilient in the face of 300 bp CBR rate reduction as it remains above pre-conflict highs. Fixed income: Choppy trade in bonds approaching the end of another very bearish week. Bunds and Gilts nurse losses mostly above par around 157.00 and 120.00 handles vs fresh cycle lows of 156.40 and 119.83. US Treasuries most seeing red, but curve less steep in correction after hawkish FOMC minutes and Fed commentary, via Brainard and Bullard especially Central Banks: RBA Financial Stability Review: important that borrowers are prepared for an increase interest rates; global asset markets are vulnerable to larger-than-expected rate increases, via Reuters. RBI leave rates unchanged as expected, retains "accommodative" stance as expected; will focus on withdrawing accommodation going forward. RBI is to restore LAF corridor to 50bps and floor to be constituted by SDF, according to Reuters. CBRT April survey sees Turkish End-Year CPI at 46.44% (prev. 40.47%) CNB Minutes (March): Dedek and Michl voted in the minority for stable rates. Board assessed risks and uncertainties of winter forecast as being markedly inflationary, particularly in short-term CBR cuts its Key Rate to 17.00% (prev. 20.00%) as of April 11th; holds open the prospect of further key rate reduction at its upcoming meetings. In commodities, WTI and Brent are bolstered amid broader sentiment, though crude/geopolitical specific developments have been limited In-fitting with equities, the benchmarks are negative on the week and some way shy of best levels as such. New York will suspend the state gas tax from June 1st to December 31st, according to Reuters. Barclays raises oil forecasts by USD 7-8/bb assuming no material disruption in Russian supplies beyond Q2 2022, according to Reuters. Spot gold is marginally firmer, but, remains drawn to USD 1930/oz after marginally eclipsing the level overnight; base metals bid in-line with sentiment. US Event Calendar 10:00: Feb. Wholesale Trade Sales MoM, est. 0.8%, prior 4.0% 10:00: Feb. Wholesale Inventories MoM, est. 2.1%, prior 2.1% DB's Henry Allen concludes the overnight wrap Yesterday’s ECB minutes reinforced what we learned from the March FOMC minutes and soon-to-be Vice Chair Brainard earlier this week – there are no doves in fox holes – by casting doubt on the likelihood of inflation returning to target this year. We also heard from St. Louis Fed President Bullard, the hawk leading the charge, who called for a fed funds rates above 3% this year. That would beckon a faster pace of hikes along with more aggregate tightening. Regional Presidents Bostic and Evans, non-voters each, meanwhile, want to get rates to neutral. The tighter path of global policy continued to drive sovereign yields higher and equity indices lower. Market-implied ECB policy rates by the end of the year increased +6.0bps to +62.3bps, the highest level this cycle. Sovereign yields rose to multi-year highs of their own, with those on 10yr bund (+3.4bps), OATs (+4.4bps) and BTPs (+3.5bps) moving higher, with 10yr breakevens falling in Germany (-1.9bps) and France (-0.7bps) for the first time in five days, while Italian breakevens were essentially flat (+0.2bps). Meanwhile, fed funds futures by end-2022 staged a slight retreat, falling -1.2bps to 2.50%, albeit +10bps higher than a week ago. While the probability of a +50bp hike in May remained steady at 85.4%. 2yr yields fell in line, declining -1.2bps, while 10yr Treasuries gained +6.0bps, leaving the curve at +19.2bps. If you’re up on the yield curve discourse, you’ll know the Fed discounts the signal coming from 2s10s, instead preferring shorter-dated measures of the yield curve, which wound up flattening yesterday. Yesterday’s yield curve steepening should not be viewed in a vacuum. The 2s10s curve has taken a 58.3bp round trip over the last two weeks, falling from +23.1bps two weeks ago, to -8.0bps last Friday, to +19.2bps at yesterday’s close. The fundamental outlook hasn’t changed dramatically over that time span. Instead, this likely reflects the elevated rates volatility environment we currently sit in. This, all before QT has even begun. Real Treasury yields continue to march higher in the back end, with 10yr real yields gaining +5.3bps to -0.19%, their highest level since March 2020, having gained +25.1bps this week alone, and +91.3bps YTD. Despite higher rates and more restrictive language, the S&P 500 ended the day +0.43% higher, after losing -2.21% the previous two sessions. The S&P 500 is now -5.58% YTD following the massive repricing of Fed expectations, while the Bloomberg Financial Conditions index is just a hair tighter than the post-2010 average. Monetary policy may need to adjust tighter yet to engineer the demand slowdown commensurate with a return of inflation to target. European equities were modestly lower, with the STOXX 600 slipping -0.21% and the DAX down -0.52%. The CAC (-0.57%) underperformed the STOXX 600 for the seventh consecutive session, on the back of growing Presidential election jitters. Polls between President Macron and his closest rival, Marine Le Pen, tightened. In particular, one poll (caveat emptor) from Atlas actually put Le Pen marginally ahead of Macron in a head-to-head runoff for the first time, by 50.5%-49.5%. The news immediately saw the French 10yr spread over bund yields widen in response, ending the day at 54.2bps, its widest since March 2020. While one poll a race does not make, it’s worth noting the broader poll narrowing over the last month. That has seen Macron’s lead in the first round over Le Pen go from 30%-17% a month ago (according to Politico’s average), to just 27%-22% now. In the second round, polls are likewise pointing to a tight contest, with Macron ahead of Le Pen by 52-48% (Ifop) and 53%-47% (Ipsos). For those looking for more details on the presidential race, DB’s Marc de-Muizon put out a guide yesterday (link here), where he looks at the current state of play in the election, the main aspects of both Macron and Le Pen’s programmes, as well as some potential challenges for both candidates. Back to the US, in a rare show of bi-partisanship, the Senate voted 100-0 to discontinue normal trade relations with Russia and Belarus and to ban Russian oil imports. Brent crude prices fell below $100/bbl for the first time since mid-March intraday, ultimately falling -0.48% to close at $100.58/bbl. The EU also moved to include a Russian coal embargo in its fifth round of sanctions. The opprobrium was global, with the UN General Assembly voting to suspend Russia from the Human Rights Council following its human rights violations, the first such suspension since Libya in 2011. On the ground, the Kremlin admitted to enduring heavy troop losses, and while the locus of the war still seems set to shift eastward, Ukrainian commanders have their guard up for a renewed assault on Kyiv. Elsewhere, Judge Ketanji Brown Jackson was confirmed to the Supreme Court. It’s expected the Senate will now turn to approving President Biden’s nominations for the Fed Board of Governors later this month, which will still have one empty seat following Sarah Bloom Raskin withdrawing her nomination. Asian equity markets this morning aren’t matching Wall Street’s resilience from yesterday. The Hang Seng (-0.57%) is leading the moves lower with the Nikkei (-0.08%), Kospi (-0.10%), Shanghai Composite (-0.06%) and CSI (-0.10%) all slightly on the wrong foot. Along with tighter global monetary policy, China’s Covid outbreak is worsening and dragging on sentiment. US stock futures are unperturbed, with S&P 500 and Nasdaq futures virtually unchanged. Meanwhile, the aforementioned rates volatility continues to rear its head, with the curve snapping back flatter as we go to press, with 2yr Treasuries +4.2bps higher and the 10yr a bit softer at -0.5bps. Oil prices are extending their decline this morning with Brent futures (-0.74%) sliding below $100/bbl. On the data side, Japan’s current account swung back to surplus in February to +¥1.6 trillion, following a -¥1.2 trillion deficit in January - the second-biggest deficit on record. The main release yesterday came from the US weekly initial jobless claims, which fell to their lowest level since 1968, with just 166k initial claims in the week through April 2 (vs. 200k expected). In addition, the previous week was revised down to 171k from 202k, which left the smoother 4-week moving average at 170k, the lowest ever in the entire data series going back to 1967. Euro Area retail sales grew by +0.3% in February (vs. +0.5% expected), and German industrial production grew by +0.2% that same month, in line with expectations. To the day ahead now. Central bank speakers include the ECB’s de Cos, Centeno, Panetta, Stournaras, Makhlouf and Herodotou. Italian retail sales for February and Canadian employment for March round out this week’s data. Tyler Durden Fri, 04/08/2022 - 07:51.....»»

Category: blogSource: zerohedgeApr 8th, 2022

How Ukraine Fits Into The Global Jigsaw

How Ukraine Fits Into The Global Jigsaw Authored by Alasdair Macleod via GoldMoney.com, Ukraine is part of a far bigger geopolitical picture. Russia and China want US hegemonic influence in the Eurasian continent marginalised. Following defeats for US foreign policy in Syria and Afghanistan and following Brexit, Putin is driving a wedge between America and the non-Anglo-Saxon EU. Due to global monetary expansion, rising energy prices are benefiting Russia, which can afford to squeeze Germany and other EU states dependent on Russian natural gas. The squeeze will only stop when America backs off. Being keenly aware that its dominant role in NATO is under threat, America has been trying to escalate the Ukraine crisis to suck Russia into an untenable occupation. Putin won’t fall for it. The danger for us all is not a boots-on-the-ground war — that’s likely to only involve the pre-emptive attacks on military installations Putin initiated last night — but a financial war for which Russia is fully prepared. Both sides probably do not know how fragile the Eurozone banking system is, with both the ECB and its national central bank shareholders already having liabilities greater than their assets. In other words, rising interest rates have broken the euro system and an economic and financial catastrophe on its eastern flank will probably trigger its collapse. The bigger picture is Mackinder’s World Island The developing tension over Ukraine is part of a bigger picture — a struggle between America and the two Eurasian hegemons, Russia and China. The prize is ultimate control over Mackinder’s World Island. Halford Mackinder is acknowledged as the founder of geopolitics: the study of factors such as geography, geology, economics, demography, politics, and foreign policy and their interaction. His original paper was entitled “The Geographical Pivot of History”, presented at the Royal Geographical Society in 1905 in which he first formulated his Heartland Theory, which extended geopolitical analysis to encompass the entire globe. In this and a subsequent paper (Democratic Ideals and Reality: A study in the Politics of Reconstruction, 1919) he built on his Heartland Theory, and from which his famous quote has been passed down to us: “Who rules East Europe commands the World Island [Eurasia]; Who rules the World Island rules the World”. Stalin was said to have been interested in this theory, and while it is not generally admitted, the leaders and administrations of Russia, China and America are almost certainly aware of Mackinder’s theory and its implications. We cannot know if the Russian and Chinese leaders and administrations are avid Mackinder fans, but their partnership in the Shanghai Cooperation Organisation is consistent with his World Island Theory. Since commencing as a post-Soviet, post-Mao security agreement between Russia and China founded in 2001 to suppress Islamic fundamentalism, the SCO has evolved into a political and economic intergovernmental organisation, which with its members, observer states, and dialog partners accounts for over 3.5 billion people, half the world’s population. The symbiotic relationship between resource rich Russia and the industrial Chinese ties the whole SCO together. China’s development of the Asian land mass holds the promise of dramatic improvements in everyone’s living conditions. And consistent with the World Island Theory, Chinese money now dominates the whole of sub-Saharan Africa, the Middle East and South-East Asian nations, particularly those controlled and influenced by the Chinese diaspora. China’s influence also spreads to South America through organisations such as BRICS (B is for Brazil) and Chile for copper and other metals. While the Sino-Russian partnership dominates the World Island economically, America has only gradually been expelled from Asian affairs. Its post 9/11 campaigns in the Middle East destabilised that region, creating fuel for America’s enemies and appalling refugee calamities for her European allies to this day. Her withdrawal from resource-rich Afghanistan was merely the last domino to fall. She retains political influence in Western Europe and South-East Asia only, though her military and intelligence presence is still widespread. Today, America’s actions are those of a hegemon whose time is passing. By the UK opting for Brexit, American influence over the European Union through its security and political partnership with the UK has been diminished. Its grip on European affairs through NATO is being undermined by both Turkey’s determination to shift its interests into the Turkic regions of Central Asia, and the EU’s determination to establish its own defence arrangements. The irrelevance of NATO for the future defence of Western Europe is now becoming apparent to the Russians, and it must be hard for them to resist speeding its decline. The cold war in the Pacific is all about containing China. While Taiwan’s future and China’s attempts to establish naval bases in the South China Seas hog the headlines, China’s trade influence in the region continues to increase. After President Trump withdrew America from the planned Trans-Pacific Partnership, the TTP was replaced by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership which came into force in December 2018, whose eleven signatories have combined economies representing 13.4% of world GDP. This makes it one of the largest free trade areas by GDP and includes Australia and New Zealand. Even the UK has formally applied to join (it qualifies as a Pacific nation through its dependencies in the region), so that three of the US security “five eyes” members will be part of the CPTPP. China also applied to join the CPTPP last September. For now, China’s membership of the CPTPP is in doubt. US allies in the partnership, including Japan, are insisting on various obstructive provisions. But in that well-worn hackneyed metaphor, China is the elephant in the room, and it is hard to see the CPTPP holding out against her membership for ever. For now, China can chip away at it by separate free trade agreements with selected CPTPP members, with whom it is already in bilateral trade. Whatever America’s desire to retain political and military control over the Pacific may be, the economics of trade will eventually diminish that influence. And while sabres are being rattled over Taiwan and Pacific atolls, Russia is putting pressure on Europe to put an end to American dominated defence arrangements at the other end of the World Island. Observers of the greatest of the great games would be right to look at current developments over Ukraine in the context of Mackinder’s heartland theory. Understand that, and you have a grasp of Putin’s reasoning. Driving American influence out of the Eurasian continent has been his objective ever since America reneged on her agreement not to advance NATO any closer to Russia following the ending of the old USSR. Ukraine is caught in the middle Both Russia and the Anglo-Saxons are ramping up the rhetoric over Ukraine. Until recently, Ukraine itself had seen little evidence of any truth in Western propaganda, asking for it to be toned down because all this war talk is increasing its likelihood and ruining the economy. Meanwhile the EU mainstream just wants peace and natural gas. Concern is being expressed in some quarters that all this talk of war might become self-fulfilling — like the first World War. In this case, it is generally agreed by military strategists that Putin would be mad to take over Ukraine. He certainly has the fire power, and Ukraine is cast like a Belgium on the Steppes, with two ethnic groups and whose main purpose seems to be to allow foreign occupation and passage for foreign troops. But holding on to Ukraine against the peoples’ will, when there is an immensely long border over which dissidents can be provided with arms and anti-Russian propaganda is another matter. Russian occupation is likely to be limited to defending Donbas and Luhansk now that Russia has formally recognised their right to self-determination. Without firing a shot, the Russian military has moved the border a hundred miles into formally Ukrainian territory. But that is where an occupying invasion is likely to stop and is not to be confused with the pre-emptive strikes against military bases and airfields today. These moves are there to apply increasing pressure for a diplomatic settlement. So, what is it that Putin wants? Basically, he wants America to get out of Eastern Europe. And following Brexit, as America’s poodle he sees no reason why Britain should be there either. And having his thumb over various gas pipes into Europe, he is squeezing Germany and the other EU NATO members into his way of thinking. Ukraine comes in the wake of America’s disastrous evacuation of Afghanistan, which followed the failure of her attempt to remove Syria’s Assad. It is rumoured that US intelligence services organised the failed coup in Kazakhstan, which was quickly subdued by Russian troops. So, from Putin’s point of view, American policy with respect to the Eurasian land mass has failed, he has America on the run, and he will want to capitalise on its retreat. Meanwhile America, which has ruled western Europe through NATO following WW2, finds it hard to come to terms with its setbacks and needs to get back on the front foot. Presumably, by ramping up fears of a Russian invasion, the Biden administration hoped that either Putin would back down or be tricked into attacking Ukraine. If he had backed down, that would be a diplomatic victory and allow America to rebuild its presence in Kiev. If Putin invades and occupies Ukraine, America can help make life extremely difficult for an occupying force. Either way, it would mark the end of American policy failures on the Eurasian continent. Britain, as always, merely toes the American line. But Putin is no fool. He is destroying Ukraine’s economy. He has his thumb on Nord Stream 1 and 2. And Germany has too many commercial and financial interests in both Russia and Eastern Europe for this not to hurt. Germany also hosts the main railhead for China’s silk road. If Germany kowtows to America, will America then put pressure on her to cut ties with China? This is the geopolitical reality Germany and all mainland Europeans must now face. The new German Chancellor must decide: does he back America, sacrifice Germany’s economic potential and see energy costs soar, or does he recognise the economic realities of the Russia—China partnership and the enormous opportunities it provides for the long run? Russia, America, and Germany are the principal actors whose decisions will decide the outcome of the Ukrainian situation. An escalation into a non-nuclear conflict and Russian occupation of Ukraine will only suit the Americans, confirming that their presence is the guarantee of national security. Ukraine has become a virtual battleground. Ukraine’s geographical position, between the liberated central European states and Russia ensured that it would become central to the continuing rivalry between Russia and America. Since the fall of the Soviet Union, Ukraine has been determined to forge its path independent of Russia as a sovereign nation. But its starting point was difficult, with its eastern provinces predominantly Russian, while the western regions were more central European. The Orange and Maidan Revolutions in 2004 and 2014 respectively were proxy struggles between America and Russia. While America allegedly chucked billions into its Ukrainian interests, in 2014 Russia responded by taking over Crimea and fomented rebellions in Luhansk and Donetsk. By capturing Crimea and fostering two breakaway provinces, Putin had won this territorial battle in an ongoing war. Other than these eastern provinces, most Ukrainians have desperately tried to avoid their country becoming a Russian colony. They wanted to apply for EU membership, which was rejected by Russian-backed President Yanukovych in 2013, leading to the Maidan Revolution and Yanukovych fleeing the country to Russia. Ukraine has also sought the protection of NATO, which has provoked Putin to put a stop to American influences marching eastwards. While Ukraine never left the headlines, the US moved its focus to Syria later in 2014.The eventual failure to oust Assad, who drew on Russian help, was followed by Afghanistan. Ukraine is now back in the headlines, this time at the behest of Russia. Putin is now proactively leading this conflict instead of quietly letting America make all the mistakes and rolling with the punches, representing a major change in Russian strategy. It implies that Putin perceives America to be off balance, and he sees it as the time for a winning move. Putin has prepared his defences carefully. US politicians called for Russia to be cut out of SWIFT after the Crimean invasion. Since then, Russia has developed Mir, a payment system for electronic fund transfers, and a SWIFT equivalent known as SPFS — System for transfer of Financial Messages, with agreements linking SPFS to other payment systems in China, India, Iran, and member nations of the Eurasian Economic Union. The Central Bank of Russia has strengthened the commercial banking network. And it has also reduced its dollar exposure as much as possible by investing in gold and euros instead, which means less reserves are held as deposits in the US banking system and invested in US bonds. From these actions, Putin has signalled that he is aware that the danger to Russia is more likely to be a financial war, rather than a physical one. As President Biden said, to have American troops on the ground fighting the Russians is a world war and will not happen. In that sense the Ukraine, over which Russia retains an energy stranglehold, is a virtual battleground for a proxy war. Financial considerations In examining the strengths and weakness of the principal parties, we must first confirm who they are: Russia, America, and the EU. And in the EU, principally it is Germany, but all member states will be affected. As argued above, Russia’s real objective is to get America out of Europe, and Putin’s strategy is to drive a wedge between America and the EU, and in particular its industrial powerhouse, Germany. Plans to split America from Europe go back to Putin’s earlier days, with the construction of Nord Stream to bypass Ukraine with which Russia’s Gazprom was in dispute. Delivering 55bn billion cubic meters of natural gas annually, the first Nord Stream was completed in 2012. A second pipeline. Nord Stream 2, which is ready to go online, doubles this capacity. American pressure on Germany to delay the operation of Nord Stream 2 follows the dollar’s debasement from March 2020 in particular, when the Fed reduced interest rates to zero and instituted QE of $120bn every month. The effect has been to undermine the dollar’s purchasing power for nearly all commodities, including energy. Consequently, a combination of dollar debasement, winter demand and the absence of extra supply from Russia has created an energy crisis not just for Germany, but all EU members. Germany is particularly hard hit, with its producer prices index up 25% year-on-year at the end of January. Germany cannot go along with an escalation of financial sanctions against Russia at a time when its industry is struggling with other rising production costs. Not only is her trade with Russia substantial, but she has banking and financial interests in Central Europe, Eastern Europe, and Russia, which could be destabilised by American-led attempts to restrict payments. Despite Chancellor Scholz’s initial support for EU sanctions Germany is likely to be indecisive, torn between competing demands from a collapsing economy and pressure from NATO. By withholding regulatory permission for Nord Stream 2 he has demonstrated that instead of regarding his electors’ interests as paramount, he has given in to NATO pressure. This weakness on Olaf Scholz’s part is consistent with the indecisive socialism of his Social Democratic Party and Germany’s continuing guilt trip following two world wars. Recognising the importance of Germany and its likely indecision, President Macron of France seized the political opportunity to mediate between Russia and the EU, which suits the Russian cause. Macron simply provided another channel for Putin’s message about NATO: get the US out of Europe and the EU should be responsible for its own defence. And given Macron’s ambitions for France in Europe he is likely to see it as an opportunity to enable France to take the lead in the EU’s future defence arrangements after the Ukraine situation has blown over. That will be down the road, but for now the EU is standing firm behind US and UK sanction proposals. Sanctions rarely work. They merely encourage the sanctioned to dig deeper into their own intellectual and entrepreneurial resources and work hard to find ways round them. Russia will merely sell its gas elsewhere: at these high prices harm is minimal, and they can afford to restrict supplies through Ukraine, the Yamal-Europe and Turk-stream pipeline supplies. It might be sensible for Russia to allow flows through Nord Stream 1 to continue for now, holding its restriction as a backup threat. European gas prices will likely rise even further, providing a price windfall for Russia. The tweet below, from Russian President Medvedev implies European gas prices will double from here. The apparent lack of understanding of economic and financial consequences for the EU by the EU leadership is a wild card danger. The economic and financial exposure of Germany to its eastern neighbours has already been mentioned, but other EU members are similarly exposed. Furthermore, the reckless inflationary policies of the ECB have undermined the financial health of the entire euro system to the point where even on the current rise in bond yields, the ECB and all the national central banks (with only three minor exceptions) have liabilities greater than their assets. The whole eurozone is a mountain of financial disasters balanced on an apex over which it is set to topple. We cannot say for sure that Ukraine will be the last straw for the euro system, but we can point to political ignorance of this instability. Any dissenting central banker (and there could be some, particularly at the Bundesbank) has no influence at the political level. We must assume that none of the major political players in this tragedy are aware of the financial and economic crisis in Europe waiting to be triggered. And if the Russians have made a mistake, it will be in their accumulation of euro reserves, which will turn out to be worthless when the euro system collapses. Financial sanctions against individual oligarchs have probably already been anticipated and avoiding action been taken by them: oligarchs are not dumb. Sanctions against Russian banks will have also been anticipated and will probably inflict less damage on them than on their counterparties in the EU banking system, particularly if SWIFT comes under pressure to suspend Russian banking access. Not only Ukraine, but the whole of the EU, for which Russia supplies over 40% of its natural gas, is being squeezed. We can be reasonably sure that the Russian government has war-gamed this situation in advance. Inflation, gold, and unintended consequences The situation today is very different from that of 2014 at the time of the Maidan revolution, with the world massively increasing government debt and currency in circulation since then. At the time of the Crimean take-over, commodity prices were declining from their peak in 2011, and following Crimea, they fell sharply with negative consequences for the Russian economy. The expansion of world currencies is now driving commodity and energy prices higher due to their purchasing power is declining. Figure 2 shows how a basket of commodities has increased in price since the Fed reduced its funds rate to the zero bound and instituted QE at $120bn per month. In those 22 months commodity prices have risen by 127% by this measure. When all commodity prices rise at the same time it is due to currency debasement, which is what has happened here. Within the broader commodity context, energy price increases have been particularly acute, with Russia being a major beneficiary, leading to a substantial surplus on its balance of trade. It has been a long-term ambition of the Sino-Russian partnership not just to expel America from the World Island but to reduce dependency on dollars as well. While trade between Russia and China is increasingly settled in their own currencies, so long as the dollar has credibility for settling international transactions it will still dominate trade for the other nations in the Eurasian landmass. The fiat alternative for Russia has been the euro, which partly explains why Russia has accumulated them in her foreign currency reserves. But since 2014, the stability of the euro system has deteriorated to the point where the currency is no longer a credible alternative to the US dollar. We cannot be sure if this is understood in the Kremlin. But there has always been a Plan B, which is the accumulation of physical gold. There is evidence that official reserves in China and Russia understate the true position. Following the enactment of regulations in 1983 whereby the Peoples Bank was appointed sole responsibility for the acquisition of China’s gold and silver reserves, I have estimated that the State accumulated as much as 20,000 tonnes of gold before permitting the public to own gold, for which purpose the Shanghai Gold Exchange was established in 2002. Since then, the SGE has delivered a further 20,000 tonnes from its vaults into public hands, though some of this will have been returned as scrap. The Chinese state has retained the exclusive right to mine and refine gold, even importing doré from abroad. China is now the largest gold mine producer in the world by far, continuing to add over tonnes annually to total above ground stocks (last year’s dip to 350 tonnes was due to covid), which are all ringfenced in China. These policies, as well as anecdotal evidence suggests that my earlier estimate of state-owned gold of 20,000 tonnes was realistic. Russia has been relatively late in adding to her gold reserves, having officially accumulated 2,298 tonnes. But being only second to China as a gold mine producer at 330 tonnes, it is likely that following earlier financial sanctions that Russia has accumulated undeclared gold reserves as well. Additionally, we can see that all the SCO members and their associates have increased their declared gold reserves by 75% since 2014. Plan B therefore appears to be to back fiat roubles and renminbi with gold in the event of a Western fiat currency meltdown. The West has no such plan. America’s fifty-one-year denial of and attempted demotion of gold as the ultimate money appears to have left it short: otherwise it could have returned Germany’s gold on demand instead of trying to spin it out over a number of years. Furthermore, Western central banks routinely lease and swap their gold, leading to double counting of reserves and lack of clarity over ownership. We can be sure that neither Russia nor China indulge in these practices. The consequence of these disparities is to weaponize gold’s monetary status, turning it into a nuclear weapon in a financial war. If, say, during NATO-led attempts to destabilise the rouble Russia was to declare another 6,000 tonnes to match America’s unaudited figure and for China to revise its reserves to stabilise the renminbi, it would probably result in a run against the dollar. It would be a sure-fire way for the Asian hegemons to destroy US economic and military power. Therefore, ultimately, the US and its five-eyes allies cannot win a financial war. When China and Russia planned their financial defences, this golden umbrella made sense, and the security services in America would have been aware of it, if not the full implications. But things have changed, particularly the debasement of all major currencies, including the renminbi. China has an old-fashioned cyclical property crisis on her hands and can only think to print her way out of trouble. Together with the Fed, the ECB, and the Bank of Japan, the Peoples Bank has expanded its balance sheet recklessly, and all together they have increased from $5 trillion equivalent in 2007 to over $31 trillion today, with their rate of expansion being particularly high from March 2020. The consequences for their currencies’ purchasing power are becoming obvious now, turbocharging Russia’s strategy with respect to European energy supply. What few politicians appear to be aware of, and we should include Putin in this, is the fragile state of the major central banks. Having loaded their balance sheets up with fixed-interest government debt, falling market values for these bonds are eliminating central banks’ margin of assets over liabilities. While the Fed, the Bank of Japan and the Bank of England can turn to their governments for recapitalisation, embarrassing though that may be, the ECB has no such recourse. The ECB’s shareholders are the national central banks in the euro system. And they in turn, except for Ireland’s, Malta’s, and Slovenia’s central banks, all have liabilities easily exceeding their assets. The euro system is already insolvent, and Russian action on energy supplies could tip the whole currency system over the edge. Given the Russian Central Bank’s reserve holding of euros, we can call that an unintended consequence. Tyler Durden Fri, 02/25/2022 - 02:00.....»»

Category: personnelSource: nytFeb 25th, 2022

Big Marijuana Stock Profits in Surprising Places

You can still get in on the ground floor of the marijuana market, which will only get hotter as more states and countries move toward legalization. Ben Rains shows several ways to invest before the floodgates open. Legal marijuana is a smoking hot growth industry in the U.S., Canada, and beyond. The global cannabis market is projected to soar from $20.5 billion back in 2020 to $90.4 billion by 2026.¹ And these estimates are likely conservative, as the U.S. moves closer to wide-ranging federal legalization and European nations, including economic powerhouse Germany, prepare to do the same in 2022.The best part about investing in legal marijuana right now is that despite all of the progress, there are ample opportunities to get in right near the ground floor given where we are in the legal lifecycle. Plus, many top pot stocks are trading near all-time lows heading into the new year, after they were beaten down in 2021, along with other former covid high-flyers and growth stocks.Still in the Early InningsThe legal recreational cannabis market has come a long way in the last few years. Yet the growth runway remains massive. Eighteen states have legalized adult-use marijuana as of December—up from zero in 2011. Meanwhile, Canada is one of only a couple countries to legalize marijuana nationally and it did so in 2018.Luckily, more U.S. states are poised to join the legal ranks in 2022, while others could add to the number of medical marijuana states to help take the country well above the current 36 states. Crucially, multiple bills are circulating around Washington, D.C. right now that aim to introduce sweeping Federal marijuana legalization, which will be an overnight game-changer and supercharge the space and the stocks.Even Republicans, the party historically opposed to legal weed, have started to roll out their own legalization proposals including one high-profile effort introduced in November. All of this is to say that Washington appears ready to enact some form of Federal legalization soon.The heightened political drive follows increased bipartisan support that matches the polling data—68% of U.S. adults are in favor of legal marijuana, including 50% of Republicans. Legalization at the national level will open the floodgates for U.S. growers to list on the NYSE and the Nasdaq, and for money to pour in from established players far outside the current pot space looking to cash in and make a big splash.Before those floodgates open, savvy investors are starting to focus on companies that are direct plays within the booming marijuana industry. These stocks are primed to continue growing and receiving institutional investment both before and after federal legalization.Continued . . .------------------------------------------------------------------------------------------------------Marijuana Stocks? There’s Never Been a Better TimeToday we’re on the verge of bipartisan marijuana legislation at the Federal level. Once the bill is passed, money is likely to flow into current and brand-new stocks at a rate that has never been seen in this industry.Thirty-six states plus D.C. have already legalized medicinal marijuana and 18 states plus D.C. made recreational use legal. There’s no stopping this trend, and now is the time to join the rush for profits. Global sales are predicted to skyrocket from $20.5 billion back in 2020 to $90.4 billion by 2026.Zacks recently closed marijuana trades of +39.7%, +94.5%, even +147.0% in as little as 4-1/2 months. Plus, new stocks are being lined up that could greatly surpass these gains.²See Zacks' latest pot stocks now >>------------------------------------------------------------------------------------------------------Don’t Touch the Plant Only Canadian marijuana growers can list on U.S. exchanges given the current standing of cannabis at the Federal level. Fortunately, outside of growers and pure-play pot companies, an array of stocks and industries provide access to legal marijuana because they maintain just enough distance from cannabis.Don’t touch the plant stocks also theoretically provide greater stability amid the current legal grey area in the U.S. The growing niche within pot investing includes real estate investment trusts, suppliers and equipment makers, tech firms, product safety and testing operations, pharmaceutical giants, and beyond.Hydroponics & High-Tech Farming Marijuana, even with all of the complicated new ways to consume it, is a plant. Therefore, the companies that directly support the growing of cannabis are some of the most straightforward and essential of the don’t touch the plant stocks.Today’s cannabis companies run grow operations that more often resemble high-tech, spotless computer chip factories than anything close to a farm. Hydroponic gardening or farming, which simply means growing without the use of soil, by utilizing formulated, mineral nutrient solutions in water, is front and center of modern cannabis cultivation.Marijuana is planted in an inert growing media and constantly supplied with nutrient-rich solutions, oxygen, and water, while light, temperature, and carbon dioxide levels are carefully controlled through various gadgets and other devices. Hydroponics allows for year-round growing, larger yields, and nearly complete control of the process.The global hydroponics market, which spans from multi-billion dollar operations to home grows, reportedly hit around $10 billion in 2020, and it's expected to reach well over $20 billion before the end of the decade. Many public hydroponics and indoor farming companies have posted 60% or higher revenue growth over the last several years.Plus, large institutional investors are pouring money into hydroponics stocks, with most holding at least 50% institutional ownership, compared to pure-play pot stocks that are closer to 15% or less.Real Estate Expansion Huge, high-tech marijuana growers require tons of capital and cash to start and operate. Yet, marijuana’s classification under federal law makes running successful U.S. pot businesses complex and cumbersome, especially when it comes to money. Most local and national banks don’t want anything to do with the legal marijuana market because of all the various state laws and expensive compliance standards.A few companies have helped fill the void for firms that don’t have access to traditional banking services. This backdrop enables cannabis-focused real estate investment trusts or REITs to essentially lend millions of dollars to cannabis companies that don’t have easy access to other sources of capital and collect extremely high interest rates for doing so, on long-term agreements. And like all REITs, they are required to distribute 90% of their taxable income to shareholders.Cannabis Tech Technology dominates our lives and the market, so of course, it plays a vital role in legal pot. There are multiple companies that sell cannabis-specific software to help growers, dispensaries, and others operate more effectively and efficiently in the highly-regulated space.Various publicly traded companies offer solutions for compliance, data, taxation, payments, plant tracking, and much more. The opportunity for expansion is huge in the marijuana tech world and a few companies are in the midst of rapid consolidation to try to capture more market share ahead of U.S. federal legalization that will likely require increasingly stringent guidelines.Extracting Profits from Plants The transition from the black market to labs and hydroponics ushered in the age of endless, hyper-specific marijuana strains. Outside of traditional flower that’s smoked, tons of growth is coming from edible products, oils, and other highly concentrated forms of cannabis.In order to transform cannabis plants and marijuana buds into new-age consumption methods, from concentrates to topical creams, detailed and varied extraction processes must be completed. There are various extraction methods that must be performed repeatedly and precisely, often on a massive scale.Extraction is growing more crucial given the global scope and the increasing demand for non-flower products, which includes widely popular non-psychoactive CBD products.Marijuana Testing  Medical-grade and adult-use cannabis products sold in legal markets are required by law to be clearly labeled with ingredients, cannabinoid levels, dosage recommendations, and tons of other information. Like all industries, from food to medicine, tons of testing is involved at various stages of the cultivation process.Cannabis testing is a potentially huge segment and it will garner even more attention at the national level, especially amid a rise in laced black market drugs. The broader field includes regulatory compliance, quality control, research, and beyond. There are currently multiple cannabis testing companies out there, and a few publicly traded names stand out through their exposure to other areas outside of marijuana.Pharmaceuticals and Biotech Far outside of medical marijuana exists the nascent world of cannabis-based medicine. There are a few stocks making waves in this growing field. One such public company sells the first prescription, plant-derived cannabis-based medicine approved by the FDA and the European Commission.The drug is used in the treatment of seizures associated with various syndromes in patients one year or older. Another more home-run style stock has attracted investment for its potential first-in-class therapeutics targeting the endocannabinoid system that aims to address needs in multiple diseases and conditions, including anorexia, cancer, pain, and inflammation.Multiple Opportunities for Investors As mentioned, this space looks to explode from $20.5 billion in 2020 to $90.4 billion by 2026. Yet only a few growers, pharmaceuticals, financial firms, suppliers - both established and start-ups - are the true innovators and offer historic profit potential.So if you don't want to devote constant attention and painstaking analysis to find these often little-known tickers, we can find them for you.Today, as the legalized marijuana floodgates are about to open, you’re invited to take part in our portfolio service Zacks Marijuana Innovators.This approach is responsible and vigilant, but we look for aggressive growth. Recently, we closed gains of +39.7%, +94.5%, even +147.0% in as little as 4-1/2 months.²Right now you can follow the live buys and sells inside Marijuana Innovators, and be among the first to get in on new buys that I’m lining up.Bonus Report: Speaking of industries with explosive growth potential, when you check our marijuana recommendations you are also invited to download our Special Report, One Semiconductor Stock Stands to Gain the Most. From 35 semiconductor stocks, you can get an early look at Zacks’ top pick during today’s chip shortage crisis.We can’t let everyone in on our marijuana portfolio, so your chance to gain access must end at midnight this Sunday, December 26. Sorry, no extensions.See Zacks' Marijuana Innovators Trades and Bonus Semiconductor Report Now >>Good Investing,Ben RainsEditorBen Rains develops strategies that enable investors to profit from the growing legal market in the U.S. and beyond. Ben uses his extensive experience and concentrated industry study to direct our unique portfolio service, Zacks Marijuana Innovators.¹ Source for marijuana industry growth estimate: Research and Markets ² The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position.  Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksDec 23rd, 2021

Futures Jump In Volatile Session Dragged By Latest Twists In Omicron Saga

Futures Jump In Volatile Session Dragged By Latest Twists In Omicron Saga Much of the overnight session was a snooze fest with stocks drifting first higher then lower after surging on Tuesday, as the narrative meandered from "omicron fears ease" optimism to "vaccines won't work" pessimism, before futures took a sudden leg lower, dropping into the red just after 530am ET, following news that UK's Boris Johnson would introduce new restrictions in England to curb Omicron spread, sparking fears that Omicron is more dangerous that expected (and than futures reflected). However, this episode of pessimism proved short-lived because just an hour later, the WSJ confirmed that Omicron is really just a pitch for covid booster shots when it reported that even though the covid vaccine loses significant effectiveness against Omicron in an early study, this is miraculously reversed with a booster shot as three doses of the vaccine were able to neutralize the variant in an initial laboratory study, and the companies said two doses may still protect against severe disease. Futures quickly shot up on the news, spiking above the gamma "all clear" level of 4,700 in a move best summarized with the following chart. And so, after going nowhere, S&P futures climbed for a third day, last seen 12 points, or 0.3% higher, just around 4,700 after rising the most since March on Tuesday. Europe’s Stoxx 600 Index rose following the biggest jump in more than a year. In addition to the omicron soap opera, which as we noted yesterday turns out was just one staged covid booster shot advertisement (because Pfizer and Moderna can always do with a bigger yacth), sentiment was also lifted by Chinese authorities' reversal to "easing mode" and aggressive efforts to limit the fallout from property market woes which lifted risk assets in Asia even as key debt deadlines at China Evergrande Group and Kaisa Group Holdings Ltd. passed without any sign of payment. "Clearly in the very short term uncertainty has risen over the Omicron virus... but overall at this stage we do not believe it will derail the macro picture in the medium-term," said Jeremy Gatto, multi-asset portfolio manager at Unigestion. Treasury yields were little changed after rising across the curve Tuesday. The VIX spiked first on the FT news, then dropped back into the red, while the dollar was flat and crude rose after turning red. Besides macro, micro was also in play and here are some other notable premarket movers Apple (AAPL US) ticks 1% higher in premarket trading following a Nikkei report that the tech giant told suppliers to speed up iPhone output for Nov.-Jan, citing people it didn’t identify. Amazon.com (AMZN US) shares in focus after an Amazon Web Services outage is wreaking havoc on the e-commerce giant’s delivery operation Stitch Fix (SFIX US) tumbles 25% in U.S. premarket trading after a 2Q forecast miss that analysts called “surprising,” while customer additions also disappointed Pfizer (PFE US) shares drop 2% in U.S. premarket trading after an early study showed that the company’s vaccine provides less immunity to the omicron variant Dare Bioscience (DARE US) soars 41% in premarket trading after Xaciato gets FDA approval for treating bacterial vaginosis EPAM Systems (EPAM US) soars 8% in premarket after S&P Dow Jones Indices said co. will replace Kansas City Southern in the S&P 500 effective prior to the opening of trading on Dec. 14 Goodyear Tire & Rubber (GT US) upgraded to buy from hold and target boosted to Street-high $32 from $29 at Deutsche Bank with the company seen as a major beneficiary from the shift to electric vehicles. Shares up 4.3% in premarket trading NXP Semiconductor (NXPI US) shares slide 2.2% in U.S. premarket trading after the chipmaker got a new sell rating at UBS Dave & Buster’s (PLAY US) gained 3.5% postmarket after the dining and entertainment company reported EPS that beat the average analyst estimate and authorized a $100 million share buyback program "Every day that passes without a wave of severe cases driven by Omicron is offering more hope that this won't be the curveball to throw the recovery off course," wrote Deutsche Bank strategist Jim Reid in a note to clients. In Europe, the Stoxx Europe 600 Index initially drifted both higher and lower then bounced 0.3% on the favorable Pfizer and BioNTech news one day after posting its bigger surge in a year. European benchmark index earlier rose as much as 2%, dropped 2.1%. Health care sub-index leads gains, rising 1.2%, followed by travel stocks. The Stoxx 600 closed 2.5% higher on Tuesday, biggest gain since November 2020 Earlier in the session, Asia stocks also rose for a second day as concerns about the omicron variant and China’s economic slowdown eased. The MSCI AsiaPacific Index climbed as much as 0.9% after capping its biggest one-day gain in more than three months on Tuesday. Technology and health-care shares provided the biggest boosts. Benchmarks in New Zealand and India -- where the central bank held rates at a record low -- were among the day’s best performers. “The biggest point appealing to investors is that the Omicron variant doesn’t seem to be too fatal,” which is encouraging to those who had been going short to close out their positions, said Tomoichiro Kubota, a senior market analyst at Matsui Securities in Tokyo. “Worry that the Chinese economy will lose its growth momentum has subsided quite a bit.” Thus far, Omicron cases haven’t overwhelmed hospitals while vaccine developments indicate some promise in dealing with the variant. While vaccines like the one made by Pfizer and BioNTech SE may be less powerful against the new strain, protection can be fortified with boosters. The two-day rally in the Asian stock benchmark marks a sharp turnaround following weeks of declines since mid-November. Stocks in China also climbed for a second day. The nation’s central bank said Monday it will cut the amount of cash most banks must keep in reserve from Dec. 15, providing a liquidity boost and helping restore investor confidence In FX, news on the Omicron variant rippled through G-10 currencies after a report the Pfizer vaccine could neutralize the Omicron variant boosted risk appetite. The pound underperformed other Group-of-10 peers, extending declines after reports that the U.K. government is poised to introduce new Covid-19 restrictions.  A gauge of the dollar’s strength fluctuated as Treasuries pare gains and stocks rally after a report that said Pfizer and BioNTech claim three vaccine doses neutralize the omicron variant. EUR/USD rose 0.1% to 1.1277; USD/NOK falls as much as 0.8% to 8.9459, lowest since Nov. 25 Sterling fell against the euro and the dollar, as traders pare bets on the path of Bank of England rate hikes following reports that the U.K. could introduce fresh Covid-19 restrictions such as working from home and vaccine passports for large venues. Money markets pare rate hike bets, with just six basis points of interest rate hikes priced in for the BOE meeting next week. GBP/USD falls as much as 0.6% to 1.3163, testing the key level of 1.3165, the 38.2% Fibonacci retracement of gains since March 2020. EUR/GBP gains as much as 0.7% to 0.85695, the highest since Nov. 11. “The market will probably see this as more U.K. specific and therefore an issue for the pound at least in the short term,” said Stuart Bennett, FX strategist at Santander. In rates, Treasuries were mixed with markets reacting in a risk-on manner to the Dow Jones report that Pfizer and BioNTech claim three vaccine doses neutralize the omicron variant. Yields remain richer by less than 1bp across long-end of the curve while front-end trades cheaper on the day, flattening curve spreads. Session’s focal points include $36b 10-year note reopening at 1pm ET, following Tuesday’s strong 3-year note auction. Treasury 10-year yields around 1.475%, near flat on the day; gilts outperform slightly after Financial Times report that further Covid restrictions will be announced imminently to curb the variant’s spread. U.S. 2-year yields were cheaper by 1bp on the day, rose to new 2021 high following Pfizer vaccine report; 2s10s spread erased a flattening move In commodities, crude futures turned red, WTI falling 0.8%, popping back below $72. Spot gold holds Asia’s modest gains, adding $8 to trade near $1,792/oz. Looking at the day ahead, and Olaf Scholz is expected to become German Chancellor in a Bundestag vote today. From central banks, the Bank of Canada will be deciding on rates, and we’ll also hear from ECB President Lagarde, Vice President de Guindos and the ECB’s Schnabel. Finally, data releases include the JOLTS job openings from the US for October. Market Snapshot S&P 500 futures up 0.2% to 4,693.75 STOXX Europe 600 little changed at 480.55 MXAP up 0.7% to 194.84 MXAPJ up 0.6% to 632.78 Nikkei up 1.4% to 28,860.62 Topix up 0.6% to 2,002.24 Hang Seng Index little changed at 23,996.87 Shanghai Composite up 1.2% to 3,637.57 Sensex up 1.8% to 58,654.25 Australia S&P/ASX 200 up 1.3% to 7,405.45 Kospi up 0.3% to 3,001.80 Brent Futures down 0.5% to $75.04/bbl Gold spot up 0.3% to $1,790.33 U.S. Dollar Index down 0.17% to 96.20 German 10Y yield little changed at -0.38% Euro up 0.2% to $1.1286 Brent Futures down 0.5% to $75.04/bbl Top Overnight News from Bloomberg The omicron variant of Covid-19 must inflict significant damage on the euro-area economy for European Central Bank Governing Council member Martins Kazaks to back additional stimulus “The current phase of higher inflation could last longer than expected only some months ago,” ECB vice president Luis de Guindos says at event The earliest studies on omicron are in and the glimpse they’re providing is cautiously optimistic: while vaccines like the one made by Pfizer Inc. and BioNTech SE may be less powerful against the new variant, protection can be fortified with boosters U.K. Prime Minister Boris Johnson is set to announce new Covid-19 restrictions in England, known as “Plan B,” to stop the spread of the Omicron variant, the Financial Times reported, citing three senior Whitehall officials familiar with the matter. French economic activity will continue to rise in December, despite another wave of the Covid-19 pandemic and fresh uncertainty over the omicron variant, according the Bank of France The Kingdom of Denmark will sell a sovereign green bond for the first time next month to help the Nordic nation meet one of the world’s most ambitious climate targets Tom Hayes, the former UBS Group AG and Citigroup Inc. trader who became the face of the sprawling Libor scandal, has lost his bid to appeal his U.K. criminal conviction Poland is poised for a hefty increase in interest rates after a spike in inflation to a two- decade high convinced central bankers that spiraling price growth isn’t transitory. Of 32 economists surveyed by Bloomberg, 20 expect a 50 basis-point hike to 1.75% today and 10 see the rate rising to 2%. The other two expect a 25 basis-point increase Australia is weighing plans for a central bank-issued digital currency alongside the regulation of the crypto market as it seeks to overhaul how the nation’s consumers and businesses pay for goods and services Bank of Japan Deputy Governor Masayoshi Amamiya dropped a strong hint that big firms are in less need of funding support, a comment that will likely fuel speculation the BOJ will scale back its pandemic buying of corporate bonds and commercial paper A detailed summary of global markets courtesy of Newsquawk Asian equity markets traded positively as the region took impetus from the global risk momentum following the tech-led rally in the US, where Apple shares rose to a record high and amid increased optimism that Omicron could be less dangerous than prior variants. This was after early hospitalisation data from South Africa showed the new variant could result in less severe COVID and NIH's Fauci also suggested that Omicron was 'almost certainly' not more severe than Delta, although there were some slight headwinds in late Wall Street trade after a small study pointed to reduced vaccine efficacy against the new variant. The ASX 200 (+1.3%) was underpinned in which tech led the broad gains across sectors as it found inspiration from the outperformance of big tech stateside, and with energy bolstered by the recent rebound in underlying oil prices. The Nikkei 225 (+1.4%) conformed to the upbeat mood although further advances were capped after USD/JPY eased off the prior day’s highs and following a wider-than-expected contraction to the economy with the final annualised Q3 GDP at -3.6% vs exp. -3.1%. The Hang Seng (+0.1%) and Shanghai Comp. (+1.2%) were less decisive and initially lagged behind their peers as sentiment was mired by default concerns due to the failure by Evergrande to pay bondholders in the lapsed 30-day grace period on two USD-denominated bond payments and with Kaisa Group in a trading halt after missing the deadline for USD 400mln in offshore debt which didn’t bode well for its affiliates. Furthermore, China Aoyuan Property Group received over USD 650mln in repayment demands and warned it may not be able to meet debt obligations, while a subdued Hong Kong debut for Weibo shares which declined around 6% from the offer price added to the glum mood for Hong Kong’s blue-chip tech stocks, as did reports that China is to tighten rules for tech companies seeking foreign funding. Finally, 10yr JGBs languished after spillover selling from T-notes and due to the heightened global risk appetite, but with downside stemmed by support at the key psychological 152.00 level and amid the presence of the BoJ in the market today for over JPY 1.0tln of JGBs. Top Asian News China Clean Car Sales Spike as Consumers Embrace Electric Gold Edges Higher as Traders Weigh Vaccine Efficacy, Geopolitics Paint Maker Avia Avian Falls in Debut After $763 Million IPO Tokyo Prepares to Introduce Same-Sex Partnerships Next Year Equities in Europe shifted to a lower configuration after a mixed open (Euro Stoxx 50 -0.7%; Stoxx 600 -0.1%) as sentiment was dented by rumours of tightening COVID measures in the UK. Markets have been awaiting the next catalyst to latch onto for direction amidst a lack of fresh fundamentals. US equity futures have also been dented but to a lesser extent, with the YM (-0.1%) and ES (Unch) straddling behind the NQ (+0.2%) and RTY (+0.2%). Sources in recent trade suggested an 85% chance of the UK implementing COVID Plan B, according to Times' Dunn; reports indicate such restrictions could be implemented on Thursday, with the potential for an announcement today. In terms of the timings, the UK cabinet is penciled in for 15:45GMT and presser for 17:30GMT on Plan B, according to BBC's Goodall. Note, this will not be a formal lockdown but more so work-from-home guidance, vaccine passports for nightlife and numerical restrictions on indoor/outdoor gatherings. APAC closed in the green across the board following the tech-led rally in the US. The upside overnight was attributed to a continuation of market optimism after early hospitalisation data from South Africa showed the new variant could result in less severe COVID, albeit after a small study pointed to reduced vaccine efficacy against the new variant. Participants will be closely watching any updates from the vaccine-makers, with the BioNTech CEO stating the drugmaker has data coming Wednesday or Thursday related to the new COVID-19 variant, thus markets will be eyeing a potential update this week ahead of the Pfizer investor call next Friday. Back to European, the UK’s FTSE 100 (Unch) and the Swiss SMI (+0.8%) are largely buoyed by their defensive stocks, with sectors seeing a defensive formation, albeit to a slightly lesser extent vs the open. Healthcare retains its top spot closely followed by Food & Beverages, although Personal & Household Goods and Telecoms have moved down the ranks. On the flip side, Retail, Banks and Travel & Leisure trade at the bottom of the bunch, whilst Tech nursed some earlier losses after opening as the lagging sector. In terms of individual movers, Nestle (+1.8%) is bolstered after announcing a CHF 20bln share repurchase programme alongside a stake reduction in L'Oreal (+1.0%) to 20.1% from 23.3% - worth some EUR 9bln. L’Oreal has shrugged off the stake sale and conforms to the firm sectoral performance across the Personal & Household Goods. Meanwhile, chip names are under pressure after Nikkei sources reported that Apple (+0.8% pre-market) was forced to scale back the total output target for 2021, with iPhone and iPad assembly halted for several days due to supply chain constraints and restrictions on the use of power in China, multiple sources told Nikkei. STMicroelectronics (-1.7%) and Infineon (-5.0%) are among the losers, with the latter also weighed on by a broker downgrade at JPM. Top European News ECB’s Kazaks Sets High Bar for Omicron-Driven Extra Stimulus Biden Is Left Guessing Over Putin’s Ultimate Aim in Ukraine Byju’s Buys Austria’s GeoGebra to Bolster Online Math Courses Scholz Elected by Parliament to Take Charge as German Chancellor In FX, the Dollar index continues to hold above 96.000, but bounces have become less pronounced and the range so far today is distinctly narrower (96.285-130) in fitting with the generally restrained trade in pairings within the basket and beyond, bar a few exceptions. Price action suggests a relatively muted midweek session unless a major game-changer arrives and Wednesday’s agenda does not bode that well in terms of catalysts aside from JOLTS and the BoC policy meeting before the second leg of this week’s refunding in the form of Usd 36 bn 10 year notes. AUD/EUR - Notwithstanding the largely contained currency moves noted above, the Aussie is maintaining bullish momentum on specific factors including strength in iron ore prices and encouraging Chinese data plus PBoC easing that should have a positive knock-on effect for one of its main trading partners even though diplomatic relations between the two nations are increasingly strained. Aud/Usd has also cleared a couple of technical hurdles on the way up to circa 0.7143 and Aud/Nzd is firmer on the 1.0500 handle ahead of the RBA’s latest chart pack release and a speech by Governor Lowe. Elsewhere, the Euro has regained composure after its sub-1.1250 tumble on Tuesday vs the Buck and dip through 0.8500 against the Pound, but still faces psychological resistance at 1.1300 and the 21 DMA that comes in at 1.1317 today, while Eur/Gbp needs to breach the 100 DMA (0.8513) convincingly or close above to confirm a change in direction for the cross from a chart perspective. CHF/CAD/JPY/GBP/NZD - All sitting tight in relation to their US counterpart, with the Franc paring some declines between 0.9255-30 parameters and the Loonie straddling 1.2650 in the run up to the aforementioned BoC that is widely seen as a non-event given no new MPR or press conference, not to mention the actual changes in QE and rate guidance last time. Nevertheless, implied volatility is quite high via a 63 pip breakeven for Usd/Cad. Meanwhile, Sterling lost grip of the 1.3200 handle amidst swirling speculation about the UK reverting to plan B and more Tory MPs calling for PM Johnson to resign, the Yen is rotating around 113.50 eyeing broad risk sentiment and US Treasury yields in context of spreads to JGBs, and the Kiwi is lagging after touching 0.6800 awaiting independent impetus from NZ manufacturing sales for Q3. SCANDI/EM - The Nok extended its advantage/outperformance against the Sek as Brent rebounded towards Usd 76/brl in early trade and Riksbank’s Jansson retained reservations about flagging a repo rate hike at the end of the forecast horizon, while the Mxn and Rub also initially derived some support from oil with the latter also taking on board latest hawkish talk from the CBR. However, the Cny and Cnh are outpacing their rivals again with some assistance from a firmer PBoC midpoint fix to hit multi-year peaks vs the Usd and probe 6.3500 ahead of option expiry interest at 6.3000 and a Fib retracement at 6.2946, in stark contrast to the Try that is unwinding recent recovery gains with no help from the latest blast from Turkish President Erdogan - see 10.00GMT post in the Headline Feed for more. Conversely, the Czk has taken heed of CNB’s Holub underscoring tightening signals and expectations for the next rate convene and the Pln and Brl are anticipating hikes from the NBP and BCB. In commodities, crude futures have been hit on the prospect of imminent COVID-related measures in the UK, albeit the measures do not involve lockdowns. Brent and WTI front month futures slipped from European highs to breach APAC lows. The former dipped below USD 74.50/bbl from a USD 76.00/bbl European peak while its WTI counterpart tested USD 71.00/bbl from USD 72.50/bbl at best. Overnight the benchmarks traded on either side the USD 75/bbl mark and just under USD 72/bbl after the weekly Private Inventories printed a larger-than-expected draw (-3.6mln vs exp. -3.1mln), albeit the internals were less bullish. Yesterday also saw the release of the EIA STEO, cut its 2021 world oil demand growth forecast by an insignificant 10k BPD but raised the 2022 metric by 200k BPD – with the IEA and OPEC monthly reports poised to be released next week. On the vaccine front, a small preliminary study of 12 people showed a 40x reduction in neutralization capacity of the Pfizer vaccine against Omicron, but early hospitalisation data from South Africa showed the new variant could result in less severe COVID. BioNTech CEO said they have data coming in on Wednesday or Thursday related to the new Omicron variant. The geopolitical space is also worth keeping on the radar, with US President Biden yesterday warning Russian President Putin that gas exports via Nord Stream 2 will be targeted and more troops will be deployed if he orders an invasion of Ukraine. Further, reports suggested, an Indian army helicopter crashed in Tamil Nadu, with Chief of Defence staff reportedly on board, according to Sputnik. Note, Tamil Nadu is located towards the south of the country and away from conflict zones. Elsewhere spot gold was supported by the overnight pullback in the Dollar, but the recent risk aversion took the yellow metal above the 100 DMA around USD 1,790/oz, with nearby upside levels including the 200 DMA (1,792/oz) and the 50 DMA (1,794/oz). Copper prices meanwhile consolidated within a tight range, with LME copper holding onto a USD 9,500/t handle (just about). Dalian iron ore extended on gains in a continuation of the upside seen in recent trade. US Event Calendar 7am: Dec. MBA Mortgage Applications, prior -7.2% 10am: Oct. JOLTs Job Openings, est. 10.5m, prior 10.4m DB's Jim Reid concludes the overnight wrap A reminder that we are currently conducting our special 2022 survey. We ask about rates, equities, bond yields and the path of covid in 2022, amongst other things, and also return to a festive question we asked in 2019, namely your favourite ever Christmas songs. The link is here and it’ll be open until tomorrow. All help filling in very much appreciated. My optimism for life has been shattered this morning. Not from the markets or the virus but just as I woke this morning England cricketers finally surrendered and collapsed in a heap on the first day of the Ashes - one the oldest international rivalries in sport. It was all I could do not to turn round and go back to bed. However out of duty I’m soldering on. After the twins nativity play went without incident yesterday, this morning it’s Maisie’s turn. Given she’s in a wheelchair at the moment she can’t get on stage so they’ve given her a solo singing spot at the start. I’m going so I can bring a bucket for all my wife’s tears as she sings!! If I shed a tear I’ll pretend it’s because of the cricket. The global market rebound continued to gather strength yesterday as investors became increasingly optimistic that the Omicron variant wouldn’t prove as bad as initially feared. To be honest, it was more the absence of bad news rather than any concrete good news helping to drive sentiment. Late in the US session we did see some headlines suggesting that the Pfizer vaccine may provide some defence against Omicron but also that the new variant does evade some of the immunity produced by this vaccine. This report of the small study (12 people!!) from South Africa lacked substance but you could take positives and negatives from it. More information is clearly needed. For the markets though, every day that passes without a wave of severe cases driven by Omicron is offering more hope that this won’t be the curveball to throw the recovery off course. Indeed, to get a sense of the scale of the market rebound, both the S&P 500 and the STOXX 600 in Europe have now clocked in their strongest 2-day performances of 2021 so far, with the indices up by +3.27% and +3.76% respectively since the start of the week. Meanwhile, the VIX fell below 25 for the first time in a week. On the day, the S&P 500 (+2.07%) put in its strongest daily performance since March, whilst the STOXX 600 (+2.45%) saw its strongest daily performance since the news that the Pfizer vaccine was successful in trials back in November 2020. Once again the gains were incredibly broad-based, albeit with cyclical sectors leading the way. The Nasdaq (+3.03%) outperformed the S&P 500 for the first time in a week as tech shares led the rally. Small cap stocks also had a strong day, with the Russell 2000 up +2.28%, on the back of Omicron optimism. This recovery in risk assets was also seen in the bounceback in oil prices, with Brent crude (+3.23%) and WTI (+3.68%) now both up by more than $5.5/bbl since the start of the week, which puts them well on the way to ending a run of 6 consecutive weekly declines. For further evidence of this increased optimism, we can also look at the way that investors have been dialling back up their estimates of future rate hikes from the Fed, with yesterday seeing another push in this direction. Before the Omicron news hit, Fed fund futures were fully pricing in an initial hike by the June meeting, but by the close on the Monday after Thanksgiving they’d moved down those odds to just 61% in June, with an initial hike not fully priced until September. Fast forward just over a week however, and we’re now not only back to pricing in a June hike, but the odds of a May hike are standing at +78.8%, which is actually higher than the +66.1% chance priced before the Omicron news hit. A reminder that we’re just a week away now from the Fed’s next decision, where it’s hotly anticipated they could accelerate the pace at which they’ll taper their asset purchases. With investors bringing forward their bets on monetary tightening, front-end US Treasury yields were hitting post-pandemic highs yesterday, with the 2yr Treasury yield up +5.8bps to 0.69%, a level we haven’t seen since March 2020. Longer-dated yield increases weren’t as large, with the 10yr yield up +3.9bps to 1.47%, and the 5s30s curve flattened another -1.8bps to 54.4bps, just above the post-pandemic low of 53.7bps. Over in Europe there was similarly a rise in most countries’ bond yields, with those on 10yr bunds (+1.4bps), OATs (+1.0bps) and BTPs (+4.4bps) all moving higher, though incidentally, the 5s30s curve in Germany was also down -2.2bps to its own post-pandemic low of 50.0bps. One pretty big news story that markets have been relatively unperturbed by so far is the rising tensions between the US and Russia over Ukraine. Yesterday saw a video call between US President Biden and Russian President Putin. The US readout from the call did not offer much in the way of concrete details, but if you’re looking for any optimistic news, it said that both sides tasked their teams with following up. Setting the background for the call, there were reports immediately beforehand that the US was considering evacuating their citizens and posturing to stop Nord Stream 2 if Russia invaded Ukraine. The Ruble appreciated +0.42% against the dollar, and is now only slightly weaker versus the dollar on the week. Overnight in Asia stocks are trading mostly higher led by the Nikkei (+1.49%), CSI (+1.11%), Shanghai Composite (+0.86%) and the KOSPI (+0.78%) as markets respond positively to the Pfizer study mentioned at the top. The Hang Seng (-0.12%) is lagging though. In Japan, the final Q3 GDP contracted -3.6% quarter on quarter annualised against consensus expectations of -3.1% on lower consumer spending than initially estimated. In India, the RBI left the key policy rate unchanged for the ninth consecutive meeting today while underscoring increasing headwinds from the Omicron variant. Futures markets indicate a positive start in the US and Europe with S&P 500 (+0.41%) and DAX (+0.12%) futures trading in the green. Back on the pandemic, despite the relative benign news on Omicron, rising global case counts mean that the direction of travel is still towards tougher restrictions across a range of countries. In fact here in the UK, we saw the 7-day average of reported cases move above 48,000 for the first time since January. In terms of fresh restrictions, yesterday saw Canada announce that they’d be extending their vaccine mandate, which will now require employees in all federally regulated workplaces to be vaccinated, including road transportation, telecommunications and banking. In Sweden, the government is preparing a bill that would see Covid passes introduced for gyms and restaurants, while Poland put further measures in place, including remote schooling from December 20 until January 9, while vaccines would become mandatory for health workers, teachers and uniformed services from March 1. One move to ease restrictions came in Austria, where it was confirmed shops would be reopening on Monday, albeit only for those vaccinated, while restaurants and hotels would reopen the following week. If you see our daily charts you’ll see that cases in Austria have dropped sharply since the peaks a couple of weeks ago, albeit still high internationally. In DC, Congressional leaders apparently agreed to a deal that would ultimately lead to the debt ceiling being increased, after some procedural chicanery. Senate Majority Leader McConnell voiced support for the measure, which is a good sign for its ultimate prospects of passing, but it still needs at least 10 Republican votes in the Senate to pass. McConnell indicated the votes would be there when the Senate ultimately takes it up, which is reportedly set to happen this week. The House passed the measure last night. Yields on Treasury bills maturing in December fell following the headlines. Looking ahead, today will mark the end of an era in Germany, as Olaf Scholz is set to become Chancellor in a Bundestag vote later on, marking an end to Chancellor Merkel’s 16-year tenure. That vote will simply be a formality given the three parties of the incoming coalition (the centre-left SPD, the Greens and the liberal FDP) have a comfortable majority between them, and the new cabinet will feature 7 SPD ministers, 5 Green ministers, and 4 from the FDP. Among the positions will include Green co-leader Robert Habeck as Vice Chancellor, Green co-leader Annalena Baerbock as foreign minister, and FDP leader Christian Lindner as finance minister. Running through yesterday’s data, the US trade deficit narrowed to $67.1bn in October (vs. $66.8bn expected), marking its smallest level since April. Meanwhile in the Euro Area, the latest Q3 growth estimate was left unchanged at +2.2%, but both Q1 and Q2’s growth was revised up a tenth. Over in Germany, industrial production grew by a stronger-than-expected +2.8% in October (vs. +1.0% expected), with the previous month’s contraction also revised to show a smaller -0.5% decline. In addition, the expectations component of the December ZEW survey fell by less than expected to 29.9 (vs. 25.4 expected), but the current situation measure fell to a 6-month low of -7.4 (vs. 5.7 expected). To the day ahead now, and Olaf Scholz is expected to become German Chancellor in a Bundestag vote today. From central banks, the Bank of Canada will be deciding on rates, and we’ll also hear from ECB President Lagarde, Vice President de Guindos and the ECB’s Schnabel. Finally, data releases include the JOLTS job openings from the US for October. Tyler Durden Wed, 12/08/2021 - 07:58.....»»

Category: blogSource: zerohedgeDec 8th, 2021

Covid Woes And Supply Chain Issues Among The Drivers In FTSE Reshuffle

The FTSE All Share Index Quarterly Review is based on closing prices today and is due to be announced on Wednesday 1 December, with the changes effective after the close on Friday 17 December. Q3 2021 hedge fund letters, conferences and more A sparky performance by Electrocomponents pushes it into a prime position to move into […] The FTSE All Share Index Quarterly Review is based on closing prices today and is due to be announced on Wednesday 1 December, with the changes effective after the close on Friday 17 December. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Walter Schloss Series in PDF Get the entire 10-part series on Walter Schloss in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues. (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more A sparky performance by Electrocomponents pushes it into a prime position to move into the FTSE 100. Dechra pharma, another FTSE 100 contender has clawed opportunity from the soaring popularity for pets. Cyber Security firm DarkTrace set to slip out of the FTSE 100 following a share slide as the lock-in IPO period ended. Johnson Matthey’s position in the FTSE 100 looks shaky after it abandoned its battery plans. Supply chain issues plague electrical retailer AO World as it looks set to slide from FTSE 250. Petershill Partners eyes up a FTSE 250 position and fresh acquisitions of private equity assets. Fresh Covid woes hit The Restaurant Group as it looks set to slide out of the FTSE 250. Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown summarises the runners and riders: Electrocomponents – Contender To Enter The FTSE 100 "The sparky performance by Electrocomponents plc (LON:ECM), with adjusted pre-tax profits up 91% for the first half of the year, has led to a surge in its share price, pushing it into a prime position to move into FTSE 100 territory. The vast range of industrial and electronics products held by the distributor is partly behind its success, as well as its smooth online operations fulfilling the lucrative business-to-business segment. It’s not been immune from higher transport and labour costs, and global supply chain issues, but it appears to have deftly managed its inventory and kept margins intact. Although there are likely to be further cost pressures ahead, Electrocomponents appears in a robust position, particularly given that demand for electrical parts shows little sign of waning." Dechra Pharma - Contender To Enter The FTSE 100 "Dechra Pharmaceuticals plc (LON:DPH) has clawed opportunity from the soaring popularity for pets during the pandemic. Its share price has bounded upwards and it is a prime contender to take a walk into the FTSE 100. With so many more people working from home, it’s been an ideal opportunity to settle in a new furry friend and Dechra is in the business of keeping them healthy throughout their lifetimes. Demand for the pharmaceutical company’s veterinary products has been strong, with full year results showing pre-tax profits almost doubling. There is a risk that with incomes facing a squeeze from rising inflation, spending per head could decline, so there could be headwinds to navigate. But other results from pet orientated companies indicate that demand for pets doesn’t seem to be falling away, which bodes well for future revenues streams." Darktrace – Likely To Be Demoted From The FTSE 100 "Cyber security firm Darktrace PLC (LON:DARK) made a stealthy entry into the top-flight at the last reshuffle, but it’s a leading contender to leave the blue chip index given that shares have fallen by 52% since reaching a record high in September. This appears to be down to the end of the lock-up period following its IPO, with big chunks of new shares flooding the market prompting the falls. Darktrace is not alone in being a former IPO darling, now experiencing the pain of a rapid deceleration in its share price. Its successful launch in the spring was seen as a coup for the London market, and if it exits the top-flight it will leave a big tech gap in the FTSE 100. However, given ongoing growth reported by the company and some pretty upbeat trading updates, it may not stay outside the top-flight for long.  There is growing demand for sophisticated technology to counter the growing armies of cyber criminals and Darktrace uses AI to scan regular business operations and detect tiny irregularities, providing an early warning system of cyber-attacks. The ongoing shift to digital is likely to keep opening up new opportunities and markets for Darktrace as firms scale up their operations to meet demand, whilst trying to ensure their systems stay secure." Johnson Matthey – Likely To Be Demoted From The FTSE 100 "Investors are clearly worried about Johnson Matthey PLC (LON:JMAT)’s strategy for the future and amid this uncertainty, the company risks sliding out of the FTSE 100. The engineering company’s decision to abandon plans to become a battery supplier by selling off its eLNO business saw shares slide, because this appeared to be JMAT’s answer to the shift towards electric vehicles and away from combustion engines, for which it makes catalytic converters. Management says it will focus on other potential growth avenues, but ultimately the group will be starting from scratch as it looks for new opportunities alongside the new greener auto industry. Although catalytic converters won’t be rendered obsolete immediately, the clock is ticking and as the transition to electric vehicles speeds up, Johnson Matthey will need to quickly find a new sense of direction." AO World – Likely To Be Demoted From The FTSE 250 "Online electrical retailer AO World PLC (LON:AO) was well set up to capitalise on the accelerated shift to e-commerce during the first stages of the pandemic, with profits soaring as demand for white goods and IT equipment bounded higher. But the company has come down to earth with a bump, falling to a £10 million half year loss, sending shares plummeting, and this dramatic reversal of fortunes is likely to see it kicked out of the FTSE 250. Its rapid growth seems to have been part of the problem, given that it hasn’t had as much time to build up deep relationships with suppliers, so when the supply crunch hit for electrical goods, it was lower down on the list of priorities. Higher labour and transport costs exacerbated by the shortage of drivers have also dented margins, given that it’s so reliant on its delivery network to make sales and provide after care. A quick turnaround is unlikely given that the company has warned that the crucial Christmas trading period will be tough, with supply chain issues lingering, so AO World may find it hard to climb back up the ladder into FTSE 250 territory for some time." The Restaurant Group – Likely To Be Demoted From The FTSE 250 "As fears about the Omicron variant swirl, there are fresh concerns that restrictions could be tightened on hospitality firms and The Restaurant Group PLC (LON:RTN) hasn’t escaped this fresh round of volatility. Although shares are up marginally today, they have fallen by 35% over the past month as investors worry that despite a big round of cost cutting and the slimming down of its restaurant footprint, a big bounce back in fortunes remains elusive.  Although its star brand Wagamama is dishing out fast food as fast as it can make it to crowds queuing outside restaurants or ordering in from home, its airport concessions arm has struggled with a 53% fall in like-for-like sales at the last quarterly reading, as tourism has been slow to recover. Like many other firms in the sector the company is also facing the challenges of higher costs and wage pressures, amid a shortage of staff and those problems look set to linger." Provident Financial - Contender For The FTSE 250 "Provident Financial plc (LON:PFG), the sub-prime firm known for specialising in credit cards, online loans and consumer car finance is likely to gain a foothold in the FTSE 250 after its valuation recovered as it’s pivoted the business. The company called time on its doorstep lending business earlier this year as part of its attempt to climb out of a financial black hole, after being forced to pay compensation for mis-selling its products. Shifting its business model away from riskier high interest loans towards a mid-cost credit model is now more of a focus for the company and it’s a direction of travel investors have embraced. Although the shine has come off the share price in recent days, which may be partly due to fears that if the new variant leads to another downturn, the potential for bad loans could increase, shares are still up by 41% over the past six months." Petershill Partners – Contender For The FTSE 250 "Petershill Partners PLC (LON:PHLL) only started trading on the London Stock Exchange in September but already it’s a leading contender to step into the FTSE 250. Petershill owns minority stakes in a range of alternative asset managers such as venture capital firms and private equity companies, many of which had been managed by Goldman Sachs for a decade or more.  Assets under management at the investment firm increased by 8% in the third quarter, and it has its eye on fresh prizes with new acquisitions being sized up. Petershill has capitalised on the hunger for private equity investments in an era of ultra-low rates, enabling firms to borrow cheaply to finance takeovers.  With an increase in interest rates looming there is a risk that appetite for such assets may wane, and that might partly account for a slight nudging downwards in the share price over the past month." About Hargreaves Lansdown Over 1.67 million clients trust us with £138.0 billion (as at 30 September 2021), making us the UK’s number one platform for private investors. More than 98% of client activity is done through our digital channels and over 600,000 access our mobile app each month. Updated on Nov 30, 2021, 12:19 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkNov 30th, 2021

Inside the New Basketball League Paying High Schoolers Six-Figure Salaries

A lot is riding on Overtime Elite’s fate Most high school hoops players across America—if they’re lucky—travel to their games in a yellow school bus. They might—if they’re lucky—compete in front of the local junior college scout. But members of Overtime Elite, the new professional basketball league for 16-to-19-year old stars, arrive in style, to play before a far more influential audience. On a crisp autumn morning in Atlanta, more than two dozen Overtime Elite (OTE) pros, who make at least six-figure salaries, stepped off a stretch limo bus, one by one. The players entered the brand-new 103,000 sq.-ft. facility built by Overtime, a five-year-old digital sports media startup that developed a huge following after posting Zion Williamson’s high school dunks on Instagram. Waiting for them at OTE’s inaugural “pro day”: some 60 pro scouts, including reps from 29 out of 30 NBA teams, sitting along the sideline and behind the baskets. They leafed through the scouting packet provided by OTE, which included information like the wingspan and hand width of each player plus advanced statistics on their performances during preseason scrimmages, whispering to one another about which ones they were excited to see. [time-brightcove not-tgx=”true”] Andrew Hetherington for TIMEEmmanuel Maldonado, Ryan Bewley, Bryce Griggs, Jalen Lewis of Overtime Elite taking a quick break from warm ups at the practice courts at the OTE arena. Andrew Hetherington for TIMEPlayers stretch next to practice courts at the OTE arena. As the league’s coaching staff led players through NBA-style drills, the scouts eyed Amen and Ausar Thompson, a set of rangy 6-ft. 7-in. twins from Florida who skipped their senior year of high school to join OTE. The brothers made clever dribble moves, before driving down the lane to throw down thunderous dunks. “The Thompson twins are obviously top talents,” says ESPN draft guru Jonathan Givony, who was also in Atlanta for the OTE pro day. “Those guys are ready to be seriously considered as NBA draft picks.” OTE made a strong first impression, but the evaluators universally agreed that not all of the 26 OTE players in the gym were bound for the NBA. Given the supply of global talent chasing that dream, and the precious few spots available, elementary math suggests such an outcome is all but impossible. The coaching came across as high-level. Anton Marshand, a scout for the Cleveland Cavaliers, expects to make frequent trips to Atlanta this season. “For us to be able to evaluate them now and see their growth over time, that’s the key,” says Marshand. “It’s a pro environment.” Andrew Hetherington for TIMEAmen Thompson (#1) of Team OTE on the show court at the OTE arena. Andrew Hetherington for TIMEAusur Thompson and Amen Thompson chat after practice. OTE is launching at a landmark moment in the history of American sports. For decades, talented teenagers in fields like acting and music could monetize their unique gifts by signing lucrative, life-changing financial agreements. But archaic rules and attitudes largely kept athletes from doing the same, preventing them from cashing in until they reached major pro leagues like the NFL or the NBA. Those restrictions are now going the way of the peach basket. In June, the Supreme Court captured these shifting assumptions concerning athletic amateurism in a ruling that prevents the NCAA from capping education-related benefits. In a scathing concurring opinion, Justice Brett Kavanaugh wrote that the business model of the NCAA, an organization that has long kept college athletes from being paid—despite the millions in revenue many of them generate for their institutions—would be “flatly illegal in almost any other industry in America.” About a week later, the NCAA, with public opinion and the highest court in the land turning against its outdated notions of amateurism, relented, and allowed college athletes to profit off their names, images and likenesses. Read More: Why The NCAA Should Be Terrified Of Supreme Court Justice Kavanaugh’s Concurrence Naturally, businesses—many of them upstart tech platforms—have stepped into the fray, hoping to turn a profit by helping young athletes cash in on new opportunities. Brands like Icon Source, INFLCR and PWRFWD are promising to open up sponsorship opportunities, build social media presence and sell the merchandise of college athletes. A company called Opendorse aims to connect athletes with sponsorship opportunities—not unlike, say, how Uber connects drivers with riders, or Airbnb matches hosts and vacationers. With the loosening of name, image and likeness, or NIL, restrictions, Opendorse expects to quadruple its annual revenue in 2021 to more than $20 million. Tim Derdenger, a professor at the Carnegie Mellon Tepper School of Business, estimates that the NIL market for college athletes alone could reach more than $1 billion in five years. But by betting on the popularity of high school basketball players, Overtime is taking a more radical, and potentially transformative, approach. Overtime’s pitch to players: forget college basketball. OTE promises to pay six-figure salaries and offer access to high-level coaching and skill development in a sports-academy setting, to prepare athletes for a pro career. OTE has also hired teachers and academic administrators so that players can secure their high school diplomas. The operation has financial backing from an All-Star investor lineup, which includes Jeff Bezos’ Bezos Expeditions fund, Drake, Reddit co-founder Alexis Ohanian and a slew of NBA players like Kevin Durant, Carmelo Anthony and Trae Young. In March, Overtime raised $80 million. Andrew Hetherington for TIMEPlayers take classes at a WeWork space in the Buckhead neighborhood of Atlanta. Andrew Hetherington for TIMEBryce Griggs and TJ Clark leave the locker room on to the OTE practice courts in Atlanta. Signing with OTE isn’t a decision players take lightly. Under current NCAA rules, athletes with OTE contracts are classified as professional players who have forfeited any eligibility to play college basketball, an enterprise that, despite all its flaws, is a proven path to lifelong educational benefits and the NBA. If an OTE player does not make it to the NBA or secure a professional gig overseas, Overtime is pledging to kick in $100,000 to pay for a student’s college education. “You can’t beat that,” says Bryson Warren, a would-be high school junior from Arkansas who’s eligible for the 2024 NBA draft. “At the end of the day, I can still be a doctor and make NBA money.” For some, however, the OTE deal sounds almost too good to be true. At pro day, the same scouts who looked up to the ceiling of OTE’s airplane-hangar-size structure in wonder, asked the same question: How is OTE going to survive? The sports landscape is littered with failed professional leagues. Overtime has spent millions on a school, a coaching and basketball operations and performance staff rivaling that of NBA teams, not to mention salaries and housing for its players and a massive new structure. Dan Porter, Overtime’s CEO and co-founder, has heard all the skepticism. “Everyone wonders, What’s the business model?” he says. Porter points to OTE’s late-October opening weekend of games as a sign of the league’s promise: he says OTE content generated 23 million views, and 8.8 million total engagements, across social media. Andrew Hetherington for TIMEJai Smith of Team Elite makes his pre-game entrance on the inaugural night of games at the show court at the OTE arena. What’s more, now that top prospects can sign lucrative sponsorship deals while at proven collegiate powers like Duke, Kentucky, and Kansas, OTE may have to increase salary offers, further driving up its costs. And if Overtime’s marketing prowess helps the players build enough of a social media following to make OTE profitable, will that focus on building brands deter from their athletic development? OTE’s bottom line alone can’t thrive; the company needs to produce NBA draft picks. “We told kids when we recruited them,” says OTE director of scouting Tim Fuller, “our national championship is when you shake [NBA commissioner] Adam Silver’s hand.” A lot is riding on OTE’s fate. Success has potential to create economic empowerment and more options for young, mostly Black athletes who for far too long have been funneled into a system that mostly enriches white coaches and administrators, but not them. It could spawn copycats across sports (with the unintended consequence of further igniting the hyperspecialized, hypercompetitive $19 billion youth sports feeder system that often offers parents a false sense of their kids’ pro potential). OTE’s failure, however, might not cost just Bezos and Drake a rounding error of their overall wealth. Much worse, this disruptive idea could derail dreams. A new model OTE placed its recruiting call to Troy Thompson in the spring, at a fortuitous time. Troy’s twin sons, Amen and Ausar, had just played nearly 30 games over five weeks on the AAU circuit, where overuse injuries are becoming more common. The boys, who were based in Florida, had traveled to Illinois, Wisconsin, Arizona, Missouri and Georgia during this swing. They were able to showcase their ability, but the twins barely had time to practice on the all too common travel sports grind. Were they actually improving? “OTE called right when my mind was going, ‘O.K., I’ve got to find a way to slow this thing down,’” says Troy. The OTE offer—a six-figure salary, plus the emphasis on player development in an academy setting—sounded attractive. “It’s like we’re getting to fast-forward their dreams,” says Troy, who works in security. Ausar was on board. Amen, however, took a little more convincing. “He’s hardheaded,” Ausar says of his twin brother, who was sitting next to him during an OTE post–pro day brunch of pancakes, shrimp, lobster, grits and potatoes, served at a Georgia Tech off-campus apartment complex that houses the OTE players. (It abuts a golf course, and includes a leafy courtyard and a pool.) Amen was looking forward to chasing another high school state title. He had always dreamed of playing college basketball, even as a “one-and-done” player who enters the NBA draft after freshman year. Kansas, Florida, Auburn and Alabama had already offered the twins basketball scholarships, and Kentucky had reached out with interest. “It’s just what I’ve known,” Amen says of college basketball. “And it’s shown to be proven.” After “a million conversations,” says Amen, he was on board. He ultimately thought he had outgrown scholastic competition. In Atlanta, the Thompsons mention to TIME that they have just missed their final high school homecoming. But Amen insists he’s still going to prom. “I’m just going to walk in,” says Amen. He quickly realizes party crashing won’t be so simple. “As soon as I left the school, they didn’t let me shoot in the gym anymore,” says Amen. “So, actually, I will need to have a date [from the school] to prom.” Adjusting to Atlanta took some time. At first, Troy says, his sons complained about the OTE curfew. According to OTE’s dean of athlete experience and culture, former 10-year NBA veteran Damien Wilkins, during the week players must be in the residence building at 10 p.m., and in their apartments at 11 p.m. But Amen and Ausar have gotten accustomed to the rules, and they insist they have no regrets about forgoing their senior year of high school, and the potential to win a national championship in college, to join OTE. Troy believes them. “I guess they’re loving it where they are,” he says. “Because, guess what? Dad hardly ever gets a phone call.” The OTE weekday starts around 9 a.m. when the players arrive—on the limo bus—at school. (Starting in early November, classes will be held at the OTE facility; before then, while building construction was being completed, the classes took place at a WeWork space in Atlanta’s Buckhead neighborhood.) On an October day, one group of students are solving radical expressions in math; in social studies, a trio of players listen to a lecture about English colonial labor systems. A skeleton stands in a common area: the science teacher is reviewing anatomy. Students work on their “persuasive essays,” which they must turn into a 30–60 second commercial spot. Ausar, reading from a marble notebook, touts the benefits of water aerobics: “Who doesn’t love fun times in the pool?” Amen has picked stretching. “Remember, stretching over stress,” Amen says, snapping his fingers and pointing to the camera. Andrew Hetherington for TIMEPlayers take classes at a WeWork space in the Buckhead neighborhood of Atlanta. Andrew Hetherington for TIMEOvertime Elite players relax between classes at the WeWork space. Academics last around 3.5 to 4 hours a day, before the players grab lunch and head to basketball practice. Class sizes are small: the student-teacher ratio rarely exceeds 4 to 1. OTE’s academic head, Maisha Riddlesprigger—Washington, D.C’s. 2019 principal of the year—has heard too many times for her liking the assumption that OTE’s academic component serves as window dressing. “I think that comes from this deficit mindset that you can’t be an athlete and a scholar at the same time,” says Riddlesprigger. Veteran educator Marcus Harden, OTE’s senior administrator for academics and development, admits he worried that these high school juniors and seniors with healthy bank accounts and pro basketball ambitions would tune out classwork. And while some OTE players are more invested in school than others—fighting student phone-scrolling habits in class is an ongoing battle—Harden insists that overall, the students have exceeded expectations. “We would be negligent if we sent them out into the world with fake diplomas,” says Harden. “Even with the short day, I can say we’re doing this with integrity.” For the sake of students who might not make it in basketball, OTE must deliver on this promise. Still, former NBA player Len Elmore, a Harvard Law School grad and current senior lecturer at Columbia University’s sports management program, worries that even if the players who get injured or don’t pan out do return to college, they still might be worse off—savings accounts notwithstanding. “Come on, we’re talking about 17- and 18-year-olds who now have fizzled out at their dream,” says Elmore. “And now you expect them to go to a college that they were recruited by, or that they could have been recruited by, and enroll and go to class and watch other guys playing college basketball, knowing that they could have done that? That to me could also create some mental health issues.” ‘It’s lit’ When Porter, the OTE CEO, was head of digital at superagency WME in 2016, he spotted a shift in the way Gen-Z and younger millennials consumed sports content. Young people were less interested in sitting in front of a TV to watch live basketball or football games. They craved stories, personalities and highlights. They wanted it on demand, on their mobile devices, specifically on the social media platforms that spoke best to them, like Instagram. Porter co-founded Overtime late that year, focusing at first on high school basketball. A proprietary technology allowed videographers to shoot clips in gyms across the country and upload them to the cloud; the company’s social media editors fired off their favorite highlights. Williamson, who despite being built like an offensive lineman could throw down 360-degree slams on his comically inferior schoolboy competition, emerged as Overtime’s first star. The company built a young digitally-native cult following that has grown to more than 50 million followers across Instagram, TikTok, Snapchat, YouTube and other platforms. “If you are an ESPN or a traditional publisher, you can’t appeal to a young audience with a bunch of traditional sports programming,” says Porter. “You also can’t go on your accounts, and be like, ‘It’s lit,’ and a bunch of 50-year-old guys who are looking to figure out who they are going to start on their fantasy team are like, ‘I don’t understand what this is.’” Read more: As College Athletes Finally Start Cashing In, Entrepreneurs Big And Small Also Look To Score Overtime has since branched out into e-commerce, as well as longer-form programming, like a documentary about current Chicago Bears rookie quarterback Justin Fields that lives on YouTube (and attracted some 426,000 views). Blue-chip companies like Gatorade, McDonald’s and Nike have advertised on the platform; Rocket Mortgage sponsored a post in which Miami Dolphins rookie wide receiver Jaylen Waddle looks for houses in South Florida. When Overtime was recruiting former Sacramento Kings and Philadelphia 76ers exec Brandon Williams to run OTE’s basketball operations, Williams, who was previously unfamiliar with the brand, knew he needed to consider the offer when his 10-year-old son gushed over the Overtime stickers that were sitting on his desk—he told Dad Overtime was kind of a big deal. Later, when some little kid spotted Williams wearing an Overtime shirt at an airport, the boy curved his hands into an “O”—a reference to the Overtime logo—as if approving Williams’ youth cred. Andrew Hetherington for TIMEBryce Griggs of OTE with the ball during the inaugural night of games in the show court at the OTE arena. Andrew Hetherington for TIMEThe OTE bench watches the game at the show court at the OTE arena A few factors coalesced to give birth to Overtime Elite. For one thing, Porter got weary of hearing feedback from college basketball programs that they appreciated Overtime giving their recruits exposure on the high school level, since the schools could then capitalize on their popularity. “I’m like, ‘That’s good for you, but that’s not very good for me,’” says Porter. An Overtime-branded league could keep personalities in the company’s ecosystem and give the startup a valuable piece of intellectual property. And the experience of another early Overtime star, current Charlotte Hornets point guard LaMelo Ball, opened Porter’s eyes. Ball spent one of his high school years—and part of the season he would have typically spent in college before becoming eligible for the NBA draft—playing overseas in Lithuania and Australia. He became the third overall pick of the 2020 NBA draft, and won last season’s rookie of the year honors. To Porter, Ball’s experience proved that talented players were willing to try a different path to the NBA. Former NBA commissioner David Stern, who passed away in January 2020, initially told Porter and Overtime’s other co-founder, Zack Weiner, that they were crazy. Overtime already had a compelling core business, and Stern knew from experience the hassles of running a sports league. But Stern eventually came around to the idea; his son, Eric, is one of OTE’s investors. Overtime Elite has signed multiyear, multimillion-dollar sponsorship agreements with Gatorade and State Farm. Both companies have prominent signage at the 1,100-seat “OTE Arena,” which is also part of the 103,000-sq.- ft. structure in Atlanta. OTE’s showcase court, which hosted its first set of games on Oct. 29, features LED lights and a Jumbotron. Topps is producing trading cards for OTE players; Porter says that “hundreds of thousands of dollars’” worth of cards have already sold, and that they should start appearing in Walmart, and hopefully Target, in December or January. Some NFT initiatives are sure to follow. OTE is not live-streaming games yet—Porter wants to create scarcity and buzz—but the content team is creating a mix of highlight packages and an episodic behind-the-scenes docuseries on the players. Overtime—which has yet to turn a profit—expects annual revenue to reach up to $300 million in five years, with Overtime Elite bringing in about a third of that haul. The company, and its investors, are betting that Overtime’s built-in brand notoriety and audience will differentiate OTE from other upstart sports leagues that have failed. “We don’t have that same kind of cold-start problem,” says Porter. ‘Dunk lines for content’ But the high stakes aren’t limited to Overtime’s bottom line. Players are placing their futures in the company’s hands, which puts the onus on OTE’s basketball development staff to ensure that, at worst, each player receives at least a lucrative pro offer overseas. The players do have impressive tools at their disposal. During one practice, for example, a biomechanical engineering Ph.D. rushes to tuck a microchip into the shorts of a few players: this technology allows OTE’s four-person analytics and data science team, led by applied math PhD. and former Philadelphia 76ers researcher Ivana Seric, to track how far and fast players move during practices. This information allows the coaches to better control wear and tear. Cameras atop each shot clock on the OTE practice courts can show, for example, how far to the left or right players are missing their shots. They can adjust accordingly. A 10-person on-court coaching staff, led by former UConn coach Kevin Ollie (who won the 2014 men’s national championship with the Huskies) fans out at four different baskets during practice, allowing players to work on team concepts, like defending screens and pick-and-rolls, and individual skills (they take ample corner threes and floaters, both key tricks of the NBA trade). Like any upstart, however, OTE has experienced hiccups. When Porter came to visit the academic session, a couple of players were unafraid to point out to him that the flimsy boxed roast beef and cheese sandwiches served for lunch—they may have fit it at the Fyre Festival—were subpar nourishment before practice. “This looks scary,” Porter admitted, eyeing the sandwich. “I wouldn’t eat it.” OTE launched in March, and settled on Atlanta as its home in May, meaning the facility, which comes chock-full of amenities like two oversize bathtubs for recovery and a players’ lounge and NFL-size weight room—as well as classroom and office space—needed to be constructed in five months. A few days before OTE’s opening games Halloween weekend, Ollie shouted instructions at practice over hardhats’ drilling; construction detritus forced one door to remain open, allowing a cool Georgia draft to accompany the players on the practice floor. Andrew Hetherington for TIMEKevin Ollie, Head Coach and Director of Player Development of the OTE coaches Team Elite during the inaugural night of games at the show court at the OTE arena. Andrew Hetherington for TIMEYoung fans in the stands watch the action at the OTE arena. While OTE deserves credit for executing its vision so quickly, it could be trying too much too soon. “They’re kind of building the parachute after they jumped out of the plane here,” says Dr. Marcus Elliott, founder and director of P3, a southern California-based sports science institute that provides advanced biomechanical analyses of elite athletes. Ollie was unhappy with this team’s effort at the first practice after pro day—and let the players know it. The energy was far from NBA-level, he told them. This scolding didn’t stop some of the players from lining up near a basket afterward, to show off their leaping ability for Overtime’s ubiquitous cameras. “Dunk lines for content,” said an OTE staffer who was looking on. Dunk lines for content. You probably couldn’t find a more fitting phrase to encapsulate the year 2021 in sports media and culture. Or a more spot-on reminder that kids are placing their basketball gifts in the hands of a digital marketing juggernaut. “I see the potential of this disruption to lead to a much more just and better world for these young athletes,” says Elliott. “But I also see lots of peril. It’s not about getting paid 100 grand to play as a 16- or 17-year-old. It’s about getting your second or third contract in the NBA. And those are challenging and sophisticated blueprints to put together. And so the fact that their DNA has nothing to do with development, that’s concerning.” Andrew Hetherington for TIMEA player hangs onto the net at the OTE practice courts. Overtime insists all incentives align. The company has hired experts like Ollie and the data scientists because the growth of OTE’s business hinges on the Thompson twins, and others, achieving their basketball dreams. After practice, Amen watches film with an OTE assistant coach; Ausar takes part in a small group shooting session that ends at 6 p.m. They both know that to make it to the next level, they must improve on their outside shooting. “I’m going to be in the gym,” says Ausar. “I have nothing better to do. I don’t do anything in Atlanta. I just chill in my room and watch basketball.” Amen and Ausar have talked to each other about backup careers; they both believe they’d be solid hoops commentators. But that can wait. When asked where they both see themselves in two years, neither brother hesitates. Nor do any of the OTE players when asked about their futures. “The NBA.”.....»»

Category: topSource: timeNov 9th, 2021

Frenzied Futures Rally Fizzles As All Eyes Turn To Fed"s Taper Announcement

Frenzied Futures Rally Fizzles As All Eyes Turn To Fed's Taper Announcement US futures and European bourses retreated slightly from record highs as investors weighed the ever worsening supply crunch and virus curbs in China against strong earnings with all eyes turning to the conclusion of the Fed's 2-day meeting tomorrow, when Powell will announce the launch of a $15BN/month taper. At 7:20 a.m. ET, Dow e-minis were up 7 points, or 0.02%, S&P 500 e-minis were down 0.50 points, or 0.01%, and Nasdaq 100 e-minis were down 28.75 points, or 0.18%. Iron-ore futures tumbled on shrinking steal output in China. Tesla led premarket losses in New York. Investors paused to reflect on a rally that’s taken U.S. and European stocks to record highs. With a post-pandemic supply crunch stoking inflation and pushing central banks to tighten monetary policy, they have begun to question valuations. Economic recovery is also under strain as countries from China to Bulgaria report rising Covid cases. Both the S&P 500 Index and the Dow have been scaling new peaks as U.S. companies post another stellar quarter for earnings. Of the 295 companies in the equity benchmark that have reported results, 87% have either met or surpassed estimates. Dow futures slipped after the underlying gauge briefly surged past the 36,000 mark on Monday. Russell 2000 contracts rose. Bonds from Europe to the U.S. jumped after Australia signaled patience with rate increases despite abandoning Yield Curve Control due to "economic improvement." Yields on the two-year and five-year Treasuries fell as the RBA joined global central banks inching closer to policy tightening. However, the central bank’s insistence on remaining patient with rate hikes pushed traders to pare back hawkish bets in Australia as well as in global bond markets during European hours. “The Fed meeting could still shake the markets, because even though we know the concrete outcome of the meeting, which is the opening bell of the QE tapering, the risks remain tilted to the hawkish side,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “Still, investors prefer seeing the glass half full.” In early trading, Tesla tumbled 5%, retreating from a gamma-squeeze record on Monday after Elon Musk said the carmaker hasn’t yet signed a contract with Hertz Global for Model 3 sedans. Chegg slumped 32% after the online-education company cut revenue forecasts and its results missed estimates, prompting a raft of downgrades. Clorox rose 1.6% after the bleach maker posted upbeat first-quarter results. Simon Property Group added 4.2% after the mall operator raised its 2021 forecast for profit and quarterly dividend. Pfizer gained 2.4% after the drugmaker boosted (get it "boosted"?) its full-year sales forecast for the company’s COVID-19 vaccine to $36 billion. Here are some of the biggest U.S. movers today: Tesla drops as much as 6.9% in premarket trading after closing at a record on Monday after Elon Musk said the electric vehicle-maker hasn’t yet signed a contract with Hertz Global. Chegg slumps 31% after the online education company slashed revenue forecasts and posted quarterly results that missed estimates. Novavax gains 5.3%, signaling an extension of Monday’s 16% rally, amid optimism over Covid vaccine approvals. Triterras tumbles as much as 20% after the short seller target said it encountered an “unanticipated delay in the finalization” of an independent audit of its financial statements. Teva Pharmaceutical Industries depositary receipts rise 7.7% and Endo International (ENDP US) gains 6.3% after the firms joined other former opioid makers in scoring a litigation win. Geron gains 4.5% and and SAB Bio (SABS US) soars 39% after Baird starts coverage of both with outperform ratings. Cryptocurrency-related stocks gained in premarket trading on Tuesday, as Bitcoin climbed and Etherium hit a record high.    NXT-ID up 38.18% premarket, Marathon Digital +4.0%, Riot Blockchain +2.9%, Bit Digital +2.5%, Canaan +3.2%, Coinbase +2.0%, MicroStrategy +1.5% While stocks continue to trade in a world of their own, just shy of all time highs, bond and currency markets are bracing for the Fed to announce a tapering of asset purchases as an initial step to eventually raising interest rates to contain inflation. Equity markets, on the other hand, are focusing on earnings growth and valuations. Meanwhile, mixed data on the global economic revival is further clouding the picture as the pandemic is making a comeback in parts of the world. “We expect volatility in financial markets to remain high as not only the Fed, but other central banks around the world, extract liquidity to combat the rise in inflation,” Lon Erickson, portfolio manager at Thornburg Investment Management, wrote in a note. Despite Fed rhetoric, “we’ve started to see the market price in earlier policy rate moves, perhaps losing confidence in the ‘transitory’ nature of inflation.” In Europe, the Stoxx Europe 600 Index slid 0.1% from a record reached on Monday, led lower by miners and travel companies. Spain's IBEX and the UK FTSE 100 dropped 0.6%. DAX outperforms. BP dropped 2.8% in London even as the oil giant announced an additional $1.25 billion buyback. HelloFresh jumped 14%, the most this year, after the German meal-kit company raised its full-year outlook. Basic-materials stocks were the weakest of 20 sector indexes in Europe as falling iron ore and steel prices weigh on miners and steel producers. Here are some of the biggest European movers today: HelloFresh shares surge as much as 16%, their best day since Dec. 2020, with analysts positive on the meal-kit maker’s guidance hike. Jefferies says that the company’s 3Q results included “little not to like.” Demant shares rise as much as 6.5%, the most intraday since March 23, after the hearing-aid maker raised its earnings forecast and topped estimates. Fresenius SE shares gain as much as 6.5% after reporting 3Q earnings slightly ahead of analyst estimates, with Jefferies saying the focus lies on the company’s cost-savings efforts and future plans for Kabi. Fresenius Medical shares up as much as 4.5% after posting 3Q earnings. Company’s FY22 recovery is “key to share price development from here,” according to Jefferies. Sinch shares drop as much as 17%, the most on record, after reporting 3Q results which showed organic growth slowing down, a trend Handelsbanken expects to worsen. Standard Chartered shares fall as much as 9.5%, the most since March 2020, as the lender’s third-quarter margins disappointed amid suppressed Asia rates and analysts flagged weakness in its retail operations. Flutter shares drop as much as 9% in London, the most intraday since March 2020, after the gaming company cut its profit outlook on unfavorable sporting results and a regulatory change in the Netherlands. Analysts expect ex-U.S. earnings consensus to fall. Steel makers underperform, with Kloeckner -5.3%, ArcelorMittal -2.9%, ThyssenKrupp -2.5%, Salzgitter -2.5% Asian stocks dipped, led by Chinese shares on concerns about the impact of measures to curb Covid-19 infections, while financials underperformed ahead of key central bank decisions this week. The MSCI Asia Pacific Index erased earlier gains of as much as 0.4% to fall 0.2% in afternoon trading. Blue-chip financial stocks including China Merchants Bank and Westpac Banking were among the biggest drags. Traders are focused on this week’s U.S. Federal Reserve meeting amid concerns about elevated inflation. Sentiment turned sour after authorities in Beijing halted classes at 18 schools amid Covid-19 resurgence. China’s benchmark CSI 300 Index fell 1%, while Hong Kong’s Hang Seng Index reversed an earlier gain of 1.9% to close in negative territory.  China’s CSI 300 Index falls by as much as 1.9% after Beijing’s suspension of classes across 18 schools heightened concerns over the impact of the recent Covid-19 outbreak. China Tourism Group Duty Free slumped as much as 9.8%, the worst performer in the benchmark and one of its biggest drags. The Shanghai Composite Index also extends decline to 1.9% while the ChiNext Index pares a 1.2% gain to trade little changed. “Investors are worried that Beijing’s virus measures may cool down China’s economic activities and hamper its recovery,” said Steven Leung, executive director at UOB Kay Hian in Hong Kong. Asian stocks rose on Monday, a turnaround after a drop of 1.5% during last week, the worst such performance since early October. Shares have been whipsawed by ongoing concern over supply-chain constraints impacting industries such as technology and auto making. Investors are also parsing through earnings data, with more than half of the companies on MSCI’s Asia gauge having reported results.  “At this level, it can be said that investors are no longer pessimistic but are not yet hopeful either,” Olivier d’Assier, head of APAC applied research at Qontigo, wrote in a note.  Japanese stocks fell, halting a two-day rally, as some investors adjusted positions after the market jumped yesterday.  The Topix index slid 0.6% to 2,031.67 at the 3 p.m. close in Tokyo, while the Nikkei 225 declined 0.4% to 29,520.90.  Mitsui & Co. contributed most to the Topix’s loss, decreasing 4%. Out of 2,181 shares in the index, 538 rose and 1,583 fell, while 60 were unchanged. Both the Topix and Nikkei 225 gained more than 2% on Monday after the ruling coalition secured an election victory that was better than many had expected. Japan’s stock market will be closed Wednesday for a national holiday. Australian stocks slide, with the S&P/ASX 200 index falling 0.6% to close at 7,324.30, after the Reserve Bank of Australia abandoned a bond-yield target, following an acceleration in inflation that spurred traders to price in higher borrowing costs. Banks and miners slumped, while real estate and consumer discretionary stocks climbed. Goodman Group was the biggest gainer after the company raised its full-year guidance. Insurance Australia Group tumbled after the firm cut its reported insurance margin forecast for the full year.  In New Zealand, the S&P/NZX 50 index fell 0.3% to 12,992.50. In rates, Treasuries were higher across both the front-end and belly of the curve, led by bull-steepening gains across European bonds with peripherals outperforming. Treasury yields were lower by 2bp-3bp across front-end of the curve, steepening 2s10s by that amount with 10-year little changed around 1.55%; German 10-year is lower by ~4bp, U.K. by ~1bp. Aussie front-end rallied during Asia session after the RBA abandoned its yield target but maintained its bond buying pace; euro-zone money markets subsequently pared the amount of ECB policy tightening that’s priced in. European fixed income rallied with curves bull steepening. Belly of the German curve outperforms, trading ~2-3bps richer to gilts and USTs respectively. Peripheral spreads tighten; long-end Italy outperforms, narrowing ~6bps near 170bps. In FX, the Bloomberg Dollar Spot Index inched up and the greenback advanced versus all its Group-of-10 peers apart from the yen; Treasury yields fell by up to 3bps as the curve bull- steepened. The euro hovered around $1.16 while Italian bonds and bunds jumped, snapping three days of declines and tracking short-end Australian debt. The Australian dollar declined against all Group-of-10 peers and Australian short-end bond yields fell after the central bank dispensed with its bond-yield target and damped expectations of interest-rate hikes.  One-week volatility in the Australian dollar dropped a second day as spot pulls back from its 200-DMA of 0.7556 after the central bank’s policy decision. The pound fell for a third day, to nearly a three-week low, as investors weighed up the possibilities for the Bank of England’s policy meeting on Thursday. The yen strengthened ahead of a local holiday in Japan and amid souring market sentiment. In commodities, crude futures hold a narrow range with WTI near $84 and Brent stalling near $85. Spot gold drift close to $1,795/oz. The base and ferrous metals complex remains under pressure: LME nickel and zinc drop ~1%, iron ore down over 6%. Looking at the day ahead now, and the data highlights include the October manufacturing PMIs for the Euro Area, Germany, France and Italy. Central bank speakers will include the ECB’s Elderson and de Cos, whilst today’s earnings releases include Pfizer, T-Mobile, Estee Lauder and Amgen. Finally, there are US gubernatorial elections in Virginia and New Jersey. Virginia is the more interesting race from a macro perspective: a big, diverse state that has bounced between Democratic and Republican candidates on the national stage. So it could provide the first read of American voter sentiment heading into next year’s mid-terms. Market Snapshot S&P 500 futures little changed at 4,605.25 STOXX Europe 600 down 0.2% to 477.90 MXAP down 0.2% to 198.29 MXAPJ down 0.2% to 646.50 Nikkei down 0.4% to 29,520.90 Topix down 0.6% to 2,031.67 Hang Seng Index down 0.2% to 25,099.67 Shanghai Composite down 1.1% to 3,505.63 Sensex down 0.3% to 59,984.88 Australia S&P/ASX 200 down 0.6% to 7,324.32 Kospi up 1.2% to 3,013.49 German 10Y yield little changed at -0.14% Euro little changed at $1.1603 Brent Futures up 0.5% to $85.17/bbl Gold spot down 0.1% to $1,791.04 U.S. Dollar Index little changed at 93.89 Top Overnight News from Bloomberg Federal Reserve policy makers are expected to announce this week that they will start scaling back their massive asset-purchase program amid greater concern over inflation, economists surveyed by Bloomberg said President Emmanuel Macron backed away from his imminent threat to punish the U.K. for restricting the access of French fishing boats to British waters, saying he would give negotiations more time The Reserve Bank of Australia’s dovish policy statement and downplaying of the inflation threat is likely to reignite a steepening of the yield curve from near the flattest in a year. The spread between three- and 10-year yields jumped as much as 10 basis points on Tuesday after central bank Governor Philip Lowe cooled expectations for any near-term interest-rate increase even though the RBA scrapped its yield- curve control policy A more detailed look at global markets courtesy of Newsquawk Asian equities traded mixed as upcoming risk events kept participants cautious and offset the momentum from the US, where stocks began the month on the front foot in a continuation of recent advances to lift the major indices to fresh record highs. Nonetheless, ASX 200 (-0.6%) was pressured by underperformance in the top-weighted financials sector and notable weakness in mining names, while quasi holiday conditions due to the Melbourne Cup in Australia’s second most populous state of Victoria and the crucial RBA policy announcement in which it maintained the Cash Rate Target at 0.10% but dropped the April 2024 government bond yield target and tweaked its guidance, further added to the cautious mood. Nikkei 225 (-0.4%) was lacklustre as it took a breather from the prior day’s surge after stalling just shy of the 29,600 level and with the index not helped by a slight reversal of the recent beneficial currency flows. Hang Seng (-0.3%) and Shanghai Comp. (-1.4%) were varied as the former initially atoned for yesterday’s losses led by strength in tech and biotech including Alibaba shares with its Singles Day sales event underway. In addition, Hong Kong participants were seemingly unfazed by the recent weaker than expected GDP for Q3 as the data showed it narrowly averted a technical recession, although the gains were later wiped out and the mainland suffered following another substantial liquidity drain and with Chinese commodity prices pressured including iron futures which hit limit down. Finally, 10yr JGBs were flat with price action muted despite the subdued mood for Tokyo stocks and with the presence of the BoJ in the market for over JPY 1tln of JGBs in mostly 1yr-5yr maturities, doing little to spur demand. Top Asian News Bank of Korea Minutes Show Majority Sees Need for Rate Hike China’s Gas Prices Are Surging Just as Coal Market Cools Off China Shares Fall as Shut Schools Spark Concern on Virus Curbs SMBC Nikko Is Working With Securities Watchdog on Investigation Bourses in Europe have now adopted more of a mixed picture (Euro Stoxx 50 +0.1%; Stoxx 600 -0.2%) Stoxx 600 following the lacklustre cash open and downbeat APAC handover. US equity futures meanwhile are somewhat mixed with the RTY (+0.2%) narrowly outperforming the ES (-0.1%), YM (Unch), and NQ (-0.2%) – with the latter also seeing some pressure from Tesla (-6.0% pre-market) after CEO Musk said no deal was signed yet with Hertz and that a deal would have zero impact on Tesla's economics. Back to Europe, a divergence is evident with the DAX 40 (+0.4%) outpacing amid post-earnings gains from HelloFresh (+14%), Fresenius SE (+4.6%) and Fresenius Medical Care (+2.0%). The FTSE 100 (-0.5%) meanwhile lags with the Dec futures and cash both under 7,250 – with the index pressured by heft losses in some of its heaviest sectors. Basic resources sit at the foot of the bunch due to softer base metal prices across the board, which saw Dalian iron ore futures hit limit down at least twice in the overnight session. Travel & Leisure closely follows as sector heavyweight Flutter Entertainment (~23% weighting) slipped after cutting guidance. Oil & Gas and Banks closely follow due to the recent declines in crude (and BP post-earnings) and yields respectively. On the flip side, some of the more defensive sectors stand at the top of the leader board with Healthcare and Food & Beverages the current winners. In terms of other individual movers, THG (-6.1%) resides near the bottom of the Stoxx 600 second-largest shareholder BlackRock (9.5% stake) is reportedly planning to sell 55mln shares equating to around 4% of its holding. It’s also worth noting Apple (-0.1% pre-market) has reportedly reduced iPad production to feed chips to the iPhone 13, according to Nikkei sources; iPad production was reportedly -50% from Apple's original plans, sources added. In terms of broad equity commentary, Credit Suisse remains overweight value in Europe, whilst raising US small caps to overnight and reducing the UK to underweight. Looking at the rationale, CS notes that European value tend to outperform while inflation expectations or Bund yields rise. US small caps meanwhile have underperformed almost all macro drivers, whilst earnings momentum takes a turn for the better. Finally, CS argues UK small caps are much more cyclical than large caps and could face further tailwinds from UK’s macro landscape and with some tightening potentially on the table this week. Top European News BP Grows Buyback as Profit Rises on Higher Prices, Trading Ferrexpo Drops as Credit Suisse Downgrades on Lower Pricing OPEC+ Gets a Warning From Japan Before Key Supply Meeting THG Extends Decline as Key Shareholder BlackRock Reduces Stake In FX, the Aussie has reversed even more sharply from its recent core inflation and yield induced highs in wake of the RBA policy meeting overnight and confirmation of the moves/tweaks most were expecting. To recap, YCT was officially withdrawn after the Bank allowed the 3 year target rate to soar through the 0.1% ceiling and guidance on rates being held at the same level until 2024, at the earliest, was also withdrawn and replaced by a more flexible or conditional timeframe when inflation is sustainably in the 2-3% remit range. However, Governor Lowe retained a decidedly dovish tone in the aftermath, pushing back against more aggressive market pricing for tightening and stressing that it is entirely plausible that the first increase in the Cash Rate will not be before the maturity of the current April 2024 target bond, though it is also plausible that a hike could be appropriate in 2023 and there is genuine uncertainty as to the timing of future adjustments in the Cash Rate. Aud/Usd is now closer to 0.7450 than 0.7550 and the Aud/Nzd cross nearer 1.0400 than the round number above with added weight applied by weakness in copper and iron ore prices especially (latter hit limit down on China’s Dallian exchange). Meanwhile, the Kiwi also felt some contagion after a drop in NZ building consents and as attention turns to the Q3 HLFS report, with Nzd/Usd eyeing 0.7150 having got to within pips of 0.7200 only yesterday. EUR/DXY - Technical forces seem to be having an influence on direction in Eur/Usd amidst somewhat mixed Eurozone manufacturing PMIs as the headline pair topped out precisely or pretty much bang on a 50% retracement of the reversal from 1.1692 to 1.1535 at 1.1613 and subsequently probed the 21 DMA that comes in at 1.1598 today. Moreover, the Euro appears reliant on hefty option expiry interest for support given 1.9 bn rolling off at 1.1585 if it cannot reclaim 1.1600+ status, as the Dollar regroups and trades firmer against most majors, bar the Yen. Indeed, in stark contrast to Monday, the index has bounced off a marginally deeper sub-94.000 low between tight 93.818-985 confines, albeit in cautious, choppy pre-FOMC mood. CHF/CAD/GBP - No traction for the Franc via firmer than forecast Swiss CPI or a faster pace of consumption, while the Loonie is on the defensive ahead of Canadian building permits and Sterling is still on a softer footing awaiting the BoE on Thursday alongside what could be a make or break meeting in France where UK Brexit Minister Frost is due to tackle the fishing dispute face-to-face with Secretary of State for European Affairs Beaune. Usd/Chf is straddling 0.9100, Usd/Cad is hovering around 1.2400, Cable pivots 1.3650 and Eur/Gbp is probing 0.8500. JPY - As noted above, the Yen is bucking the broad G10 trend with gains vs the Greenback amidst appreciably softer US Treasury and global bond yields, as Usd/Jpy retreats from 114.00+ peaks to test support circa 113.50. In commodities, WTI and Brent front-month futures are moving sideways ahead of the OPEC+ meeting on Thursday, whereby expectations are skewed towards an unwind of current curbs by 400k BPD despite outside pressure for the group to further open the taps. Ministers, including de-facto heads Russia and Saudi, have been vocal in their support towards a maintained pace of production hikes. There have also been reports of Angola and Nigeria struggling to keep up with the output hikes, which may further dissuade the producer to further ramp up output. The morning also saw macro commentary from BP, whereby the CFO suggested global oil demand has returned to levels above 100mln BPD. The Co. expects oil prices to be supported by continued inventory draw-down, with the potential for additional demand from gas to oil switching. OPEC+ decision making on production levels continues to be a key factor in oil prices and market rebalancing. Gas markets were very strong in the quarter and BP expect the market to remain tight during the period of peak winter demand. In the fourth quarter industry refining margins are expected to be lower compared to the third quarter driven by seasonal demand. WTI Dec trades on either side of USD 84/bbl and Brent on either side of USD 85/bbl. Elsewhere, spot gold and silver are relatively flat with the former in close proximity to its 200 DMA (1,790/oz), 100 DMA (1,785/oz), 50 DMA (1,780/oz) and 21 DMA (1,778/oz). Over to base metals, Dalian iron ore futures were in focus overnight after prices hit limit down at least twice and nearly hit 1yr lows amid high supply and lower demand, with the latter namely a function of China cutting steel output forecasts. LME copper meanwhile has clambered off worst levels (USD 9,430/t) but remains just under USD 9,500/t as prices track sentiment. US Event Calendar Oct. Wards Total Vehicle Sales, est. 12.5mm, prior 12.2mm DB's Jim Reid concludes the overnight wrap The RBA press conference is still going onas we type this but the key outcome has been that they’ve abandoned the 0.1% target for the April 2024 bond. However they seem to be making it clear in the presser that their expectation is only that rate hikes might creep into 2023 rather than 2024 previously. The governor has said that market expectations of hikes in 2022 are “a complete overreaction to recent inflation data”. So they are trying to pull back the market expectations that ran away from them last week. The reality is that they’ll now be hostage to the data. They don’t expect inflation to be a big problem going forward but time will tell. Yield moves have been relatively subdued but are generally lower with a small steepening seen. 2y (-0.2bps), 3y (-4.5bps) and 5y (-3.3bps) are falling but with the 10y (+0.3bps) steadier. Ahead of the RBA, risk assets got the month off to a strong start as investors awaited tomorrow’s all-important Federal Reserve meeting conclusion. However there was little sign of caution in equities as a range of global indices advanced to all-time records yesterday, including the S&P 500 (+0.18%), the NASDAQ (+0.63%), the STOXX 600 (+0.71%), and the MSCI World Index (+0.50%). Energy (+1.59%) and consumer discretionary (+1.46%) were the clear outperformers in the S&P, with Tesla (+8.49%) doing a lot of the work of boosting the latter sector. While it’s a busy week for earnings, only 2 S&P companies reported during trading hours yesterday, so it didn’t materially drive sentiment. 11 more companies reported after hours, with 7 beating earnings estimates. Elsewhere, the Dow Jones actually crossed the 36,000 mark in trading for the first time. Readers of a certain age may remember an infamous book published in 1999 called “Dow 36,000” during the dot com bubble, which predicted the Dow would more than triple over the next 3-5 years to that level. In reality, even the half way mark of 18k wasn’t reached until late-2014, and of course it took 22 years to get to yesterday’s 36k milestone. So a good case study of the heady optimism many had back then. We’ll see if yesterday’s milestones are the first step on the path to Dow 100k, but one asset inching its way to $100 in oil, with yesterday seeing a fresh recovery in many commodity prices after their declines last week. Both WTI (+0.57%) and Brent crude (+0.39%) posted gains, with copper (+0.58%) also seeing a modest advance. Agricultural prices set fresh records, with wheat prices (+3.17%) climbing above $8/bushel in intraday trading for the first time since 2012. It may be a pretty busy macro week with the Fed, BoE and the US jobs report, but the OPEC+ meeting on output this Thursday could also be a vital one for the global economy in light of the resurgence in energy prices lately. We’ve already heard some frustration at the group from a number of countries, with President Biden saying this Sunday at the G20 that “I do think that the idea that Russia and Saudi Arabia and other major producers are not gonna pump more oil so people can have gasoline to get to and from work for example, is … not right”. So one to keep an eye on, with potentially big implications for inflation and hence central banks. Staying on an inflation theme, investors got a further glimpse of ongoing supply chain issues from the ISM manufacturing print as well yesterday. The overall reading for October actually came in slightly above expectations at 60.8 (vs. 60.5 expected), but the prices paid order similarly rose to 85.7 (vs. 82.0 expected) in its second successive monthly increase. Bear in mind it’s been above the 80 mark for all but one month so far this year, and there were further signs of supply-chain issues from the supplier delivery time measure, which hit a 5-month high of 75.6. With markets attuned to inflation and the potential for plenty of central bank action this week, sovereign bonds came under further pressure yesterday on both sides of the Atlantic, even if they finished well off the yield highs. Yields on 10yr Treasuries ended the session up +0.7 bps to 1.56%, which comes as markets are almost pricing an initial full hike from the Fed by the time of their June 2022 meeting. However we were off the day’s high of 1.60%. Meanwhile in Europe, yields on 10yr bunds (+0.4 bps), OATs (+0.3 bps) and gilts (+2.8 bps) moved higher as well, but interestingly we also saw peripheral sovereign bond spreads closing in on their highest levels for some time. Indeed by the close of trade yesterday, the gap between Italian (+4.4 bps) and Spanish (+2.2 bps) 10yr yields over bunds had widened to their biggest level in almost a year. Meanwhile, 10yr breakevens widened +4.5 bps in the UK and +2.0 bps in Germany. US breakevens were the outlier, narrowing -7.5 bps to 2.51% and now -18.0 bps below the highs reached just a week ago. In Asia, the Nikkei 225 (-0.56%) and the Shanghai Composite (-0.62%) are trading lower, while the Hang Seng (+0.74%) and the KOSPI (+1.36%) are edging higher. Some of the news weighing on Chinese stocks are surging gas prices, which reached a record high today. Elsewhere, the S&P 500 futures (-0.22%) is down this morning and the 10y US Treasury is at 1.55% (-0.9bps). Heads of state gave their opening salvos at COP26 yesterday. The biggest commitment came from Indian Prime Minister Narendra Modi, who said the world’s third-biggest emitter will have zero net pollution by 2070, while also making more near-term commitments to increase reliance on non-fossil fuel energy sources. Looking at yesterday’s other data, German retail sales unexpectedly fell by -2.5% in September (vs. +0.4% expected). However, the final UK manufacturing PMI for October was revised up a tenth from the flash reading to 57.8. Over in the US though, there was a downward revision to 58.4 (vs. flash 59.2). To the day ahead now, and the data highlights include the October manufacturing PMIs for the Euro Area, Germany, France and Italy. Central bank speakers will include the ECB’s Elderson and de Cos, whilst today’s earnings releases include Pfizer, T-Mobile, Estee Lauder and Amgen. Finally, there are US gubernatorial elections in Virginia and New Jersey. Virginia is the more interesting race from a macro perspective: a big, diverse state that has bounced between Democratic and Republican candidates on the national stage. So it could provide the first read of American voter sentiment heading into next year’s mid-terms. Tyler Durden Tue, 11/02/2021 - 07:52.....»»

Category: dealsSource: nytNov 2nd, 2021