Another Day, Another Record S&P High As Central Banks Fan Biggest Ever Bubble

When rigging and manipulating stocks or markets, one usually allows for the occasional down day to avoid the impression of too much artificiality. But when it comes to the S&P and certainly the Nasdaq, the market (just like its central bank sponsor) is not even thinking about thinking about a dip. And with both Clarida and Brainard repeating this week that no rate hikes are coming any time soon, if ever (see Japan), there is no reason for the party to stop until everything blows and millions of Robinhood Gen-Zers go postal when they lose everything with leverage.

Peter Chatwell, head of multi-asset at Mizuho International, said strong U.S. manufacturers data on Tuesday is combining with dovish commentary from officials including Lael Brainard at the Federal Reserve earlier this week to underpin risk assets. “The central bank easing theme has moved another notch higher,” he said.

But we digress. On Wednesday, S&P futures rose for the ninth time in past ten sessions, hitting a new all time high helped by a seemingly endless rally in tech stocks in general and Apple in particular, as focus turns to economic data that is likely to show a jump in private jobs in August. 

The MSCI world equity index rose 0.2%, with Wall Street futures gauges pointed to gains of 0.7%, the ES last seen just around 3,550, up more than 60% from the March lows.

High-flying shares of technology companies, seen as resilient to the hit from the coronavirus outbreak, including Apple, Amazon, Intel, Facebook, AMD, Nvidia and Slack Technologies all rose between 1.3% and 2.4% in high volumes premarket. 

While we have extensively discussed the gamma chase in dealer delta as the main reason behind the market meltup (with Bloomberg catching up yesterday), one separate reason why the momentum names keep soaring is because of idiocy like this from Bank of America, which one day after upgrading Apple on multiple expansion, raised its Tesla price target claiming that a higher stock price is bullish, so it expects an even higher stock price (no really, read the note).

Fuelling the market optimism were also bets that the world’s major economies were recovering from the damage caused by the coronavirus pandemic. Economic survey data over recent days has fuelled such expectations, buoying stocks and helping the dollar rise from two-year lows. On Tuesday, data showed that U.S. manufacturing activity sped to a nearly two-year high in August on a surge in new orders, its highest level since November 2018.

“The data in the U.S. is telling us that the recovery is on track, and this is good news,” said Alessia Berardi, senior economist at Amundi, adding there was a “disconnection” between economic fundamentals and market positioning. “It’s too early to say that we will shift the recovery to a much stronger acceleration, or a V-shaped recovery,” she said.

That said, in a melt up economic data is irrelevant, yet at 815am ET, we will get the latest ADP National Employment report which is expected to show private payrolls increased by 950,000 last month after a disappointing 167,000 rise in July. The report follows encouraging manufacturing sector surveys on Tuesday. As the COVID-19 pandemic rages on, signs that the recovery in the labor market was faltering has been a worry for investors. The official monthly jobs report from the BLS is due on Friday.

In Europe, the party was in full blast too, with the Stoxx Europe 600 Index headed for its biggest gain in almost a month, rising as much as 2% to session high, crossing above 200-day moving average. Chemicals, personal and household goods and technology led gains. Still, recovery from the euro zone’s deepest recession on record will take two years or more, according to a Reuters poll of economists last month, although investors spoke of cautious optimism. “We do need to focus on what the numbers are telling us,” said Gregory Perdon, co-chief investment officer at Arbuthnot Latham. “We are trying to cautiously embrace risk, without trying to be foolish about it.”

Earlier in the session, Asian stocks also gained, with MSCI’s broadest index of Asia-Pacific shares outside Japan rising 0.3%, led by communications and IT, after rising in the last session. Markets in the region were mixed, with Australia's S&P/ASX 200 and South Korea's Kospi Index rising, and Hong Kong's Hang Seng Index and Singapore's Straits Times Index falling. The Topix gained 0.5%, with Nippon Kinzoku and TYK rising the most. The Shanghai Composite Index retreated 0.2%, after the PBOC drained a whopping 180bn yuan in liquidity, with Changzhou Shenli Electrical Machine and JCET Group Co Ltd posting the biggest slides.

Things got a little weird in Australia where shares soared, on track to recoup Tuesday’s losses as investors brushed off a record gross domestic product slump and confirmation of the nation’s first recession in almost 30 years. As we reported last night, GDP for Aoril-June for plunged 7% compared with the first three months of the year, the largest fall in records dating back to 1959, the statistics bureau said in Sydney Wednesday. Once again: there is nothing as quite so good for stocks as bad news.

Also feeding the positive mood were signs that Washington was moving closer to offering some fiscal stimulus support to counter damage from the coronavirus. White House chief of staff Mark Meadows said on Tuesday that Republicans in the Senate were likely to take up a COVID-19 relief bill next week offering $500 billion in additional federal aid. The administration was still weighing help for U.S. airlines, he added. The fact that Pelosi poured cold water all over Meadows' optimism was completely ignored by traders.

In FX, the dollar index added 0.4% at 92.612, rising on Tuesday from its lowest since April 2018 at 91.737. The euro and the pound both fell against the greenback, in a modest pullback from recent moves. The euro slid further below $1.20, a level it breached for the first time in over two years Tuesday, after the ECB's Lane made it clear it won't allow further gains in the currency. Ten-year bunds rose along with most of their sovereign peers, benefiting Germany, which took in 33 billion euros ($39 billion) of orders for its first green bonds. The pound also weakened against the greenback before BOE Governor Bailey addresses a parliamentary committee Wednesday afternoon. The Australian dollar fell after data showed that the nation fell into its first recession in almost three decades, with its GDP down 7% in the three months through June, more than the estimated 6% slump.

In rates, Treasuries fell, shortly before the ADP employment report may signal the pace of private-sector employment is picking up. Yields were cheaper by less than 2bp across the curve with 2s10s, 5s30s spreads steeper by 1.3bp and 0.9bp; 10-year yields around 0.685%, trailing bunds and gilts by more than 4bp. Core European debt outperformed despite Euro Stoxx 50 higher by 2.2% on the day; chemicals and technology shares are among the top gainers.

In commodities, oil rose towards $46 a barrel, gaining for a third day. Brent crude, the global benchmark, was up 1 cents at $45.68 a barrel.  Crytpos were inexplicably crushed earlier this morning, despite a clear bubble forming in absolutely every asset class.

Expected data include employment change and factory orders. Macy’s and CrowdStrike are among companies reporting earnings

Market Snapshot

  • S&P 500 futures up 0.6% to 3,548.50
  • STOXX Europe 600 up 1.8% to 371.84
  • MXAP up 0.3% to 174.19
  • MXAPJ up 0.3% to 578.14
  • Nikkei up 0.5% to 23,247.15
  • Topix up 0.5% to 1,623.40
  • Hang Seng Index down 0.3% to 25,120.09
  • Shanghai Composite down 0.2% to 3,404.80
  • Sensex up 0.05% to 38,918.98
  • Australia S&P/ASX 200 up 1.8% to 6,063.21
  • Kospi up 0.6% to 2,364.37
  • Brent futures up 0.1% to $45.64/bbl
  • Gold spot little changed at $1,969.91
  • U.S. Dollar Index up 0.3% to 92.63
  • German 10Y yield fell 3.4 bps to -0.454%
  • Euro down 0.4% to $1.1862
  • Italian 10Y yield fell 5.9 bps to 0.909%
  • Spanish 10Y yield fell 5.2 bps to 0.346%

Top Overnight News from Bloomberg

  • Germany got 30 billion euros ($36 billion) of orders for its first green bond sale as it aims to dominate the market for such debt by the end of the year
  • Coronavirus cases exceeded 25.7 million globally, and the number of deaths was above 857,000. U.S. top virus official Anthony Fauci said that a Covid-19 vaccine could be available earlier than expected if clinical trials produce overwhelmingly positive results
  • Switzerland’s financial regulator started enforcement proceedings against Credit Suisse over a spying scandal. The bank said it will continue to fully cooperate with the regulator

A quick look around global markets courtesy of

Asian equity markets were mixed as the region partially sustained the momentum from the fresh record highs on Wall St where risk appetite was spurred once again by strength in big tech names and following better than expected ISM Manufacturing PMI data. ASX 200 (+1.8%) was positive with the advance led by materials as it found inspiration from the similar outperformance stateside and with AMP Capital front-running the largest-weighted financials sector after it announced to conduct a portfolio review amid heightened interest and enquiries regarding its assets and businesses. Nikkei 225 (+0.5%) remained afloat although upside was limited by a mixed currency and with heavy losses seen in Nippon Kayaku on news it will be replaced by SoftBank Corp in the index, while Hang Seng (-0.3%) and Shanghai Comp. (-0.2%) were pressured following another substantial PBoC liquidity drain and with underperformance seen in Hong Kong-listed casinos names which suffered from dismal Macau gaming revenue and with notable weakness in financials. 10yr JGBs were rangebound with price action hampered amid the gains in riskier Japanese assets but with downside also limited by the BoJ’s presence in the market for a total JPY 890bln of JGBs with 1-5yr and 10-25yr JGBs.

Top Asian News

  • Japan Premier’s Aide Suga Announces Bid to Replace Outgoing Abe
  • Turkey Slams U.S. Decision to Ease Its Arms Embargo on Cyprus
  • China’s Vow to Keep Schools ‘Public Good’ Slams Education Stocks
  • Singapore Can’t Sustain Emergency Measures Forever, PM Says

European stocks continue grinding higher, with solid gains thus far (Euro Stoxx 50 +2.3%) in spite of a relatively mixed APAC performance, with news flow also on the light side ahead of the US market entrance and a slew of notable Central Bank speakers. Broad-based gains are seen across the bourses with no clear out/underperformers. Sectors reside firmly in the green across the board but lack a clear risk bias; Banks, Insurance and Oil & Gas stand as the laggards, amid a low-yield environment and as energy prices recede. In terms of individual movers and shakers, earnings see the likes of Barratt Developments (+6.9%) underpinned as forwards sales improved alongside a future dividend policy based on a dividend cover of 2.5x. Credit Suisse (+0.9%), although firmer, underperforms the wider markets as Swiss regulators have commenced enforcement proceedings against the Co. Elsewhere ITV (+3.2%) has brushed off its relegation from the FTSE 100, whilst the Euro Stoxx 50 shake-up sees Adyen (+1.8%), Prosus (+1.2%), Vonovia (+2.5%), Pernod Ricard (+3.2%) and Kone (+1.3%) replacing SocGen (-0.2%), Fresenius (+1.8%), Orange (+1.3%), Telefonica (+0.3%) and BBVA (-0.6%). Finally, Novartis (+2.1%) is buoyed after announcing that it is to launch its SARS-CoV-2 rapid antigen test in countries accepting the CE mark.

Top European News

  • Euro Surge Is ECB’s Newest Complication for Pandemic Economy
  • Sunak Has 60 Billion Problems, But Taxes Aren’t One of Them
  • Vallourec Slumps as French Pipe Maker Pursues Debt Restructuring
  • Bulgarian Protesters Renew Pressure as Premier Seeks Support

In FX, it may well be too premature to suggest that the rot has stopped, but the Buck is bouncing further from Tuesday’s 2020 low (91.737) and seemingly gleaning more traction from the US manufacturing ISM, with considerable assistance via independent weakness in rival currencies. Tests and ultimate rejections of big figure and psychological levels in several Dollar/major pairs have also contributed to the revival, as the DXY reclaims 92.500+ status ahead of ADP, factory orders and more Fed speak, with Williams and Mester scheduled to orate.

  • CHF/EUR/AUD - The Franc has lost more ground vs the Greenback and Euro to sub-0.9100 and 1.0850 at one stage respectively in wake of verbal intervention from SNB’s Maechler yesterday that could be deemed a warning of something official at the upcoming September quarterly policy meeting, while the single currency has pulled back through 1.1900 after its short-lived foray above barriers at 1.2000 amidst weak Eurozone data and dovish/downbeat ECB commentary. However, Eur/Usd may yet find support around 1.1850 and be drawn towards decent option expiry interest at 1.1875 (1 bn). In similar vein, the Aussie has been undermined Q2 GDP missing consensus and suffering a record q/q contraction, thereby condemning the country to its first technical recession in over a quarter of a century. In response, Aud/Usd has fallen below 0.7350 from 0.7400+ and Treasury Minister Frydenberg fears that Victoria’s lockdown will be a big drag for the current quarter resulting in slightly negative ‘growth’ or stagnation at best.
  • GBP/JPY - Also making way for the broad Buck renaissance, as Cable recoils from lofty 1.3480+ peaks to the low 1.3300 area awaiting a blast from the BoE and a Brexit ‘progress’ report via EU chief negotiator Barnier, while the Yen is back under 106.00 amidst a pronounced upturn in risk sentiment, dovish rhetoric from the BoJ and LDP leadership challengers.
  • NZD/CAD - The Kiwi is holding up relatively well courtesy of strong NZ terms of trade and the absence of any direct currency remarks from RBNZ Governor Orr, with Nzd/Usd revisiting the upper end of the recent range (just shy of 0.6700) and Aud/Nzd reversing from 1.0900+ to sub-1.0850 before consolidating circa 1.0860 in the run up to Australian trade data on Thursday. Elsewhere, the Loonie is sitting tight between 1.3084-53 parameters before Canadian labour productivity, trade tomorrow and the next NA jobs report head to head the following day.
  • SCANDI/EM - The Swedish and Norwegian Krona are back on upward trajectories on the back of buoyant, if not exuberant risk appetite, as Eur/Sek eyes 10.2900 and Eur/Nok hovers around 10.4000 irrespective of Norway’s Q2 current account surplus shrinking by more than 1/3rd, but perhaps taking heed of Norges Bank Deputy Governor Bache downplaying the prospect of lower rates in contrast to pretty standard and neutral comments from Riksbank’s Jansson. Conversely, most EM currencies are conceding ground due to the Dollar’s impressive comeback (DXY up to 92.685 at best for reference), aside from the Renminbi that remains resilient following another bullish PBoC midpoint Cny fix.

In commodities, WTI and Brent front month futures have given up earlier gains despite a distinct lack of complex-specific news flow during early European hours, and after the benchmarks were underpinned overnight by the larger-than-forecast draw in Private Inventory stockpiles (-6.4mln barrels vs. Exp. -1.9mln). Traders will be on the look-out for confirmation from the EIA release later today forecasting a headline crude draw of 1.887mln barrels. Before that, some short term USD/sentiment-induced action may arise from the ADP National Employment release ahead of Friday’s US jobs figures. WTI Oct resides around USD 43/bbl (vs. high 43.21/bbl) and Brent Nov lost its USD 46/bbl status (vs. high USD 46.05/bbl). Elsewhere, precious metals have been slightly subdued predominately due to a modest revival in the Dollar. Spot gold hovers within a tight range in European trade, around the USD 1965/oz mark having notched a current range of USD 1956-73/oz. Similarly, spot silver remains caged on either side of USD 28/oz. In terms of base metals, copper prices pulled back amid a firmer Buck and following a downbeat performance in Chinese stocks markets. Conversely, Dalian iron ore futures touched a two-week high on a robust steel demand outlook and improving global economic activity.

US Event Calendar

  • 8:15am: U.S. ADP Employment Change, Aug., est. 1000k, prior 167k
  • 10am: U.S. Durable Goods Orders, July F, est. 11.2%, prior 11.2%
  • 10am: U.S. Factory Orders, July, est. 6.0%, prior 6.2%; -Less Transportation, July F, est. 2.4%, prior 2.4%
  • 10am: U.S. Cap Goods Orders Nondef Ex Air, July F, est. 1.9%, prior 1.9%; Cap Goods Ship Nondef Ex Air, July F, no est., prior 2.4%

DB's Jim Reid concludes the overnight wrap

It was Groundhog Day in US equities last night as equities hit fresh highs and with tech again outperforming. The S&P 500 (+0.75%) and the NASDAQ (+1.39%) fresh peaks came as Europe comparatively struggled with the STOXX 600 down -0.35%. That said, UK equities dragged the index down, with the FTSE 100 falling -1.70% as it caught down from Monday’s holiday. The DAX did close +0.22%. Over in the fixed income sphere, sovereign bonds rallied on both sides of the Atlantic, with yields on 10yr Treasuries (-3.6bps) and bunds (-2.3bps) both falling back. Italian BTPs outperformed in particular, with yields down -5.9bps.

Asian markets are trading mixed this morning with the Asx (+1.94%) and Nikkei (+0.23%) up while the Hang Seng (-0.55%), Shanghai Comp (-0.39%) and Kospi (-0.15%) are down. In FX, the Indonesia rupiah is down -1.35% after the country’s lawmakers announced a draft bill to extend the government’s authority over the central bank under which a five-member monetary board, led by the finance minister, will be setup to help Bank Indonesia determine policy. President Joko Widodo's comments that the authorities may enlist Bank Indonesia’s help in financing the deficit through 2022 are also weighing on the currency. Although this bill may get watered down through the legislative process, I can’t help think this is the direction of travel around the world over the next few years as governments try to finance their ever increasing debt.

Talking of debt, yields on 10y UST are back up +1.6bps this morning to 0.686% while futures on the S&P 500 are up +0.29%. In terms of data, Australia fell into its first recession since 1991 after its GDP in the quarter ending June fell by -7% qoq (vs. -6% qoq expected).

Back to yesterday and a major milestone was reached in markets as the EUR/USD exchange rate briefly broke through the $1.20 barrier for the first time since May 2018, even though it fell back to $1.191 by the end of the session and is alsoa touch lower this morning at $1.1903. The move lower came as the ECB chief economist Philip Lane said in an online conference that “The euro-dollar rate does matter,” and added that “If there are forces moving the euro-dollar rate around, that feeds into our global and European forecasts and that in turn does feed into our monetary policy setting.” The reversal also came shortly after the stronger than expected manufacturing US ISMs contrasting with the relatively softer European numbers, which also coincides with recent virus trends. This aligns with what our FX strategists had already written a couple of weeks back; there are multiple factors making further EUR/USD gains from here more difficult. Positioning is more extended now, and the fundamentals in Europe don’t look as good now with the virus accelerating once again. So they think consolidation around this level is the most likely outcome moving forward.

Lane’s comments were the first from an ECB member to dwell on the currency in recent times. In fact, during Sunday’s Reuters interview with Executive Board member Schnabel, she discussed dollar depreciation as a positive effect of increased global confidence, as well as the fact that there’s more confidence in Euro Area stability since the agreement on an EU recovery fund. The issue of Euro appreciation was also mentioned in the July ECB minutes, though again this was in the context of tail risks being removed and the relatively successful virus containment seen in Europe.

What will be of concern to the ECB however was the flash Euro Area CPI print yesterday, which came in at a deflationary -0.2%. That’s the first negative reading since May 2016, and was beneath expectations for a +0.2% print. Furthermore, the core inflation reading fell to +0.4%, which was its lowest level since the formation of the single currency back in 1999, so it’s not as though this can just be explained thanks to volatile components. It’s true to say that energy continued to drive much of the decline, with deflation of -7.8%, but even the CPI ex energy was only at +0.7%, suggesting that price pressures in the Euro Area continue to remain weak.

In terms of the latest on the coronavirus, Russia became the 4th country to report over a million cases yesterday, joining the US, India and Brazil who’ve also reached that point. Meanwhile in New York City, Mayor de Blasio said that an agreement had been reached with teachers’ unions on delaying the start of the school year, which will now be on September 21, rather than September 10. Elsewhere, Texas Governor Abbott signaled that he may lift restrictions as soon as next week with infection rates falling across the state. Sweden on the other hand may implement stricter local level restriction such as work-from-home instructions and online learning in specific communities that see outbreaks, but the government remains committed to its strategy of limited mobility restrictions.

Speaking of the coronavirus, yesterday’s Chart of the Day (full link here) looked at the possibility of a second covid wave, amidst rising case numbers in a number of countries. Nevertheless, in terms of fatalities and hospitalisations, things are looking much more positive, since among other factors, it is younger and less vulnerable people who’ve been catching the virus more recently. While this lower fatality rate is good news, this could confuse the response strategy, since while case numbers remain elevated the numbers of hospitalisations have (thus far) remained low. The question will be whether policymakers fight the battle of the first wave as cases rise or whether they learn to adapt to this new world. Either way, vaccine developments will be key and we’ll have a note out hopefully today summarising the current state of play.

Without a vaccine the outlook for the global economy is murky and may require greater accommodation. Last night markets heard from Fed Governor Brainard, who called for continuing support from both fiscal and monetary policy makers. On monetary policy, she noted that it was important that the central bank should “pivot from stabilization to accommodation.” She joined other recent Fed speakers calling on more action from Congress, saying that, “while the virus remains the most important factor, the magnitude and timing of further fiscal support is a key factor for the outlook.”

Governor Brainard’s comments came as the US House Select Subcommittee on the Coronavirus Crisis held a hearing with Treasury secretary Mnuchin, where he said that the US economy needed additional stimulus urgently. He called Speaker Pelosi following the meeting in an attempt to try and restart negotiations and has indicated that President Trump is fully supportive of additional relief. White House Chief of Staff earlier confirmed reports that Senate Republicans are readying a $500bn relief package that could be voted on next week, even as Speaker Pelosi has previously rejected smaller interim steps. With the US election under just over 2 months away this could well be the last legislative battle before ballots are cast and a lack of stimulus could result in softer data in the upcoming months.

Looking at yesterday’s data, the main highlight came from the manufacturing PMIs, which saw a varied performance across the world. In the Euro Area, where we’d already had a flash reading, it was left unrevised at 51.7, while Germany saw a slight downward revision to 52.2 (vs. 53.0 previously). In Italy, where there hadn’t been a flash PMI, the 53.1 reading exceeded expectations, but in Spain, the PMI fell back to 49.9, from July’s 53.5, so below the 50-mark that separates expansion from contraction. Over in the US meanwhile, the ISM manufacturing indicator rose to 56.0 in August (vs. 54.2 expected), and marks the strongest reading since November 2018. Looking ahead, the services PMIs tomorrow will be of more interest given their greater weight in the economy, as well as the link to mobility and Covid infections.

To the day ahead now, and the data highlights include German retail sales and US factory orders for July, along with the ADP employment report from the US for August. There are also an array of central bank speakers, including Bank of England Governor Bailey and MPC members Ramsden and Vlieghe before the House of Commons Treasury select committee, along with Broadbent and Haldane at a separate event. Otherwise, we’ll hear from Bundesbank President Weidmann, the Fed’s Williams, Mester and Daly, and the Fed will be releasing their Beige Book.