S&P futures continue to trade as if paralyzed in a tight 20-point range on dismal volumes just below 4,500 for the 3rd day in a row, and overnight they are fractionally in the red although off session lows, with the Nasdaq 100 down 0.2% and S&P 500 -0.1% amid a retreat in tech shares and commodities as markets remained on edge ahead of Friday's Jackson Hole virtual gathering where Chairman Jay Powell is expected to speak at 10am and give clues on the upcoming taper. The dollar rose, yields were unchanged at 1.34%, oil dipped and bitcoin slumped.
Wall Street’s main indexes notched their latest record high on Wednesday but Asia’s session had been far more bumpy: Asia saw its first post-COVID outbreak interest rise in South Korea overnight, while Chinese markets tumbled after the country’s most indebted property developer Evergrande warned of a 39% slump in profits, Japan suspended Moderna’s COVID vaccine, while the mood of Germany’s consumers was darkening again. Cryptocurrency-exposed stocks fall, tracking a decline in Bitcoin after its recent rally. Bit Digital (BTBT) dropped 3.8% and Riot Blockchain (RIOT) was down 2.1%, while MicroStrategy (MSTR) slipped 3%.Here are some of the other notable U.S. movers today:
- Amneal Pharmaceuticals (AMRX) rises 9.6% in premarket trading after a Parkinson’s drug trial met its its main goal, supporting plans for a new drug application. Piper Sandler reiterates an overweight rating, price target $9.
- Joyy Inc. (YY) rallies 8.6% in the U.S. after Reuters reported itstwo top shareholders, Chairman David Li and Xiaomi founder Lei Jun, aim to take the Chinese social media company private in a deal that may value it at up to $8b.
- Salesforce (CRM) gains 2.5% with analysts raising their price targets on the software giant, saying its quarterly results were strong across the board and that the acquisition of Slack should enhance its growth in future, even if it weighs on margins.
- Selectquote (SLQT) slumps 24% after the insurance agency’s earnings missed estimates, prompting rating downgrades and price target cuts from RBC and KBW.
- Snowflake (SNOW) rises 2.3% after the company reported better-than-expected earnings and a strong forecast for the third quarter. Analysts responded to the software firm’s results by raising their share price targets.
US-listed Chinese stocks resumed their slide in premarket trading Thursday after a four-day rally, as weak earnings out of Asia weighs on already fragile investor sentiment. Large-cap Chinese tech stocks are all lower this morning with Alibaba -1%, Pinduoduo -0.8%, JD.com -0.3%, NetEase -1.1%, Baidu -1.2% and Didi -0.4%. Electric-vehicle makers are also declining as Nio falls 0.6%, XPeng drops 2.9% and Li Auto loses 1.5%. China education names were also under pressure, including New Oriental -1.5%, Tal Education -1.9% and Gaotu Techedu -2.3%. Among the other China stocks traded in the U.S. that are sliding in premarket: Bilibili -1.8%, KE Holdings -2.1%, Lufax -1.8%, Tencent Music -1.8%, Futu -2.1%, iQiyi -2.3% and 360 DigiTech -2.4%.
“The most interesting thing we got was the euro sovereign bond market coming alive yesterday,” Saxo Bank’s head of FX strategy John Hardy said, pointing to Wednesday’s sharp pop up in yields that had also pushed up the euro. “It feels like the market is very complacent though (about the Jackson Hole symposium) and the bar for a surprise is pretty much non-existent."
While we have covered the topic to death, investors and policymakers are particularly focused on what Fed Chair Jeremy Powell signals at Jackson Hole on Friday. “Ideally, the Fed would like to observe as long as possible, (and)...make sure that the economy is well on track towards growth,” Raghuram Rajan, former RBI governor and finance professor at the University of Chicago Booth School of Business, told the Reuters Global Markets Forum on Wednesday. “Of course, the problem is the Delta variant, plus whatever variants are lurking in the background.”
Views are split on whether Chairman Jerome Powell’s speech to the Jackson Hole meeting Friday will provide a clearer guide on tapering emergency Fed support. While the ongoing economic rebound and elevated inflation add to the case for starting policy normalization, the fast-spreading delta virus strain threatens a slower pace of recovery than some had expected.
“If the market starts to price in a more hawkish Fed hiking cycle, this would be consistent with upside for real bond yields over the coming months,” said Milla Savova, a strategist at Bank of America Corp. “Higher real bond yields would be a particular headwind for growth sectors such as tech.”
The European STOXX 600 index was down 0.4%, with mining, travel and leisure and retail stocks among the biggest losers. The return of risk aversion steadied euro zone government bond yields ahead of European Central Bank meeting minutes later in the day. FTSE 100 is down 0.4%, and the DAX is down ~0.6%. Here are some of the biggest European movers today:
- Vivendi shares jump as much as 4.7% following Barclays upgrade to overweight from equal-weight, and after its Universal Music Group sets out financial targets ahead of listing.
- Elmos Semiconductor shares surge as much as 8% to an almost one-month high after the German chip maker boosted its buyback offer price to EU39/share from EU36.
- Fielmann shares climb as much as 4.5%, the most since June, after 2Q results that were “upbeat” about FY21 guidance, Bryan Garnier says in a note.
- CRH shares rise as much as 2.4% after results that show strong and consistent operating leverage across the business as benefits of integrated model come through, according to Goodbody (buy) analyst David O’Brien.
- Bouygues shares gain as much as 2.2% to their highest in almost 18 months after results. The infrastructure firm’s beat and group guidance raise is “reassuring,” Goldman Sachs says.
- Elis shares drop as much as 4.4% after being downgraded to neutral from buy at Goldman Sachs, which cites the “relatively limited upside” to its price target compared with broader leisure, lodging and gaming coverage.
- Eiffage gains the most in a month on 1H results that Citi says were ahead of expectations on increased margins in its concession business and higher contracting revenue.
“The easiest piece to write in global economics right now is the COVID tortoises and hares,” said Societe Generale’s Kit Juckes. “The zero COVID countries had a cracking start but now it is the others that are leading,” he said, pointing to how restaurant and airline bookings in Europe had been steadily improving whereas places like Australia were tough.
Earlier in the session, MSCI’s index of Asia-Pacific shares outside Japan dropped 0.65%, halting a three-day advance, with consumer discretionary and healthcare the biggest drags among industry groups as traders awaited further signals on China’s regulatory crackdown and the Federal Reserve’s plans to start scaling back stimulus. Chinese blue chips had fallen 2% and Hong Kong ended down 1%, as a tech rally ran out of steam.
The Hang Seng Tech Index, where many of the big Chinese tech firms are listed, fell 1.9%. Evergrande’s profit warning sent its shares down 7% and the shares of its electric vehicle unit tumbling nearly 20%. Chinese technology shares dropped as earnings from a number of firms missed analyst targets, while investors also offloaded shares of liquor makers including Kweichow Moutai. South Korean stocks slid after the Bank of Korea unexpectedly raised interest rates. China’s clampdown on industries from fintech to education to property has already started to hurt the nation’s economy, and Beijing has signaled there’s more regulation for businesses in years to come.
The global inflationary pulse was in the headlines as the South Korean central bank lifted its base rate off a record low, the first major economy in Asia to do so. Governor Lee Ju-yeol maintained his hawkish tone and suggested the bank could further tighten policy as data showed Asia’s fourth-largest economy was overheating.
“The market might question the Fed’s timing if it were to decide to taper while macro data is in retreat, but tapering is necessary to quell cost-push inflation,” SMBC Nikko strategist Masashi Akutsu wrote in a note. “Once there is clarity on when tapering might start, it should not take markets long to finish pricing it in.”
Meanwhile, the 10-year Treasury yield rose 0.5bps to 1.344%, outperforming bunds and gilts by around 0.5bp each, with most yields remaining broadly within a basis point of Wednesday’s close. Calendar roll activity in futures continues to dominate, while cash markets were muted during Asia session. Focus on GDP data and 7-year auction, which follows solid 2- and 5-year sales so far this week. The week's auction cycle concludes with $62b 7-year sale at 1pm ET; WI 7-year at ~1.13% is 8bp cheaper than July’s stop-out, which tailed the WI by 1bp. Japanese government bonds swung to gains after a 20-year bond sale attracted strong demand; the yen stayed in a narrow range.
In FX, the dollar gained 0.1%, with CHF, NZD and AUD the biggest G-10 decliners. The euro was little changed ahead of the ECB’s publication of the account of the monetary policy meeting of the Governing Council held June 21-22. The Aussie and kiwi were among the worst G-10 performers and both currencies fell for the first time in four days amid concern worsening coronavirus infections will prevent the two nations’ central banks from withdrawing stimulus.
In commodities, oil prices fell after three days of gains, with Brent crude down 0.9% at $71.56 per barrel but holding steady above $71/bbl, and U.S. crude dipped 1.2% to $67.5 a barrel. Most metals are falling, barring iron ore. Gold is down 0.2% to $1,787/Oz.
Bitcoin and the broader crypto space slid around 4% with selling emerging out of Asia, and dragging bitcoin from $49000 to $47000.
To the day ahead now, and central bank highlights include the minutes from the ECB’s July meeting, along with remarks from the ECB’s Rehn, Villeroy and Schnabel. Data releases from the US include the second estimate of Q2’s GDP, the weekly initial jobless claims, and the Kansas City Fed’s manufacturing activity for August. In Europe, there’s the Euro Area’s M3 money supply for July, French business confidence for August, and the German GfK consumer confidence measure for September. Finally, earnings reports today include Dollar General and HP.
- S&P 500 futures little changed at 4,489.50
- STOXX Europe 600 down 0.4% to 469.95
- MXAP down 0.5% to 197.10
- MXAPJ down 0.6% to 647.34
- Nikkei little changed at 27,742.29
- Topix little changed at 1,935.35
- Hang Seng Index down 1.1% to 25,415.69
- Shanghai Composite down 1.1% to 3,501.66
- Sensex little changed at 55,993.50
- Australia S&P/ASX 200 down 0.5% to 7,491.23
- Kospi down 0.6% to 3,128.53
- German 10Y yield rose 1.2 bps to -0.409%
- Euro little changed at $1.1761
- Brent futures down 1.0% to $71.53/bbl
- Gold spot down 0.4% to $1,784.63
- U.S. dollar index up 0.13% to 92.94
Top Overnight News from Bloomberg
- President Xi Jinping said China will strive to hit key economic and social development targets set for this year, even as authorities maintain an aggressive approach to containing Covid-19
- Chinese technology shares fell sharply, snapping a three-day rally as earnings from a number of firms failed to meet investor targets
- China’s bond futures slid the most in two weeks amid concerns over wealth management rules, even after the central bank added cash to money markets to maintain interbank liquidity levels
- Japan’s Yoshihide Suga moved closer to being re- elected ruling party leader and remaining prime minister after a powerful faction backed him, even as a record wave of Covid-19 infections pushed his public support rate to new lows
A more detailed look at global markets courtesy of Newsquawk
Asia-Pac stocks traded cautiously amid a deluge of earnings releases and as markets await the Jackson Hole Symposium, while US equity futures trickled lower overnight following another consecutive day of record highs on Wall St where financials led but tech lagged amid the rising yield environment. ASX 200 (-0.5%) was negative with the index dragged lower by underperformance in gold miners and defensive sectors, with price action also influenced by an overload of earnings releases and another daily record of COVID-19 infections in New South Wales where the regional lockdown will be extended to at least September 10th. Nikkei 225 (+0.1) wiped out opening gains with sentiment hampered by COVID-19 concerns which recently prompted a widening of the state of emergency and the KOSPI (-0.6%) also retraced early advances after the BoK became the first major Asian central bank to hike rates since the pandemic began. Hang Seng (-1.1%) and Shanghai Comp. (-1.1%) declined with stocks such as AAC Technologies and Xiaomi underperforming in Hong Kong despite their improved earnings releases and with Evergrande flagging a 29%-39% decline in profits. In addition, regulatory concerns lingered after China’s MIIT removed 67 apps from stores on Wednesday due to failures to conclude required rectifications around irregular collection of personal information. Finally, 10yr JGBs were lower as yields in the Asia-Pac region tracked their counterparts in where the curve bear steepened which was attributed to positioning for a hawkish Fed and roll activity, while the regional also digested the BoK rate hike and mixed results at the 20yr JGB auction.
Top Asian News
- Asian Stocks Dip on Unease Over China Regulation, Fed Taper Risk
- China Bonds Still Under Pressure Despite PBOC Cash Injection
- Chinese Web Army’s ‘Cyber-Cultural Revolution’ Silences Critics
- Japan’s Suga Firms Up Key Re-Election Support Despite Low Polls
European bourses trade predominantly lower (Stoxx 600 -0.6%) but off worse levels in what has been a choppy morning but quiet in terms of news flow. Losses in Europe accelerated at the cash open. US equity futures are also subdued but to a lesser extent than their peers across the pond – with the NQ (-0.2%) narrowly lagging vs ES (Unch) potentially on yield dynamics, ahead of several Fed speakers scattered throughout today and tomorrow in the run-up to Chair Powell’s address (full preview available in the Newsquawk Research Suite). Back to Europe, the SMI (+0.1%) narrowly outperforms its peers amid a robust performance in the defensive Healthcare sector, with gains spearheaded by pharma-giant Roche. Sectors overall do not portray a particular theme. Media opened as the outperformer and has retained that spot – largely on the back of Vivendi’s performance after a broker upgrade. Vivendi accounts for a substantial 13.4% of the Media sector. IT and Basic resources opened as the laggards, although the former has since trimmed losses and the latter remains subdued. In terms of individual movers, Deutsche Bank’s (-1.8%) DWS arm (-12%) slumped after the US SEC opened a probe into the asset management arm, amid claims it overstated how much it used sustainable investing criteria to manage its assets. Other movers remain somewhat uninteresting with CRH (+1.8%), Bouygues (+1.5%) and Hays (+1.9%) all firmer post-earnings. One to keep on the radar for automakers – China's Securities Daily reportedly noted that the EV market is overheating and shows risks. Elsewhere, Tesla’s (-0.5% pre-market) Berlin Gigafactory will be subject to discussions on potential domestic objections today.
Top European News
- The Best and Worst Places to Be as Delta Wrecks Reopening Plans
- U.K. Carmakers Beset by Shortages in Worst July Since 1956
- Billionaire Nixon’s Family Office Plans to Boost Crypto Bets
- Delivery Hero Dips; RBC Says Reiterated Guidance as Expected
In FX, the Dollar remains firm relative to most majors, though off best levels following Wednesday’s rebound that appears to have been more ‘dead cat’ than decisive in terms of a real turning point as the clock continues to tick down Fed Chair Powell tomorrow. In the run up, IJC data will likely be far more influential than the 2nd Q2 GDP release, barring radical revisions, while commentary from Kaplan and Bulard could provide further insight about tapering intentions and the 7 year note auction concludes what has been a mixed bag of issuance from a demand perspective. Hence, Treasuries are still cautious and supportive for the Greenback to an extent as the DXY hovers just under 93.000 within a 92.968-807 range vs yesterday’s wider 93.135-92.801 extremes.
- CHF/AUD/NZD/GBP/CAD - Not much to choose between biggest loser and those bearing up better to be honest, but the Franc is lagging behind and below 0.9150 against the Buck, while also retreating toward 1.0800 vs the Euro having caressed the round number below not long ago. Elsewhere, it’s a tight tussle down under amidst all the Aussie and NZ pandemic problems, but Aud/Usd is holding just above 0.7250 and Nzd/Usd around 0.6950, with the latter encouraged, if not boosted by stronger than expected Q2 Capex. The Pound has faded beyond 1.3750 in the ongoing absence of anything UK specific to offer independent impetus, and the Eur/Gbp cross seems stymied inside technical levels in the form of 50 and 100 DMAs at 0.8547 and 0.8589 respectively, while the Loonie is still under 1.2600 and loosening links with crude prices as focus switches Canadian average earnings, to a degree.
- JPY/EUR - The Yen is striving to contain losses through 110.00 ahead of Tokyo CPI that might offer a distraction to Japan’s deteriorating COVID-19 situation and the UST-JGB yield spread vigil that is becoming more bullish for Usd/Jpy, but could find support via the 50 DMA at 110.15.. Conversely, the Euro extended just over 1.1770 to probe the 21 DMA that stands at 1.1772 today before waning in advance of ECB minutes (see 10.00BST post on the Headline Feed for a preview), then comments from GC members Villeroy and Schnabel.
In commodities, WTI and Brent October futures remain subdued, but choppy, with the complex seemingly tracking risk appetite in the absence of fresh catalysts. There is little new to report on the COVID front aside from increasing noise regarding the necessity of booster jabs – with US President Biden’s administration reportedly planning boosters at six months instead of eight months. Aside from the Fed, the focus will fall on the OPEC+ meeting slated for the 1st September, with the JTC meeting beforehand. Participants will be on the lookout for sources alongside hints as to whether the group will go ahead with the 400k BPD increase in output in the upcoming month. OPEC+ members have been quiet, whilst the US called for members to release more output in a bid to lower gasoline prices for consumers. In the interim, energy markets will likely take their cue from the overall market mood alongside Dollar influence. WTI Oct, at the time of writing, trades meanders around USD 67.50/bbl (vs high USD 68.15/bbl) while its Brent counterpart resides around USD 71.50/bbl (vs high USD 72.13/bbl). Precious metals are also modestly softer as the Buck remains choppy and yields higher. Spot gold sees several nearby DMAs, with the 21 at USD 1,785/oz, the 50 at USD 1,790/oz, and the 200 and 100 at SUD 1,809.50/oz and USD 1,810.50/oz. Meanwhile, LME copper subdued around the middle of a relatively tight range amid the cautious tone across markets. Dalian iron ore contacts traded higher but gave up most of their early gains, whilst ANZ bank forecasts iron ore demand to slump 87mln tons due to China curbs.
US Event Calendar
- 8:30am: 2Q GDP Annualized QoQ, est. 6.7%, prior 6.5%
- 2Q PCE Core QoQ, est. 6.1%, prior 6.1%
- 2Q GDP Price Index, est. 6.0%, prior 6.0%
- 8:30am: 2Q Personal Consumption, est. 12.2%, prior 11.8%
- 8:30am: Aug. Initial Jobless Claims, est. 350,000, prior 348,000
- Aug. Continuing Claims, est. 2.77m, prior 2.82m
- 11am: Aug. Kansas City Fed Manf. Activity, est. 25, prior 30
DB's Jim Reid concludes the overnight wrap
As investors looked forward to Fed Chair Powell’s speech tomorrow at the Jackson Hole symposium, risk assets put in another strong performance yesterday that saw global equity indices hit all-time highs once again, alongside a further advance in commodity prices. However, there was also a big move higher in sovereign bond yields, particularly in Europe, as investors considered the potential pace of tapering over the coming months, and other haven assets including gold (-0.66%) and the Japanese Yen (-0.34%) both struggled as well.
Looking at those moves in depth, the S&P 500 (+0.22%) advanced for a 5th consecutive session, and at one point in trading actually breached the 4,500 mark for the first time, before settling just beneath that at what was still a record high. Cyclical industries powered the advance, with banks (+1.80%) outperforming in particular thanks to the move higher in bond yields, and small-cap stocks were another beneficiary of the risk-on move as the Russell 200 rose +0.37%. Tech stocks were comparatively weaker as higher rates weighed slightly on growth industries, but that still didn’t stop the NASDAQ (+0.15%) from hitting another all-time high of its own.
In Europe, it was a far more subdued story for equities, with the STOXX 600 up just +0.01%, but for sovereign bonds it was a very different picture, as yields on 10yr bunds (+5.6bps), OATs (+6.2bps) and BTPs (+9.3bps) all saw sizeable moves higher. Indeed, by the close the 10yr bund yield had seen its biggest one-day move since early March. The dramatic shift higher was partly the result of a Reuters interview with ECB Chief Economist Philip Lane, which leant hawkishly in a few respects. The major headline was his openness on making an operational decision on the pace of PEPP purchases in September, which could potentially see the pace of purchases reduced at that meeting. In the interview, he said that the aim of purchases was “to maintain favourable financing conditions”, but pointed out that when it came to a potential September decision “in the grand scheme of things, this is a local adjustment”, and noted that even in Q1 at the slower pace of purchases, they were still high relative to historic norms. The comments come ahead of tomorrow’s heavily anticipated Jackson Hole speech from Fed Chair Powell, as Lane wanted to also note that the ECB stood prepared to respond to any market disruption that Fed tapering could cause. In addition to his remarks about PEPP purchases, Lane played down the impact of the slowdown in China and described the impact of the Delta variant on the overall economy as “quite limited so far.” US Treasury yields similarly moved higher on the day, with 10yr yields up a smaller +4.6bps to 1.339% - their highest closing level in nearly two weeks.
Overnight in Asia, markets in the region are continuing to struggle as concerns over China’s ongoing regulatory crackdown came back to the fore, and the Hang Seng (-1.48%), Shanghai Comp (-0.50%), Kospi (-0.77%) and the Nikkei (-0.03%) have all moved lower. In other news, the Bank of Korea raised its interest rate by 25bps to 0.75%, saying that they would “gradually adjust” the degree of support for the economy, as they also raised their inflation outlook for this year to 2.1%. Elsewhere, futures on the S&P 500 are down -0.18% while yields on 10y USTs are down -0.7bps to 1.332%.
On the political scene, there’s exactly one month to go until the German federal election today, which is now looking incredibly tight based on current opinion polls. Yesterday saw another poll from Civey for Der Spiegel with the CDU/CSU and the SPD tied on 22% each, which fits into the trend of a neck-and-neck race between the two, whilst the Greens weren’t far behind on 18%. This particular poll had a margin of error of +/- 2.5%, so it doesn’t stretch the realms of plausibility that any one of these three parties could end up in top position after the election, and very narrow swings in public opinion could have a big impact on the position of each party afterwards. Also, with the polls now indicating that 3 parties will be needed to form a majority coalition after the election, this also raises the prospect that there could be lengthy negotiations on forming a new administration. And this could be stretched out further if any decide to ask for their members’ support on any coalition agreement, just as took place with the SPD entering another grand coalition after the 2017 election. Indeed, last time it wasn’t until March 2018 that a new administration was in place, almost six months after the election in late September 2017.
Turning to the pandemic, cases are continuing to plateau at the global level according to data from John Hopkins University, although we’re yet to begin a sustained decline so far. That said, this masks a big variation between different countries, with New Zealand reporting a further 68 cases that brings the total number of community cases in the current outbreak to 277. Meanwhile in Australia, they’re continuing to see a worsening situation, with New South Wales reporting more than 1,000 daily cases for the first time, which has seen the state lockdown extended until September 10. Separately in Scotland, a record number of cases were reported for a second day running, which will add to nervousness that even an advanced vaccination programme (79% of over-16s are fully vaccinated there) might not be as effective as once hoped for given the delta variant and the potential for waning efficacy over time. In other news, there were further developments on booster jabs as Johnson & Johnson said that a second dose of their vaccine was found to trigger a strong jump in the number of antibodies. Separately on the topic of vaccine mandates, Delta Air Lines didn’t impose a mandate, but instead announced that they’d impose a $200 monthly surcharge on employees who weren’t vaccinated, which will take effect from November 1. Finally on travel restrictions, the EU is expected to discuss today whether travel restrictions should be brought back on visitors from the US as Covid-19 cases continuing to rise there.
Looking at yesterday’s data, the Ifo business climate indicator from Germany in August fell to 99.4 (vs. 100.4 expected), which marked the second consecutive decline in the measure. The current assessment measure actually rose to a post-pandemic high of 101.4 (vs. 100.8 expected), but the expectations measure fell back to a 6-month low of 97.5 (vs. 100.0 expected). As a reminder, our German economists downgraded their German GDP forecast for 2021 to 3.1% yesterday (link here), with supply-chain disruptions and the delta variant having an impact on the short-term outlook. Over in the US meanwhile, the preliminary release for durable goods orders in July showed a -0.1% contraction (vs. -0.3% expected).
To the day ahead now, and central bank highlights include the minutes from the ECB’s July meeting, along with remarks from the ECB’s Rehn, Villeroy and Schnabel. Data releases from the US include the second estimate of Q2’s GDP, the weekly initial jobless claims, and the Kansas City Fed’s manufacturing activity for August. Separately in Europe, there’s the Euro Area’s M3 money supply for July, French business confidence for August, and the German GfK consumer confidence measure for September. Finally, earnings reports today include Dollar General and HP.