US equity futures and global stocks fell on Thursday and the dollar tried to stage a rebound after two days of losses, as tensions between Washington and Beijing dampened the mood ahead and as investors braced for Powell’s speech at the virtual Jackson Hole conference at 910am ET, at which he is expected to unveil the Fed's "new policy" of tolerating higher inflation.
Trading on Thursday was weighed down by U.S. sanctions on China over military action in the disputed South China Sea after both Wall Street and the MSCI World index hit new record highs on Wednesday with the endless supply of cheap cash from central banks pushing up big-cap tech companies. The S&P 500 and the Nasdaq had risen for the past five session to new highs, largely driven by investors pouring into heavyweight technology-related stocks.
Among early movers, Abbott Laboratories soared 9.2% in the premarket after gaining clearance for a portable $5 15-minute Covid test. NetApp jumped 10.2% in premarket trading after it posted better-than-expected quarterly results, powered by demand for its cloud services.
The MSCI world equity index dipped 0.1% while the MSCI’s main European Index was down 0.3%. Europe's Stoxx 600 was down 0.2% led by losses in the bank and insurance sectors. Rolls-Royce Holdings tumbled, leading decliners across Europe after a record half-year loss and writedown on its main jet-engine arm as the coronavirus crisis battered air travel. WPP Plc climbed after suggesting the pandemic’s worst impact may have passed for the world’s biggest advertising group.
Earlier in the session, Asian stocks were little changed, with energy and utilities falling, after rising in the last session. Markets in the region were mixed, with Shanghai Composite and Jakarta Composite rising, and South Korea's Kospi Index and Singapore's Straits Times Index falling. The Topix declined 0.5%, with Takasho and Aeon Fantasy falling the most. The Shanghai Composite Index rose 0.6%, with Whirlpool China and Shanghai Industrial Development posting the biggest advances.
CMC Markets UK analyst David Madden told Reuters the week’s pattern was a classic case of "buy the rumor, sell the fact" as investors unwound their bullish positions from earlier in the week.
"If you’re a trader starting the week on Monday you think Powell is speaking on Thursday, we’re all expecting him to have some sort of dovish stance, so you buy Monday, Tuesday, Wednesday, when he’s actually giving the talk on Thursday you wind down your positions," he said. "You trade in advance in the expectation that a dovish speech will be delivered and then you square up your position a few hours before hand."
Powell is likely to make a case for low interest rates and higher inflation in an overhaul of the central bank’s policy approach in his remarks at the Jackson Hole symposium, being held virtually this year. Before his address at 9:10 a.m. EDT investors will get a look at the weekly jobless claims report, the most timely U.S. economic indicator, which is expected to have dipped to 1 million for the week ended Aug. 22.
In rates, benchmark 10-year Treasury yields edged lower in a move eclipsed by European peers. The dollar turned higher versus a basket of its biggest counterparts from a level near its two-year low. European bond yields fell, with Germany’s benchmark 10-year Bund yield down 4 bps at -0.451%.
In FX, the Bloomberg Dollar Index steadied following two days of declines. Against a basket of currencies, it was up 0.1% at 92.955. The riskier Aussie and Kiwi dollars gained versus the U.S. dollar, while the euro was slightly lower at $1.18055. Australia’s Victoria state which has become the epicenter of the nation’s second wave of COVID-19 infections, reported its lowest one-day rise in new cases in nearly two months.
The offshore Chinese yuan hit a 7-month high versus the dollar overnight, but erased losses as the European session progressed.
In commodities, oil prices were mixed, with Brent crude futures for October, which expire on Friday, up 0.1% at $45.61 a barrel by 1055 GMT. U.S. West Texas Intermediate crude futures were down 0.4% at $43.21 a barrel. Oil prices were mixed, with Brent crude futures for October, which expire on Friday, up 0.1% at $45.61 a barrel by 1055 GMT. U.S. West Texas Intermediate crude futures were down 0.4% at $43.21 a barrel. Hurricane Laura, a massive Cat 4 hurricane in the Gulf of Mexico pushed the market higher this week, but the storm is not expected to affect supplies much because oil and product inventories are high. Gold prices fell as investors took profits before Powell’s speech, with spot gold down 0.8% to $1,9340 per ounce.
Looking ahead, a bevy of central bankers and economists speak at the Jackson Hole economic symposium in a few hours via webcast entirely viewable by the public for the first time. Powell’s appearance will be closely watched for insight into the Fed’s new monetary policy framework review. "We think the Fed’s message is clear: it will want to keep rates low across the yield curve, in line with its desire to keep financial conditions ultra-loose," Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note. "Investors should keep cash holdings to a minimum and will need to search harder for yield." Also in focus is the conclusion of the Republican National Convention. U.S. President Donald Trump will speak live from the White House on Thursday. Quarterly reports from retailers Abercrombie & Fitch Co, Dollar Tree Inc, Dollar General Corp and cosmetic maker Coty are also due premarket.
- S&P 500 futures down 0.3% to 3,471
- STOXX Europe 600 down 0.3% to 372.15
- MXAP down 0.02% to 174.06
- MXAPJ up 0.2% to 578.36
- Nikkei down 0.4% to 23,208.86
- Topix down 0.5% to 1,615.89
- Hang Seng Index down 0.8% to 25,281.15
- Shanghai Composite up 0.6% to 3,350.11
- Sensex up 0.3% to 39,206.14
- Australia S&P/ASX 200 up 0.2% to 6,126.23
- Kospi down 1.1% to 2,344.45
- German 10Y yield fell 3.4 bps to -0.449%
- Euro up 0.05% to $1.1836
- Italian 10Y yield fell 0.9 bps to 0.891%
- Spanish 10Y yield fell 2.8 bps to 0.348%
- Brent futures little changed at $45.66/bbl
- Gold spot down 0.5% to $1,945.61
- U.S. Dollar Index down 0.2% to 92.87
Top Overnight News
- Hurricane Laura made landfall near Cameron, Louisiana in the early hours of Thursday as one of the most powerful storms to hit the state on record. Authorities ordered evacuations and warned the storm surge will be “unsurvivable”
- Covid-19 cases surpassed 24 million worldwide with India seeing a record spike and South Korea, Italy and France reporting the most new daily infections in months
- Japanese Prime Minister Shinzo Abe should be able to serve out his term as party leader ending about a year from now, his top aide said, after concerns about the PM’s health
A quick look around global markets courtesy of newssquawk.com
Asian equity markets traded mixed after failing to take full impetus from the fresh record highs stateside which was led once again by a surge in big tech, with the region kept tentative by ongoing US-China tensions and ahead of the looming Jackson Hole Symposium. ASX 200 (+0.2%) was led higher by metal miners following the prior day’s advances in precious metals and with sentiment also supported amid better than expected Private Capex data which included upward revisions to yearly capex estimates. Conversely, Nikkei 225 (-0.4%) was pressured as exporters suffered from the ill effects of recent currency strength, while the KOSPI (-1.0%) also weakened after virus cases rose by the most since March and following the BoK rate decision where the central bank maintained rates at 0.50% as expected but downgraded its 2020 growth forecast in which it now anticipates a wider contraction of 1.3% for the economy. Elsewhere, Hang Seng (-0.8%) and Shanghai Comp. (+0.6%) were cautious as US-China tensions were stoked after the US blacklisted more Chinese firms including several subsidiaries of China Communications Construction Company which saw shares in the parent drop nearly 5%. Other notable stock movers today included HSBC (-1.6%) which was pressured by recent accusations from US Secretary of State Pompeo that it is aiding Beijing’s crackdown on Hong Kong and continues to provide services to people sanctioned by the US, although Xiaomi (+13.0%) shares have surged after it more than doubled its Q2 profit. Finally, 10yr JGBs were positive following the bull steepening stateside in the wake of a strong 5yr US auction, with the slightly soured Asia-Pac tone also providing a tailwind for bond prices, although some of the gains were later pared after mixed results at today’s 2yr JGB auction.
Top Asian News
- China Cash Shortages Push Up Funding Costs, Pressuring Bonds
- Japan’s Abe to Serve Out Term as LDP Leader, Top Aide Says
- South Korea Extends Ban on Short-Selling Amid Virus Flareup
- Biggest Malaysian Bank’s Profit Falls to Least in a Decade
Subdued trade across the European equity space (Euro Stoxx 50 -0.5%), as bourses drifted lower since the cash open despite a lack of fresh catalysts and a mixed APAC lead, but with possible positioning/profit-taking ahead of Fed Chair Powell’s address (full Jackson Hole schedule available on the newsquawk headline feed). Participants will be eyeing any nuances regarding the Fed’s framework review and average inflation targets ahead of the September meeting (full preview available in the newsquawk Research Suite). Sectors are mostly lower with a defensive bias, although IT bodes somewhat better than other cyclical names following the tech outperformance on Wall Street yesterday. Meanwhile, Banks reside at the bottom of the pile amid the low-yield environment. In terms of individual movers, WPP (+4.3%) leads the gains in the Stoxx 600 after overall solid earnings. Conversely, Rolls-Royce (-6.8%) resides on the other side of the spectrum after reporting dismal numbers whilst noting the COVID-19 has significantly impacted the group in H1. The newest DAX-component Delivery Hero (-2.9%) is pressured by its earnings which eroded YY. Finally, positive broker moves see Ambu (+1.5%) and Swedbank (+1.0%) in the green.
Top European News
- Europe Rejects Hardline Lockdowns to Contain Resurgent Virus
- Hedge Funds Press for Crackdown on Front-Running Loophole in EU
- The Hut Group’s Planned $1.2 Billion IPO Breaks London Lull
- U.K. to Pay People on Low Incomes If Self-Isolating in Pandemic
In FX, the Aussie and Kiwi are outpacing G10 peers, with the former probing resistance around 0.7250 vs its US counterpart in wake of Q2 Capex data showing a less steep decline than anticipated, while Aud/Usd is also deriving more upward momentum from the ongoing incremental strength in the YUAN that is now testing 6.8700 against the Greenback. Meanwhile, Nzd/Usd is eyeing 0.6650 next having established a firmer base above 0.6600 and gleaning some support from latest reports on the COVID-19 situation in Auckland as NZ’s Health Minister states that the outbreak is now relatively contained.
- DXY – The broad Dollar and index have unwound more of Wednesday’s pre and post US durable goods gains after another solid Treasury auction prompted a retreat in yields alongside some curve realignment from pronounced steepening, which in turn helped Gold and other precious metals to rebound sharply (Xau currently back up around Usd 1950/oz compared to just above Usd 1900 at one stage). In fact, the DXY is now hovering shy of 93.000 within a 92.991-783 range awaiting top tier data, Fed speakers at the symposium and the final issuance of the week, while also conscious of the fact that today is spot month end and portfolio rebalancing models are negative on balance for the Buck.
- CHF/EUR/GBP/JPY/CAD - All narrowly mixed vs the Greenback, as the Franc holds above 0.9100 and perhaps takes heed of Swiss Q2 GDP not contracting quite as much as expected, while the Euro continues to bang its head against 1.1850 and the 200 HMA in close proximity, but hold above 1.1800 and around the 21 DMA with a decent spread of option expiries outside of those parameters (from 1.1750-60 through 1.1900 to 1.19050-55). Elsewhere, the Pound is consolidating at newfound higher levels – Cable around 1.3200 and Eur/Gbp either side of 0.8950 – the Yen is straddling 106.00 and Loonie pivoting 1.3150 ahead of Canadian current account data and average earnings.
- SCANDI/EM - Retail sales beats and improvements in Swedish sentiment (both industrial and consumer) haven’t given the Nok or Sek much lasting impetus, as the respective Eur crosses hover around 10.5300 and 10.3100, though the latter may receive something more sustainable from Riksbank's Floden shortly . However, EM currencies are largely firmer at the Dollar’s expense, even the Rub awaiting a major interview by Russian President Putin at 12.00BST and the Try despite Turkey announcing live fire drills for next Tuesday and Wednesday in the Eastern Med that is almost certain to irk Greece, the international community and investors.
In commodities, WTI and Brent front month futures remain uneventful within a tight range, albeit near session lows, awaiting the main even later today at the Jackson Hole Symposium. Prices have largely priced in the temporary impacts of Hurricane Laura – which has made landfall near Cameron Louisiana as a Cat 4 hurricane, but has since been technically downgraded to a major Cat 3 hurricane – with BSEE leaving their shuttered production estimates unchanged D/D at 84.3%, equating to around 1.56mln BPD (some 13% of total US output). WTI Oct resides sub-43.50/bbl, having touched the figure to the upside in APAC trade, but remains within a tight USD 0.40/bbl range thus far. Brent Oct similarly trades sideways under USD 46/bbl having had printed an overnight base at 45.57/bbl. Elsewhere, spot gold trades softer at the whim of the Buck just under the USD 1950/oz mark, moving within a USD 20/oz range, whilst spot silver sees similar price action and remains contained under USD 27.50/oz. In terms of base metals, nickel prices hit November highs after solid stainless-steel demand and supply concerns from top producer Indonesia, while copper traded flat overnight in tandem with the mixed risk appetite.
US Event Calendar
- 8:30am: GDP Annualized QoQ, est. -32.5%, prior -32.9%
- Personal Consumption, est. -34.2%, prior -34.6%
- Core PCE QoQ, est. -1.1%, prior -1.1%
- 8:30am: Initial Jobless Claims, est. 1m, prior 1.11m; Continuing Claims, est. 14.4m, prior 14.8m
- 9:45am: Bloomberg Consumer Comfort, prior 43.5
- 10am: Pending Home Sales MoM, est. 2.0%, prior 16.6%; Pending Home Sales NSA YoY, est. 10.75%, prior 12.7%
- 11am: Kansas City Fed Manf. Activity, est. 5, prior 3
DB's Jim Reid concludes the overnight wrap
If like me you’ve been in the market for a Canada Goose Jacket for a few years but have balked at their cost then you may want to check out eBay today for some cut price deals. Yes shockwaves will have been felt through that industry as Davos has been moved from its traditional January slot to the summer of 2021. At least those of us going can rejoice at now arriving at a snowless Davos Forum and not be thinking that we’ve contributed to global warming.
From Davos to a virtual Jackson Hole where the Fed host their annual symposium today and tomorrow. I don’t think I’ve ever been asked to speak at a symposium so please invite me if you have one. I looked the word up in the Oxford English Dictionary to get the exact definition and I’ll leave you to decide which is likely to take place over the next two days. 1) A conference or meeting to discuss a particular subject. 2) A drinking party or convivial discussion, especially as held in ancient Greece after a banquet.
Number two sounds more fun but whichever it is, an array of central bankers will be gathering virtually this year for the annual shindig. There’ll likely be a lot of material to digest over the next 48 hours, but the main highlight will likely come later today from Fed Chair Powell, who’ll be speaking on the Fed’s monetary policy framework review. As Henry mentioned here on Monday, our US economists think that although it’s possible the policy review results will be released along with Powell’s appearance, it’s more likely that he’ll summarise the key findings and outline the likely implications for the Fed moving forward, with the policy review results not released until the September meeting.
Ahead of this, the recent selloff in core sovereign bonds has paused for now. Although US Treasury yields rose a further +0.5bps to 0.689% yesterday, they are down -1.1bps overnight. They were up over +2bps intra-day yesterday before a late session slide in yields. The recent general move higher in rates continues to be driven by a rise in inflation expectations rather than real yields, with US 10yr breakevens closing up another +2.6bps to 1.73% yesterday. That’s the highest level they’ve been at since January 21st, which incidentally was the first time that the coronavirus pandemic was mentioned in the EMR. The move in yields hasn’t been exclusive to the US however, with the bund-treasury spread having remained within a 10bps range for all of August. Before the small reversal in US bonds, 10yr bund yields were also up +1.6bps yesterday to -0.42%, almost closing at a one-month high.
At the risk of sounding repetitive now, global equity markets had yet another strong performance yesterday, with the S&P 500 up again to reach its 4threcord high in a row, thanks to a +1.02% advance. Tech stocks led the rally, helping the NASDAQ to hit a new high as well, with an even stronger +1.73% move upwards. Europe saw a similarly strong showing, with the STOXX 600 moving up +0.91%, while the DAX’s +0.98% advance put the index less than half a per cent away from moving into positive territory on a YTD basis. The MCSI global equity index also hit a new record, surpassing its 12 Feb highs. Even on a day when there was some positive vaccine news, the risk-on rally saw a growth over cyclical rotation. The Media (+4.43%) and Software (+3.15%) industries led the S&P higher at the expense of Energy (-2.23%), Banks (-1.63%) and Autos (-0.63%). Europe was more of a rising tide lifting all boats market with all but two of the 19 sectors finishing higher, though Tech (+2.20%) led as well.
The drop in US energy stocks comes as the Texas-Louisiana region braces for Hurricane Laura, which has been upgraded to a category 4 storm and is approaching category 5 with maximum winds increasing to 150 mph (241km/hr). It is estimated to make landfall between 12:30 am to 1:30 am CDT (about the time this hits inboxes). The region last saw a Cat-4 storm (Harvey) back in 2017, which caused over $130bn of damages. According to a Bloomberg report, more than 80% of the Gulf of Mexico’s oil production has been shut and the destruction to refineries alone could surpass $5bn. Brent (-0.48%) and WTI (+0.09%) were largely unchanged just ahead of the storm with news of declining stockpiles coinciding with decreased demand from shuttering refineries, though both measures are up over +2.5% on the week.
Overnight, markets in Asia are trading a bit more mixed with the Nikkei (-0.30%), Hang Seng (-0.63%) and Kospi (-0.55%) all down while the Shanghai Comp (+0.29%) and Asx (+0.54%) are up. Futures on the S&P 500 are also trading lower (-0.16%) while those on the Nasdaq 100 are down -0.25%. Spot gold and silver prices are also down -0.71% and -1.41% respectively this morning. Elsewhere, the BoK held its policy rate steady while slashing the 2020 GDP growth forecast to -1.3% yoy (vs. -0.2% yoy earlier) at its monetary policy meeting today. In terms of overnight data, China’s July industrial profits came in at +19.6% yoy (vs. +11.5% yoy last month), however the data series is fairly volatile.
On the virus, Italy recorded a further 1,366 cases in the past 24 hours, which was the highest one day rise since mid-May. However the Italian health minister cited a lack of strain in healthcare services and the low average age (30) of those testing positive in the past two weeks as reasons why the country would not need to impose a new round of national lockdowns. This follows similar comments from Spanish and German officials earlier in the week. France has now reported 5,429 cases in the last 24 hours and have added nearly 29,000 cases in the last week. The country has not seen that many new infections in a week since mid-April and PM Castex will hold a press conference today to discuss the health situation. In more positive news however, a phase 1 trial from Moderna showed that the antibody response among those over 55 was comparable to that experienced by younger adults. The firm’s share price was up +6.42% yesterday in response. In other encouraging news on the virus, Bloomberg reported that Abbott Laboratories has won US clearance for a 15-minute Covid test that will be priced at just $5.
Elsewhere, cases in the US continue to drive lower as the summer hot spots in the Sun Belt continue to see lower case loads, especially Arizona (0.3% average 7-day increase) and Florida (0.6% average 7-Day increase). Across the other side of world, South Korea reported another 441 cases in the past 24 hours, marking the biggest single day gain since early March. In other COVID related overnight news, the FT reported that a WHO team that was meant to investigate the origin of the coronavirus concluded their trip to China without a visit to Wuhan, China’s epicenter of the outbreak, citing the UN agency.
Outside of Jackson Hole, the other main highlight today will come from President Trump’s speech to the Republican National Convention later, which comes with less than 10 weeks to go now until US voters go to the polls. Though early in-person voting starts in less than a month in some US states, including potential swing states like Michigan and Minnesota. We discussed the election in our chart of the day yesterday (see here), where we pointed out how since the Second World War, only one other incumbent president has managed to win re-election with an approval rating as low as President Trump’s is 2 months before an election. Trump’s approval currently stands at 42%, but in the 11 post-WWII elections where an incumbent President has been a candidate, the only one who managed to win with an approval rating lower than this was Harry Truman in 1948 (at 40%). So while there’s still some time left to see a recovery in his numbers before election day, on that measure alone it looks historically challenging for Trump to win re-election on November 3rd.
Looking at yesterday’s data, the main highlight came from the US as July’s durable goods orders rose +11.2% (vs. 4.8% expected), while core capital goods orders excluding aircraft and military hardware was up +1.9% (vs. +1.7% expected). Meanwhile in France, the INSEE’s consumer confidence reading remained stable in August at 94, in line with expectations, though it remained below the 104 readings in January and February before the impact of the pandemic hit.
To the day ahead now, and the aforementioned economic symposium at Jackson Hole will likely be the highlight, including remarks from Fed Chair Powell, ECB chief economist Lane, and Bank of Canada Governor Macklem. Otherwise, data highlights include the Euro Area’s M3 money supply for July, while from the US we’ll get the second estimate of Q2 GDP, July’s pending home sales, August’s Kansas City Fed manufacturing activity index, and the weekly initial jobless claims. Finally, tonight sees President Trump speak at the Republican National Convention.