S&P futures fell (although Nasdaq futs rose) and commodities - especially gold and oil - tumbled as investors fretted over concerns about stimulus tapering and a resurgence in the fast-spreading delta virus variant. Yields dropped tumbled and the dollar steadied. S&P 500 E-minis were down 6.25 points, or 0.14%, Dow E-minis were down 112 points, or 0.32%, while Nasdaq 100 E-minis were up 22.5 points, or 0.15%.
S&P 500 contracts dropped after the underlying index closed at a record on Friday. Expectations that the Federal Reserve may soon start paring back its massive monetary stimulus were fanned by comments from Dallas Fed President Robert Kaplan. In U.S. premarket trading, cryptocurrency-exposed stocks such as Bit Digital (BTBT) and Riot Blockchain (RIOT) soared after Bitcoin and Ether prices spiked over the weekend. Future Fintech (FTFT) also jumped 15% after the blockchain e-commerce company was touted on Reddit and StockTwits. Other cryptocurrency-exposed stocks.
Here are some of the other notable pre-market movers:
- BioVie Inc. (BIVI) slumps 30% in premarket trading after the company offered 2.5 million shares at $8 each, implying a discount from the level it closed on Friday.
- Epizyme Inc. (EPZM) soars 16% after announcing a deal with Hutchmed China to develop Tazverik, a medicine used to treat certain patients with epithelioid sarcoma and others with follicular lymphoma.
- Tesla (TSLA) gained as much as 1.6% as Jefferies upgrades the stock to buy on earnings momentum.
- Sanderson Farms Inc (SAFM.O) gained 5.8% after agreeing to be acquired by Cargill and Continental Grain Co for $4.5 billion deal.
A stellar earnings season has seen U.S. stocks surge to record highs over the past two weeks, as several consensus-beating results from major firms reinforced faith in a post-COVID economic recovery this year. Analysts expect second-quarter profit growth of 92.9% for S&P 500 companies, according to Refinitiv. Of the 427 companies in the index that have reported earnings so far, 87.6% beat analyst expectations, the highest on record.
Friday’s strong payrolls report, as well as comments from Dallas Fed President Robert Kaplan, have fanned expectations that the Federal Reserve may soon start paring back its massive monetary stimulus. That comes as the rampaging delta variant could lead to a slower economic recovery and a tight labor market, Kaplan warned. Also in the mix are rising price pressures, with U.S. inflation data this week a key marker for investors ahead of the Jackson Hole symposium later this month.
"You have these concerns that if the economy is growing very, very strongly then that might bring forward the tightening or the tapering by the Fed," Shane Oliver, head of investment strategy and chief economist at AMP Capital, said on Bloomberg Television. “There is a good chance they might announce that tapering in September and it would start later this year.”
In Europe, the Stoxx Europe 600 index traded flat as gains in the utility and technology sectors were offset by losses in travel and leisure shares as well as energy stocks. Here are some of the biggest European movers today:
- Deliveroo shares jump as much as 11% in London to their highest since March’s IPO after online food delivery peer Delivery Hero disclosed a 5% stake.
- Pandora shares gain as much as 3.9%, recouping much of Friday’s 4.6% drop that followed the jewelry seller’s preliminary 2Q earnings.
- Vectura shares rise as much as 5.1% after tobacco group Philip Morris International raised its offer for the respiratory medicines company.
- Hargreaves Lansdown shares tumbled as much as 13% as the pandemic-fueled surge in retail stock trading proves less of a boon for the investing services firm than hoped.
- IMCD shares drop as much as 3.6%, largest intraday fall since February, after Berenberg downgraded stock to hold from buy.
- Argo Blockchain shares tumble as much as 11% after anonymous short seller Boatman Capital published a critical report on the cryptocurrency mining company.
Earlier in the session, Asian stocks were little changed as losses in index heavyweight Alibaba Group countered gains in financial shares following a jump in U.S. Treasury yields. The MSCI Asia Pacific Index rose 0.1% in listless trading, with markets in Japan and Singapore shut for holidays. Alibaba was the biggest drag, sliding as much as 4.3%, as the Chinese internet giant fired a manager accused of rape, moving to contain the fallout after an employee’s account of her ordeal went viral on social media. Investors are assessing the outlook for equities after strong U.S. payrolls data on Friday boosted the prospect of higher interest rates, with 10-year Treasury yields capping their first weekly gain since June. A warning in Chinese state media that regulators will show no tolerance in cracking down on speculators in the chip market sent related stocks lower, even as the broader CSI 300 Index climbed 1.3%. “Investors are still conservative toward any regulatory risks, but there could be small relief today after China’s plan to fine Meituan last Friday, on the belief that the next move wouldn’t come so soon again,” said Steven Leung, executive director at UOB Kay Hian Ltd (Hong Kong). Meituan shares jumped in Hong Kong following reports Chinese antitrust authorities may be wrapping up a four-month antitrust investigation into the food-delivery giant. Stocks rallied in the Philippines, while Indonesia’s equity benchmark was the biggest loser in Asia amid continued concerns over the spread of the delta variant.
In FX, the Bloomberg Dollar Spot was little changed and most G-10 currencies traded in tight ranges. The strong U.S. non-farm payrolls report on last week added to recent rhetoric from policy makers calling for a reduction in bond purchases and sent the gauge 0.5% higher Friday. The Norwegian krone tracked a slide in oil prices, while the pound extended last week’s rally to hit its strongest in around 18 months versus the euro.
In rates, Treasury futures edged higher over European session, and the 10Y Yield dipped to 1.27%. Yields are richer by up to 2bp across long-end of the Treasuries curve, flattening 2s10s, 5s30s by 1.4pb and 0.2bp. The Asian session was quiet on light volumes with cash markets and JGBs closed due to a holiday in Japan. Cash Treasury trading resumed at 7am London; 10-year yields around 1.275%, underperforming gilts by 1.3bp in the sector. Focus this week will be on U.S.’s 3-, 10-, 30-year bond sales for a combined $126b, starting Tuesday. WTI futures drop over 4% amid a resurgence in the fast-spreading delta virus variant.
In commodities, oil prices fell by 4% on Monday, extending last week's steep losses on the back of a rising U.S. dollar and concerns that new coronavirus-related restrictions in Asia, especially China, could slow a global recovery in fuel demand. Brent crude futures fell by $2.82, or 4.2%, to $67.88 a barrel by 0930 GMT after a 6% slump last week for their biggest weekly loss in four months. U.S. West Texas Intermediate (WTI) crude futures fell $2.85, or 4.3%, to $65.43 after plunging by nearly 7% last week. On Monday the contract fell as low as $65.15, its lowest since May.
"Concerns about potential global oil demand erosion have resurfaced with the acceleration of the Delta variant infection rate," RBC analyst Gordon Ramsay said in a note. ANZ analysts pointed to new restrictions in China, the world's second-largest oil consumer, as a major factor clouding the outlook for demand growth. "Both (benchmark crude) contracts look vulnerable to more bad news on the virus front, focusing on mainland China," OANDA senior market analyst Jeffrey Halley said in a note.
Precious metals also sold off, with gold touching the lowest since March before paring losses. Silver dropped to its lowest since November. Strong U.S. payrolls data on Friday raised the prospect of higher rates, which would make precious metals less attractive relative to other assets.
- S&P 500 futures down 0.2% to 4,421.25
- STOXX Europe 600 little changed at 469.91
- MXAP little changed at 200.04
- MXAPJ little changed at 662.19
- Nikkei up 0.3% to 27,820.04
- Topix little changed at 1,929.34
- Hang Seng Index up 0.4% to 26,283.40
- Shanghai Composite up 1.1% to 3,494.64
- Sensex little changed at 54,249.92
- Australia S&P/ASX 200 little changed at 7,538.41
- Kospi down 0.3% to 3,260.42
- Brent Futures down 3.5% to $68.24/bbl
- Gold spot down 1.0% to $1,745.63
- U.S. Dollar Index little changed at 92.80
- German 10Y yield rose 1.8 bps to -0.464%
- Euro little changed at $1.1761
- Brent Futures down 3.5% to $68.24/bbl
Top Overnight News from Bloomberg
- China’s economic risks are building in the second half of the year, with growth set to slow while inflation pressures are picking up, clouding the outlook for central bank support
- The U.S. Senate moved closer to passing a $550 billion infrastructure package after a drawn-out debate pushed action into this week and left the status of several proposed changes unsettled.
- European Central Bank Governing Council member Jens Weidmann warned that inflation in the euro area could pick up faster than expected, and urged not to drag out the institution’s pandemic bond-buying program
- An epochal new report from the world’s top climate scientists warns that the planet will warm by 1.5° Celsius in the next two decades without drastic moves to eliminate greenhouse gas pollution
Detailed look at global markets courtesy of Newsquawk
APAC stocks kicked off the week with mild losses before eventually trading mostly higher, but the tone across the markets remained cautious and volumes light in the absence of Japan. This followed a mixed Wall Street performance on Friday in which the tech-burdened indices - the SPX and particularly the NDX - suffered on the back of pronounced Treasury curve steepening after the solid US jobs report. Meanwhile, the Russell 2000 was bid amid strength in cyclical stocks, benefitting from the improved economic outlook. US futures resumed trade relatively flat but drifted lower in the first half of the session, alongside losses in oil futures and a mini flash-crash in spot gold and silver (see the commodities section below), as APAC players had the first chance to react to the US jobs report in the thin early markets. US equity futures thereafter trimmed some losses, but the RTY (-0.6%) sees marginally more pronounced losses vs its YM (-0.1%), ES (-0.2%) and NQ (-0.1%) counterparts heading into the European open. European futures followed overnight sentiment with the DAX (-0.2%) and FTSE 100 (-0.2%) futures subdued since their opens. Back to APAC, Japanese markets are away observing Mountain Day whilst over in Australia, ASX 200 (U/C) gradually trimmed gains throughout the session but held its head above 7,500, with Suncorp (+6.5%) the top performer on strong earnings alongside press speculation that it may be a takeover target by ANZ Bank. The KOSPI (-0.3%) traded lacklustre throughout the session as COVID cases remain elevated, whilst Yonhap sources suggested the US and South Korea will conduct military exercises during the next two weeks in a move likely to rock relations with North Korea. The Hang Seng (+0.4%) and Shanghai Comp (+1.1%) were initially choppy as the region balanced above-forecast inflation, slowing imports and exports, and a rise in COVID cases, but later solidified an upside bias and outperformed the region with no real fundamental drivers at the time.
Top Asian News
- Alibaba Fires Manager as Sexual Assault Case Rocks China
- China’s Economic Risks Build as Delta Spreads, Prices Gain
- Future Retail Bonds Tumble With Stocks After Reliance Deal Blow
- SoftBank Joins Two Gulf Wealth Funds for Debut Turkey Investment
European equities (Eurostoxx 50 +0.1%) trade with little in the way of firm direction following on from a mostly firmer APAC lead and mixed performance on Wall St. on Friday. In the absence of Japanese participants, the overnight session saw focus fall on data points out of China whereby inflation metrics printed firmer than expected whilst trade data saw a slowing of import and export growth. Furthermore, investors are increasingly mindful of rising COVID cases which have subsequently restricted mobility across the nation and comes in the wake of other travel fears after reports last week suggested that the EU could reimpose travel restrictions on US visitors as soon as this week. US futures trade on a softer footing (ES -0.2%, NQ -0.1%) with underperformance in the RTY (-0.6%). Over the weekend, the US infrastructure deal cleared its final serious Senate hurdle, putting the legislation on a path to passage as soon as late Monday. From a European perspective, macro developments are relatively light with this morning’s EZ Sentix release passing with little in the way of fanfare after falling short of expectations and cautioning that global growth momentum is weakening. Sectoral performance in Europe has seen outperformance in Tech and Health care with the latter partially guided by drugs updates from the likes of AstraZeneca, Roche and Sanofi. To the downside, Oil & Gas names lag amid price action in the crude complex (see below for further details), whilst Autos are a touch softer amid losses in Daimler (-1.8%) following a broker downgrade at Jefferies. Basic Resource names have scaled back some opening losses in what was an eventful overnight session for the metals complex amid the flash crash in spot gold and silver. Elsewhere, Deliveroo (+8.9%) sit at the top of the Stoxx 600 following news that Delivery Hero has built a 5.1% stake in the Co. SSE (+3.4%) is another notable gainer after the Times has suggested that Elliott Management’s recently acquired stake in the Co. could prompt speculation over a potential takeover or break up. Hargreaves Lansdown (-11.2%) is the standout laggard in the Stoxx 600 after the Co. cautioned that current trading volumes are unlikely to persist alongside its FY results.
Top European News
- Deliveroo Shares Hit Post-IPO High After Delivery Hero Stake
- SoftBank Joins Two Gulf Wealth Funds for Debut Turkey Investment
- European Gas Fluctuates Amid Uncertainty Over Russian Supply
- French Economy Hit by Supply Problems as Activity Nears Normal
In FX, the Dollar remains firm, but off new highs forged in wake of last Friday’s strong jobs data as volumes pick up from depressed overnight levels due to the absence of Japanese markets on Mountain Day. Looking at the DXY, some profit taking and technical selling may also be weighing after the index stopped just short of the 93.000 level, at 92.922 and drifted down to 92.733 amidst similar consolidative trade in US Treasuries and other global bonds that tumbled on the back of the all round strength in the BLS report. Ahead, employment trends and JOLTS data look somewhat redundant given the NFP release, but comments from Fed’s Bostic and Barkin will be monitored closely for reactions to payrolls in the context of ‘substantial’ progress.
- NZD/CHF/AUD - It’s marginal, but the Kiwi and Franc are flanking the major ranks and a bit more divergent vs the Buck than others, as Nzd/Usd keeps its head above 0.7000 and Usd/Chf trades mostly firmer around 0.9150. The former continues to glean traction from near term RBNZ rate hike expectations, and this is also evident via the Aud/Nzd cross hitting offers on approaches to 1.0500, while the Aussie is also being hampered by the worsening COVID-19 situation and repercussions for the economy plus RBA policy as a consequence. Hence, Aud/Usd remains depressed under 0.7350 and also taking heed of the latest Chinese trade update that showed imports missing consensus by a greater margin than exports.
- JPY/EUR/CAD/GBP - All narrowly mixed and tightly bound against their US counterpart, as the Yen meanders from 110.11-34 in holiday-thinned turnover, while the Euro straddles 1.1750 within a 1.1767-42 range, eyeing 1 bn option expiries at the half round number. For the record, little reaction to an encouraging German trade balance and especially strong exports, or a disappointing Eurozone Sentix index for that matter. Elsewhere, the Loonie is still licking wounds between 1.2584-41 parameters after disappointing Canadian jobs data and amidst another collapse in crude prices, while Sterling is hovering nearer the top of 1.3850-94 extremes and a minor new 2021 apex vs the Euro circa 0.8465.
- SCANDI/EM - No shock that the aforementioned weakness in oil is undermining the likes of the Nok, Rub and Mxn, as Brent slides towards Usd 68/brl and WTI skirts Usd 65.60, but the Try is not deriving benefit ahead of what is probably likely to be another CBRT non-event and the Zar is reeling after further steep declines in Gold that suffered a flash crash to sub-Usd 1700/oz proportions at one stage. Conversely, the Cnh and Cny are on an even keel with assistance from above forecast Chinese CPI and PPI metrics, not to mention a wider July trade surplus.
In commodities, WTI and Brent were pressured overnight with COVDI-19/Delta concerns in focus alongside renewed travel restrictions for various areas; pressure which has continued into and exacerbated during the European session. Currently, WTI and Brent are posting losses of around USD 3.0/bbl. Returning to COVID, the demand-side of the equation is weighed on as the likes of Israel and Beijing are reinstating restrictions, with the latter on travel to/from high-risk areas. On the demand-side, this week sees the release of all three key monthly oil reports, beginning with the EIA STEO tomorrow after they cut their world oil demand forecast for 2021 by 80k BPD in July, though upgraded the 2022 view. Elsewhere, Saudi Aramco report strong results over the week in which the CEO was confident on their outlook and is taking the opportunity of a general under-investment in oil supply to continue to increase their own supply and are around two-years from concluding the planning/design stages to increase capacity to 13mln BPD vs current 12mln BPD. However, attention is on their dividend which was maintained at its normal level and as such provides a dividend yield that is around 1% lower than main rivals. Moving to metals, spot gold and silver are pressured to the tune of circa 1% and 2% respectively, though have recovered the vast majority of a mini flash crash which took place in APAC hours that occurred without any fresh news flow. The move was attributed to thin markets, a technical death cross in gold and talk around USD 4bln in notional gold contracts for sale on Sunday night.
US Event Calendar
- 10am: June JOLTs Job Openings, est. 9.27m, prior 9.21m
DB's Jim Reid concludes the overnight wrap
On a dark morning here in the U.K., after a weekend where a boat would have been the ideal method of transportation on any surface, summer seems to be slipping away a handful of days before my staycation starts. Fingers crossed we have one last hoorah in the second half of August. Theme parks are bad enough as it is. Wet theme parks are like being stuck in purgatory. On the topic of climate watch out for a UN study today which will be the biggest report so far on climate change. It’s set to create a huge amount of headlines.
So as we hit the dog days of summer, well without the sun or the heat, it is all about US inflation this week after a strong US payroll report on Friday. It’s quite telling though that the treasury market has shrugged its shoulders and then rallied at two of the largest inflation beats in modern history over the last couple of months but did see a +7.3bp sell-off after Friday’s stronger than expected employment report. This perhaps highlights that rightly or wrongly employment gains are going to be the key determinant, and not inflation, for the US in terms of taper and beyond. What I find slightly confusing about this fixation with the employment report is that practically every other indicator of US employment has been very strong in recent months and therefore you can make a fair assumption that employment prospects are pretty decent at the moment outside of supply constraints. Waiting to see evidence of that might mean policy makers and bond investors are slow to react. But maybe that’s the whole point of FAIT, namely to wait for proof and not just forecasts of gains. To be fair I could have said that at 1.50% on 10yr yields and it’s still possible that delta will destroy all the good employment momentum even if I think that is unlikely. Talking of strong US employment, today’s sees the JOLTS job openings data which has been strong in recent months.
For those still keen to pay attention to the eye watering US CPI levels, economists are expecting a +0.5% m/m increase to headline CPI on Wednesday and a tick down to 5.3% y/y, after last month came in at +0.9% m/m, which took the y/y reading to +5.4%. They expect a +0.4% m/m and +4.3% y/y core print after last month was +0.9% m/m and +4.5% y/y.
The areas that have been strong, namely new cars, used cars, and lodging away, will likely continue to be for this reading but their influence will likely fade soon. As an example Manheim used car prices have fallen by roughly 3% since the peak in May. However this tends to lead the used car CPI contribution by two to three months so we will likely get a decent dip from this in this reading or more likely the next. However the housing strength means primary- and owners' equivalent rents (OER) should see decent gains again and this could continue to be an issue for CPI over the next 12-18 months. So in simple terms it will be a battle between cars and housing over the coming months.
Other US inflation landmarks this week will be Thursday's PPI and Friday's University of Michigan sentiment data with the inflation expectations series. In addition Cleveland Fed President Mester (non-voter / hawk) will be discussing risks to the inflation outlook in the US and Europe tomorrow at a virtual panel hosted by her bank.
Given that the Fed’s Clarida started the US 10yr yield climb from 1.1274% on Wednesday last week to the close at 1.2969% on Friday, we will likely pay a bit more attention to Fed speakers. We have Bostic (voter / hawk) and Barkin (voter / hawk) today who will be the first to react to payrolls and likely lay out their more hawkish taper thoughts. Mester (see above), George and Logan follow before Wednesday is out.
In Congress we could see the bi-partisan infrastructure bill pass this week (although don’t rule out continued political roadblocks) and further cat and mouse progress towards the next stage - a $3.5 trillion reconciliation bill. The debt ceiling lurks in the background though to complicate matters.
Other major data releases this week include the UK’s preliminary reading of 2Q GDP (Thursday), which is expected to show the economy grew at +4.8% last quarter, following a -1.6% contraction in Q1. This reflects how restrictions were lifted during much of the spring and early summer. Outside of the US CPI reading, market participants will also focus on final July CPI data from Germany, Italy (both Wednesday) and France (Friday). Japan sees PPI on Thursday.
A strong earnings season is now starting to wind down but it’s still reasonably busy, with the highlights including BioNTech, Barrick Gold, Trade Desk and Tyson Foods today before Softbank, Coinbase, Sysco, Foxconn, Transdigm Group, and Bridgestone tomorrow. Then on Wednesday we’ll hear from NIO, Prudential, EBAY, SMC Corp, Vestas, and Commonwealth Bank of Australia. Thursday sees reports from Walt Disney, China Mobile, Deutsche Telekom, AirBnB, Doordash, and Baidu.
The main action this morning has been on the precious metals front with Gold and Silver both down -1.32% and -1.83% respectively. However, Gold was down as much as -4.15% at one point on concerns over tighter Fed policy on the back of Friday’s strong jobs report. Other commodities are also trading lower with iron ore down -3.25%, SHF steel rebar -0.39%, CBT corn -0.18% and ICE cotton -0.20%. Asian equity markets have started the week on the front foot though with the Hang Seng (+0.94%), Shanghai Comp (+0.95%), Asx (+0.18%) and Kospi (+0.03%) all up. Japanese markets are closed for a holiday. In Fx, the Russian rouble is down -0.40% while the Norwegian Krone is down -0.20% on oil weakness with brent crude down -1.82% after last week’s c.-7% slump. Lastly, futures on the S&P 500 are down -0.19% and those on the Stoxx 50 are down -0.12%. In terms of overnight data releases, China’s July CPI came in at +1.0% yoy (vs. +0.8% yoy expected and +1.1% yoy last month) while PPI printed at +9.0% yoy (vs. +8.8% yoy expected).
In other weekend news, the ECB Governing Council member Jen Weidmann said in an interview with newspaper Welt am Sonntag that inflation in the euro area could pick up faster than expected and added that the PEPP must end when the Covid-19 crisis is over. He added that “The first P stands for pandemic and not for permanent. It’s a question of credibility.”
In terms of the latest on the pandemic, Australia’s inland city of Tamworth went into a week long lockdown as the virus is starting to spread beyond major cities. Meanwhile, in a sign of how people are getting fatigued with lockdowns, a Newspoll survey highlighted that Australian PM Scott Morrison’s support for handling the pandemic has fallen to 48% from 85% in April 2020. In the US, Dr. Anthony Fauci has said that vaccine booster shots should be given “reasonably soon” to people with a weakened immune systems. Lastly, Israel has already given a booster dose to nearly a third of over 60s.
Back to last week now and global equity markets rose to new all-time highs with the S&P 500 up +0.94% over the five days (+0.17% Friday) in a broad based rally that saw banks (+4.46%) and technology stocks (+0.95%) performing well, but cyclicals outperform. The tech gains saw the NASDAQ add +1.11% last week (-0.40% Friday) and finish just off the record high reached on Thursday. The weakness in growth/tech on Friday came after the US jobs report, which showed US payrolls rose by 943k (870k expected) in July, with the prior month revised up to 938k from 850k, and the overall unemployment rate fall 0.5pp to 5.4%. That was the largest one month rise in jobs since last August. With cyclicals outperforming, European equities rose to its own record close on Friday as the STOXX 600 ended the week (+1.78%) higher.
The US jobs report saw US 10yr Treasuries sell-off sharply, with yields rising +7.3bps on Friday to finish the week +7.5bps at 1.297%. The weekly move was driven by an +11.2bps increase in real yields off their historic lows, while inflation expectations actually softened -3.7bps. Sovereign bonds in Europe outperformed across the board, with yields on 10yr bunds just +0.5bps higher, whilst those OATs (-1.4bps), BTPs (-5.3bps) and Spanish bonds (-2.7bps) were all lower. UK 10yr gilt yields rose +4.6bps to 0.61% as the BoE acknowledged "some modest tightening of monetary policy over the forecast period was likely to be necessary.”
Oil prices also slumped last week with WTI down -7.67% (-0.81% on Friday) while Brent was -6.25% (-0.59% on Friday).
Outside of the US jobs data on Friday, the main data highlights were the German June industrial production which fell -1.3% m/m (+0.5% expected) and the Italian June industrial production which was more in line at +1.0% m/m (1.1% expected).