US equity futures were flat after trading in a narrow overnight range, and European and Asian markets drifted in a volume-light session ahead of Friday's traditionally volatile quad witching session, when the expiration of options and futures send volumes soaring as big derivatives positions roll over. As Bloomberg notes, "there may be more attention than usual after a month where the red-hot trade in tech stocks wavered and options activity dominated headlines" however since there are fewer expirations this time, it may mute the impact.
Tesla rose 2.1% in premarket trading after two analysts raised their price targets on the electric carmaker's shares ahead of its highly anticipated "Battery Day" event next week.
Nasdaq futures rebounded after a sharp two-day selloff in technology stocks while worries about rising coronavirus cases and the economic recovery weighed on S&P 500 and Dow futures. The S&P and Nasdaq have also come under pressure from investors rotating out of high-flying tech-related stocks and into industrial and transportation firms after Powell failed to reassure investors that more monetary stimulus was on deck. Of the 11 major S&P indexes, industrials, materials and energy have gained more than 2% so far this week, while communication and consumer discretionary posted the biggest declines.
Europe's Stoxx 600 Index was little changed after opening modestly lower, with the gauge weighed down by declines in travel and leisure shares on the threat of wider restrictions to stem the spread of coronavirus. Although activity on major gauges was modest, there were bigger moves in single-name stocks swept up in a bout of M&A.
Asian stocks gained, led by materials and IT, after falling in the last session. Most markets in the region were up, with Shanghai Composite gaining 2.1% and Japan's Topix Index rising 0.5%, while Australia's S&P/ASX 200 dropped 0.3%. The Topix gained 0.5%, with Alleanza Holdings Co Ltd and Sysoft rising the most. The Shanghai Composite Index rose 2.1%, with Shuangliang Eco-Energy Systems and Qibu posting the biggest advances.
Investors remain on the lookout for more U.S. fiscal stimulus after the Federal Reserve disappointed stimulus junkies even as it indicated that interest rates will stay low for at least 3 years. Meanwhile, as Bloomberg notes, data continues to show a patchy recovery path around the world as coronavirus infections surge. France’s daily cases rose by more than 10,000 to the highest since the end of lockdown in May.
"The market is somehow uninspired following recent central bank meetings,” said Robert Greil, chief strategist at Merck Finck Privatbankiers AG. “It is waiting for the next support step, be it from their side or regarding the U.S. fiscal program to be agreed finally."
In rates, treasuries gained led by the long-end of the curve as cross-market flows emerge over Asia session, adding support. Yields were lower by up to 2bp across long-end of the curve with front-end broadly anchored, flattening 2s10s, 5s30s by 1.2bp and 0.8bp; 10-year yields around 0.672% and trading in line with bunds and gilts. The IG credit issuance slate is empty today with nearly $1.6 trillion in deal priced YTD - an all time high; nine deals brought $6.4b Thursday to push weekly volume past $40b projected.
In FX, the dollar was mixed against G10 peers and in tight ranges as traders wait for U.S. data releases amid a thin calendar and low volumes. Interbank desks look to sell dollar rallies versus the euro, the pound and the yen, Bloomberg said citing three Europe-based traders. The pound was little changed around $1.2980 as pressure from Bank of England communique fades given Brexit uncertainty remains; options-related interest in cable circa 1.2950, with sizable bidding interest just below 1.2900.
In commodities, WTI and Brent futures trimmed overnight gains and trade flat during early European hours, with little by way of fresh catalysts to induce the pullback. Still, oil is poised for its biggest weekly advance since early June. Futures in New York are up almost 11% this week as Saudi Arabia ratchets up the pressure on OPEC+ members to adhere to the group's production cuts.
Looking at the day ahead, we’ll get the preliminary September reading of the University of Michigan’s consumer sentiment index, the August leading index, as well as the Q2 current account balance. In terms of central bank speakers, we’ll hear from the ECB’s de Guindos, Schnabel and Hernandez de Cos, along with the Fed’s Bullard and Bostic.
- S&P 500 futures little changed at 3,348.25
- STOXX Europe 600 down 0.1% to 370.84
- MXAP up 0.5% to 173.94
- MXAPJ up 0.5% to 570.32
- Nikkei up 0.2% to 23,360.30
- Topix up 0.5% to 1,646.42
- Hang Seng Index up 0.5% to 24,455.41
- Shanghai Composite up 2.1% to 3,338.09
- Sensex up 0.3% to 39,076.05
- Australia S&P/ASX 200 down 0.3% to 5,864.50
- Kospi up 0.3% to 2,412.40
- Brent futures up 0.2% to $43.39/bbl
- German 10Y yield rose 0.3 bps to -0.488%
- Euro up 0.04% to $1.1853
- Italian 10Y yield fell 1.4 bps to 0.749%
- Spanish 10Y yield rose 1.2 bps to 0.276%
- Gold spot up 0.5% to $1,953.88
- U.S. Dollar Index down 0.1% to 92.86
Top Overnight News from Bloomberg
- U.K. Health Secretary Matt Hancock declined to rule out a second national lockdown and said the acceleration of coronavirus cases and hospital admissions across the U.K. represents a “big moment” for the country
- The U.K. government said a round of informal EU trade talks this week were “useful,” as European Commission President Ursula von der Leyen told the Financial Times she’s “convinced” a deal is possible
- European regulators are moving closer to lifting a de-facto ban on bank dividend payments at the start of next year. Several members of the European Central Bank’s supervisory board, who supported initial requests that banks forgo dividends, see further extensions of the ban doing more harm than good, according to people familiar with the matter
- The volume of goods sold in U.K. stores and online rose 0.8% from July, the Office for National Statistics said Friday. It marked a fourth month of growth following an unprecedented slump in April, after the government ordered most stores to close to help fight the spread of coronavirus. Sales excluding auto fuel rose 0.6%, stronger than economists forecast
- France’s daily coronavirus cases rose by more than 10,000 to the highest since the end of lockdown in May and Health Minister Olivier Veranwarned that the disease “is again very active” in the country
A quick look at global markets courtesy of NewsSquawk
Asian equity markets were mildly positive after shrugging off the weak lead from the US where the Nasdaq led the retreat once again to extend on the losses following the FOMC policy announcement and heading into quadruple witching. ASX 200 (-0.3%) and Nikkei 225 (+0.2%) were rangebound after failing to build upon opening momentum with strength in Australia’s commodity-related sectors offset by losses in the broader market including the top-weighted financials, while the Japanese benchmark treaded water amid a lack of fresh catalysts to instigate price action and with the latest inflation data all conforming to expectations. Hang Seng (+0.5%) and Shanghai Comp. (+2.1%) were initially indecisive with outperformance eventually seen in the mainland following the PBoC’s liquidity efforts in which it utilized both 7-day and 14-day reverse repos for the first time this month, although some cautiousness remains after recent mixed reports concerning the Oracle-TikTok deal heading into President Trump’s verdict which sources suggested could be within the next couple of days, while substantial pressure was also seen in Tencent shares due to recent underperformance in the tech sector and with its gaming stakes said to draw US national security scrutiny. Finally, 10yr JGBS were higher after recently breaking through the stubborn resistance at the 152.00 level, but with gains limited by the improving risk tone and following slightly weaker demand at the enhanced liquidity auction for 2yr-20yr JGBs.
Top Asian News
- Tesla Battery Maker’s Split-Off Angers Korean Retail Investors
- Foreign Judge Resigns Amid Hong Kong Security Law Concerns
- Taiwan Dollar Rises Most in 6 Months as Central Bank Eases Grip
- Thailand Reports First Coronavirus Death Since Early June
Stocks in Europe see a mixed session thus far (Euro Stoxx 50 -0.1%), whilst US equity futures also see no conviction amid a somewhat of a similar lead from APAC, with fundamental news-flow light on quadruple witching day (full schedule available on the headline feed). The regional bourses see a mixed performance, with Switzerland’s SMI (+0.5%) outperforming as the Healthcare sector is propped up by Pharma-giants Roche (+2.1%) and Novartis (+1.8%), with the former announcing its phase III EMPACTA study met primary endpoints in regards to COVID-associated pneumonia, whilst also rolling out a new antibody test for countries accepting the CE mark. On the other side of the spectrum resides Spain’s IBEX (-1.5%), weighed on by the banking sector in the aftermath of the formal merger agreement between Caixabank (-1.5%) and Bankia (-4.3%); with Caixabank’s CEO stating it is out of question that the merger with Bankia will allow for potentially higher dividend. Meanwhile, Banks more broadly saw fleeting upside on reports that EU regulators have moved closer to lifting the ban on dividends in 2021, nonetheless the sector remains in the red. Overall, European sectors trade mixed with no risk profile to be derived. In terms of individual movers, Covestro (+6.9%) holds onto a bulk of its opening gains amid speculation that Apollo is said to be mulling a USD 10bln takeover bid for the group, albeit the Co. said it is not in any discussions. Sticking with M&A, LSE (+0.7%) has accepted Euronext’s (+4.8%) bid for Borsa Italiana, despite it being the lowest offer, but the deal did offer a sweetener as Euronext teamed up with Italy's sovereign wealth fund CDP and Intesa Sanpaolo (-0.1%) on its bid, with Rome keen to keep a tight grip on Borsa Italiana. Finally, Ryanair (-5.2%) is pressured after cutting its October capacity by a further 20% on top of the already announced 20% in mid-August with similar capacity cuts potentially in the pipeline for winter – also weighing on the likes of easyJet (-8.3%), IAG (-12.1%), Lufthansa (-4.7%) and Air France-KLM (-3.9%) in sympathy, with the airline sector already bearing the brunt of the European COVID-19 resurgence.
Top European News
- Tesla Battery Used For First Time to Balance U.K. Power Grid
- ECB Moves Closer to Lifting Bank Dividend Ban by Next Year
- France Warns Virus ‘Very Active’ as Cases Rise Across Europe
- Giant Glencore Coal Mine Faces Threat as Fund Refuses Backing
- Hancock Refuses to Rule Out New Lockdown as Covid Surges in U.K.
In FX, the rationale or catalyst is far from clear, but disappointment in wake of NZ Q2 GDP has been relatively short-lived for the Kiwi, and remarks from Finance Minister Robertson overnight noting that the economy is rebounding from contraction may have helped along with his assurance that the RBNZ is committed to maintaining the OCR at 0.25% until Q1 next year when it will reassess the situation. Confirmation of the latter could come from next week’s policy meeting in addition to any response to the latest review of pandemic containment measures in Auckland and the rest of the country. Nzd/Usd has extended its recovery to just shy of 0.6800 vs almost 0.6600 last Wednesday, while Aud/Nzd has retreated through 1.0800 as the Aussie stalls above 0.7300 against its US counterpart following somewhat contrasting comments from Treasurer Frydenberg downplaying Thursday’s stellar jobs data by describing the labour market as still very challenging. Note also, Aud/Usd may be feeling the gravitational pull of 2.4 bn option expiry interest at the 0.7300 strike.
- JPY/DXY – Not the biggest index component, but the Yen continues to exert considerable influence on the broad Dollar and DXY as it probes a Fib retracement level ahead and 104.50 following this month’s respective Fed and BoJ policy meetings, even though Japan’s Finance Minister contends that monetary easing has helped Usd/Jpy to stabilise within a 105.00-110.00 range. However, the Buck is unwinding more of its fleeting FOMC gains vs G10s in general and July 31’s 104.20 trough looms as the DXY hovers below 93.000 and not far from last week’s 92.695 base between 92.772-973 parameters.
- GBP/EUR – Modest m/m beats on the UK retail sales front may be propping up the Pound, but is appears that Cable’s latest look at 1.3000 and Eur/Gbp’s pull-back from yesterday’s highs are due to renewed hopes of a Brexit trade deal given European Commission President von der Leyen’s purported confidence that an accord can yet be forged. Indeed, the short end of the UK yield curve is still tipped in favour of sub-zero rates after guidance from the BoE, while the Euro is also on a firmer footing against the Greenback, albeit tethered to 1.1850 with decent option expiries capping the upside at 1.1900 and 1.1950, while the 100 HMA is in close proximity at 1.1844.
- CAD/CHF – The Loonie has pared more lost ground vs its US rival to straddle 1.3150 before Canadian retail sales, while the Franc is idling just above 0.9100 and looking further forward to September’s quarterly SNB policy review for any tweaks to the language of currency’s valuation.
- EM – The Rand has extended post-SARB upside towards 16.1000 vs the Dollar with some extra impetus from the SA Government pledging Zar 10.5 bn extra funds to state carrier SAA, but the Rouble is treading cautiously into the CBR amidst expectations for a 25 bp rate cut and the Lira has slipped to another all time low. Elsewhere, the NBH has launched its first Eur/Huf swap funding facility.
In commodities, WTI and Brent front month futures have trimmed overnight gains to the point futures trade somewhat flat during early European hours, with little by way of fresh catalysts to induce the pullback. Prices yesterday saw support from the Saudi Energy Minister’s commentary, who noted that OPEC does not have to wait until December to react and will be pro-active, whilst warning oil speculators not to bet against the oil producers. Elsewhere, Tropical Depression 22 resides in the western Gulf of Mexico and is forecast to evolve to a Tropical Storm later today; although, current projections show the Depression to become a short-lived hurricane but will steer clear of major oil and gas infrastructures. WTI Nov retains a USD 41/bbl handle but resides closer to session in proximity to the psychological levels, whilst its Brent counterpart trades sub-43.50/bbl having printed a current range of USD 43.12-80/bbl. Elsewhere, precious metals eke mild gains amid the softer Buck, with spot gold meandering just north of the USD 1950/oz mark and spot silver holding onto the USD 27/oz handle. Meanwhile, LME copper hit an over-2yr peak due to the softer Dollar and optimism surrounding Chinese demand, whilst Dalian iron ore snapped a three-session loss streak as industrial data showed that the pace of portside inventory builds slowed.
US Event Calendar
- 8:30am: Current Account Balance, est. $160.0b deficit, prior $104.2b deficit
- 10am: U. of Mich. Sentiment, est. 75, prior 74.1; Current Conditions, est. 83.1, prior 82.9; Expectations, est. 67.2, prior 68.5
- 10am: Fed’s Bullard Discusses the Covid Recovery Challenge
- 12pm: Fed’s Bostic Discusses Racial Justice
- 3pm: Fed’s Kashkari Discusses Too Big to Fail
DB's Jim Reid concludes the overnight wrap
Global equity markets continued to lose ground yesterday as weak economic data coupled with renewed concerns over the coronavirus dampened investor sentiment. In the US, the S&P 500 fell -0.84% in its second straight decline, with 20 of 24 industry groups finishing lower. The NASDAQ saw an even larger -1.27% decline as tech stocks underperformed the broader index. However the two indices were -1.66% and -2.41% respectively at the lows so there was a recovery especially in the last hour of trading. Earlier in Europe the STOXX 600 fell -0.51% as the index came off its one-month high the previous day.
There wasn’t a single headline that sent stocks lower, though a drip-feed of negative data didn’t help. The weekly initial jobless claims from the US through September 12 came in at 860k (vs. 850k expected), while the previous week’s number was revised up by 9k. In addition, both housing starts at 1.416m (vs. 1.488 expected) and building permits at 1.47m (vs. 1.512 expected) came in lower than consensus. Meanwhile in Europe, new EU car registrations fell -18.7% yoy in August, having been down just -5.7% yoy in June and July. With the hard data for August coming in weaker than hoped, this has added to investor jitters about the state of the global economy moving into the winter months in the northern hemisphere.
Asian markets are largely trading higher this morning outside of the Nikkei (+0.02%) and Kospi (-0.04%) which are broadly flat. The Hang Seng (+0.31%), Shanghai Comp (+0.57%) and India’s Nifty (+0.37%) are all up. However, futures on the S&P 500 are down -0.26% while those on the Nasdaq are flat. In Fx, the onshore yuan is up +0.11% to 6.7565 while the British pound is down -0.12% to 1.2958. In terms of data, Japan’s CPI and Core CPI both came in line with consensus at +0.2% yoy and -0.4% yoy respectively.
In overnight news, the Fed has said that it will decide in the next two weeks whether to prolong the limits on dividend payments and share buybacks that it imposed on the biggest US banks. Meanwhile, Bloomberg has reported that the White House has asked gaming companies where Chinese technology giant Tencent Holdings is a major shareholder, to provide information about their data-security protocols.
In terms of the coronavirus, there were further concerning signs out of Europe. Here in the UK, where there’ve been issues with testing capacity, the head of the NHS Test and Trace program said that the numbers calling the helpline and visiting the website were around 3-4 times the number of tests available. It came as a further 3,395 cases were reported yesterday, which sent the 7-day average up to its highest level since May 17. One of the biggest problems in the U.K. is that as people have been encouraged back to school and work they’ve been exposed to more minor ailments that can share Covid type symptoms. As such many have been trying to get tests to rule out Covid and to stop them being forced to self isolate. This has overwhelmed the laboratory system’s ability to process all the tests and therefore tests are effectively being rationed - albeit at relatively high daily levels still but clearly not high enough for demand.This is a warning sign of the type of things to come in the coming months.
Meanwhile in Portugal, 770 new cases were reported, which was the highest number since April, albeit with higher testing now. Over in Austria meetings indoors were restricted to a maximum of 10 people, and the Czech government officials sought tighter social-distancing measures after the country posted a daily record of 2100 new infections. France reported over 10,000 daily cases for the second time in the last week, while the 7-day average of new cases per day has steadily risen over the past month to a pandemic-high of 8800. French Health Minister Veran noted that they are, “now seeing the number of Covid patients in intensive care go up in a worrying way,” though they still remain far behind the initial springtime surge.
In the US, New York City delayed the reopening of classes for in-person learning until September 29 for elementary school students and October 1 for middle- and high-school students. Cases in NY state have been stable since mid-June, with cases increasing by between 0.15% and 0.2% on average per day. Elsewhere, Texas eased some restrictions across much of the state, citing rapidly falling hospital occupancy. Restaurants, retail stores, office buildings, factories, gyms and museums will all be allowed to function at 75% of capacity starting next Monday (Sept 21). There were more worrying signs out of Florida, where weekly cases have risen to 19,300 – the highest since the start of September. The uptick aligns with overall cases in the US rising slightly over the past two weeks after falling for much of the previous two months. These trends are possibly tied to schools and colleges reopening. Meanwhile, Reuters has reported overnight that the US government is planning to authorize more than 6 rapid antigen tests by the end of October in a bid to rapidly increase overall testing capacity to more than 200mn by year end. This will likely enable schools and workplaces to significantly expand testing.
Steadily rising global cases was the backdrop as Moderna released the details of its plan to offer increased clarity into the study of its vaccine. The CEO Bancel noted that they, “want to make sure the general public has trust in vaccines by being transparent.” Bancel added “it is extremely unlikely” everyone in the US could get vaccinated by the end of the first quarter of 2021. Overnight, Bancel told CNBC that Moderna may not be able to examine Phase 3 data until December but added that the most likely scenario currently was an interim analysis to be available in November. Hewrapped up saying “Our best plan is October. I think it’s unlikely but it is possible.” This came as President Trump continued to push that the US would be distributing a vaccine to at least some part of the public by early November or just around the election.
President Trump also made headlines by again pushing Republican lawmakers to take up the $1.5 trillion stimulus bill that was put forth in recent days. Though there was again pushback from leading Republicans, with Senate Finance Chairman Grassley saying the President “better be careful of that because I don’t think that will get through the United States Senate.” While the upcoming election is clearly slowing the process, the recent worsening economic data out of the US may eventually focus lawmakers minds more.
From central banks, the main news yesterday came from the Bank of England’s decision, who unanimously voted to keep policy unchanged. Sterling fell after the announcement however, moving to an intraday low of -0.79% as the minutes showed that the MPC had been briefed on plans to “explore how a negative Bank Rate could be implemented effectively”, and that the BoE and the Prudential Regulation Authority would “begin structured engagement on the operational considerations in 2020 Q4.” So there likely won’t be any moves in that direction this year given talks will only start in Q4, but a sign nonetheless that they’re being considered as an option.
Following the meeting, our UK economist Sanjay Raja has now moved up his call for more QE to November, having previously thought December more likely. This is because tighter social restrictions and increased tensions on Brexit in the coming weeks will offer enough ammunition to pull the trigger on additional stimulus earlier than expected. Speaking of Brexit, sterling reversed its losses following the BoE announcement after an FT headline came out saying that European Commission President Ursula von der Leyen was “convinced” that a trade deal with the UK could still be agreed. The big question now is what happens to the UK’s internal market bill. It’s still going through the House of Commons where the government has an 80-seat majority, but the big question is what will happen in the House of Lords, where the government are likely to face fierce resistance.
Over in fixed income, gilts outperformed following the BoE yesterday, with 10yr yields down -2.6bps. Other sovereign bond yields also moved lower, with yields on 10yr Treasuries (-0.8bps) and bunds (-0.7bps) falling back as well. Separately, oil prices continued to make solid gains, with Brent crude up a further +2.56% yesterday, which brings its advance over the last 3 sessions to +9.21% – the best 3-day performance since May. Crude was helped by comments from both Saudi Arabian and Russian officials critiquing noncompliance of some OPEC+ members to agreed upon quotas.
To the day ahead now, and the data highlights include UK retail sales for August, German PPI for August, and the Euro Area current account balance for July. From the US, we’ll get the preliminary September reading of the University of Michigan’s consumer sentiment index, the August leading index, as well as the Q2 current account balance. In terms of central bank speakers, we’ll hear from the ECB’s de Guindos, Schnabel and Hernandez de Cos, along with the Fed’s Bullard and Bostic. Finally, the Central Bank of Russia will make their latest monetary policy decision.