Another day ending in -day, another all time high in US risk markets.
US stock-index futures rose ahead of a pivotal US jobs report that could affect the timing of the Federal Reserve’s stimulus tapering. Eminis rose 8 point or 0.2%, just shy of an all time high of 4,545.75 hit earlier in the session after energy shares drove the gauge to an all-time high Thursday. The ramp followed news that Japan's PM Suga was stepping down which was immediately spun as positive for risk assets as his successor was expected to inject even more stimulus. Dow e-minis were up 56 points, or 0.16% and Nasdaq 100 e-minis were up 25 points, or 0.16%. Global stocks paused near record highs on Friday, contrasting with a still wobbly dollar as investors watch if U.S. payrolls figures alter their expectations on when the Federal Reserve might scale back on its massive pandemic-era stimulus. Treasuries fell, the dollar dropped, gold rose, and ethereum soared again, rising just shy of $4,000.
In premarket trading, Chinese ride-hailing firm Didi gained 5.1% after a media report that the city of Beijing was considering moves that would give state entities control of the company. Banks were among the top gainers before the opening bell, with Goldman Sachs, Bank of America, J.P.Morgan and Wells Fargo all rising between 0.3% and 0.7%. As a reminder, earlier this week we noted that bank buybacks just hit a new all time high. Shares of Forte Biosciences sank 81% in premarket trading after the company said it won’t advance the development its flagship atopic dermatitis treatment after a failed trial. In corporate news, HSBC predicted it will be operating in a profoundly different way after the virus outbreak ebbs, with as many as 70% of its staff backing a hybrid working model and with its business travel budget cut in half. Here are some other notable premarket movers:
- Advaxis (ADXS) and Meta Materials (MMAT), both of which have been in the sights of retail investors, rise 15% and 9.9% respectively in premarket trading.
- Didi Global (DIDI) jumps as much as 7.9% after Bloomberg reported that Beijing’s municipal government has proposed an investment in Didi Global Inc. that would give state-run firms control of the world’s largest ride- hailing company.
- Forte Biosciences (FBRX) shares plunge 82% after the biotech company said a Phase 2 trial of its atopic dermatitis treatment failed to meet statistical significance for the primary endpoint. Truist downgrades the stock to hold from buy, citing the lack of a pipeline.
- FuboTV (FUBO) gains 4.5% after getting a license to offer mobile event wagering from the Arizona Department of Gaming.
- Watch Broadcom (AVGO) shares after analysts were generally upbeat on the chipmaker following its expectation-beating 3Q results, flagging its strong cash position and positive outlook.
- PagerDuty (PD) surges 14% premarket after reporting earnings, with Cowen (outperform) saying the numbers beat across the board.
MSCI’s all-country world index, which had ended the previous session at its fifth consecutive closing high, inched up further by 0.13%. The S&P 500 and the Nasdaq have scaled all-time highs over the past few weeks on support from robust corporate earnings, but investors have grown cautious recently as the Fed issued hawkish signals while data pointed to a slowdown in a broader economic recovery. The jobs report, which is due at 8:30 a.m. ET, is expected to show where monetary policy is headed. A bigger-than-expected number could fuel bets that the Federal Reserve will speed up the rollback of its bond-buying program, while a weak report could do the opposite. Economists expect the U.S. added 725,000 jobs in August, a more moderate pace compared with the past two months but stronger than gains seen early this year. But the whisper number has been dropping steadily and now projects a miss (or preview is here).
“The labor market remains the key touchstone for most U.S. policymakers, and another strong August number would certainly up the ante,” said Michael Hewson, chief market analyst at CMC Markets in London. “A poor report won’t change the likelihood of a tapering of purchases, but it will affect the pace, timing and scope of one, potentially pushing it into next year.”
“When it comes to tapering the focus is now the labour market. If we’re in the area of 750,000 the expectation will be for a September tapering announcement,” said Stefan Hofer, Hong Kong-based chief investment strategist at LGT private bank.
“If you have too good a number, that could actually have the opposite effect on the markets because they would consider the potential risk of an earlier tapering,” Eleanor Taylor Jolidon, co-head of Swiss and global equity assets at Union Bancaire Privee, said in an interview on Bloomberg TV. “The message still is that tapering is a little way out, so a very strong number might spook the market a little bit.”
European stocks remained drfited lower, and the Stoxx Europe 600 Index was down 0.2% with basic resources and utilities outperforming, while travel & leisure stocks declined the most. The benchmark has been stuck in a tight range for the past two weeks, with equities in the region staying close to record levels. The Stoxx 600 is up 19% this year, driven by optimism over an economic recovery, as market participants await central banks steps toward tapering. “The main focus of the jobs number will be on what they mean for the Fed and its tapering plans,” said Diego Fernandez, chief investment officer at A&G Banca Privada in Madrid. In Europe, Fernandez sees equities as being slightly overbought and expects a small correction. Investors keep piling money into stocks globally. In the week through Sept. 1, equities attracted $19.2 billion, while cash had outflows, according to a Bank of America note that cited EPFR Global data.
A shakeup of Germany’s prime equity index will be announced on Friday by compiler Qontigo, with the number of stocks in the DAX Index being increased to 40 from 30. Among individual moves, Ashmore Group Plc shares fell 4.8% in London after the emerging-market focused fund manager reported Ebitda for the year that missed consensus, while Allfunds Group Plc jumped 8.7% in Amsterdam as revenue in the first half advanced from a year earlier. Delivery Hero dropped 1.8% after the German company sold 1.25 billion euros ($1.5 billion) of debt convertible into shares, with analysts flagging the potential for future acquisitions.
There was little in the way of corporate news in Europe, though data showed that euro zone business activity remained strong last month, despite fears about the Delta variant of the coronavirus and widespread supply chain issues.
“The market is resilient with record highs in the United States again last night, and the data this week has been fairly solid, with nothing to suggest we are getting a significant slowdown in Europe, the UK or the U.S.,” said Michael Hewson, chief markets analyst at CMC Markets. “Now it’s all about whether the payroll data arrests the decline of the dollar.”
Earlier in the session, Asian stocks advanced for a sixth day bolstered by a rally in Japanese equities and a rebound in chipmakers. The MSCI Asia Pacific index rose as much as 0.8%, getting a lift from the Topix which climbed 1.6% to a three-decade high. Prime Minister Yoshihide Suga’s decision to resign spurred hopes that his eventual successor in Japan will increase stimulus spending and be more adept in handling the pandemic.
Chipmakers including TSMC and Samsung Electronics continued to recoup recent losses. Asian stocks are set to complete a second straight weekly advance of more than 3% ahead of a U.S. jobs report on Friday that will provide the latest read on the health of the labor market. Sentiment in Asia has improved since late August amid expectations that any tapering by the Federal Reserve will be done gradually and amid abating worry over the virus outbreak. “We’re kind of in a situation where bad news might be good news in a sense that a bad jobs report may basically mean that the taper might be pushed out further,” Zhikai Chen, head of Asian equities at BNP Paribas Asset Management, told Bloomberg Television.
The Chinese market, meanwhile, continues to be whipsawed by the government’s steps to tighten its oversight on businesses. Chinese blue chips were down 0.5% and Hong Kong was off 0.72% after activity in China’s services sector slumped into sharp contraction in August, a private survey showed on Friday, hurt by restrictions imposed to curb the COVID-19 Delta variant. China's technology sector snapped a four-day rally, with investors remaining wary over new clampdowns coupled with the impact of Alibaba Group’s large donation on its balance sheet. Price corrections within the sector have been “fairly significant,” said Chen, adding that “there’s a very strong valuation support now for some of these established names, that will still be a significant player.” Apart from Japan, benchmarks in Taiwan and the Philippines were among the top performers for the day, while those in Hong Kong and China led declines.
In rates, treasuries drifted lower with losses led by long-end, steepening the curve as S&P 500 futures remain elevated, helped by rally in Japanese shares following Prime Minister Suga’s intent to resign. The 10-year TSY yield was at 1.292%, cheaper by 1.5bp on the day and lagging bunds by around 1bp; in Europe, Italian bonds underperform following August services PMI data. Positioning is also likely in play ahead of August jobs report in the U.S. Long-end-led losses in U.S. steepen 2s10s, 5s30s spreads by less than 1bp vs Thursday’s close. Japanese government bonds fell, led by super-long maturities, as traders weighed the risk of more stimulus spending with a change in the nation’s leadership.
In FX, the Bloomberg Dollar Spot Index hovered around an almost one- month low as the dollar traded mixed versus its G-10 peers though most crosses were confined to narrow ranges. The euro and the pound were steady while Australian and New Zealand dollars led the advance among G-10 currencies to trade at multi-week highs amid risk-on price action. Japanese government bonds fell, led by super-long maturities, as traders weighed the risk of more stimulus spending with a change in the nation’s leadership; the yen was little changed around 110 per dollar after earlier swinging to a loss following the news of Suga’s resignation. China’s yuan rose to 6.45 per dollar for the first time in over a month amid broad weakness in the greenback. USD/CNY falls as much as 0.1%; USD/CNH down 0.1% to 6.4422.
In commodities, WTI crude topped $70 a barrel on bets that the market can absorb additional supply from OPEC+ as the U.S. Gulf grapples with Hurricane Ida’s impact. Gold traded at session highs of $1816 as the dollar continued to slide.
In crytpos, ethereum was the big standout again, surging near $4,000, while Bitcoin traded near $50,000.
To the day ahead now, and the main data highlight will be the aforementioned US jobs report for August, as well as the August services and composite PMIs from around the
- S&P 500 futures up 0.2% to 4,543.25
- STOXX Europe 600 little changed at 474.43
- German 10Y yield rose 0.5 bps to -0.387%
- Euro little changed at $1.1880
- MXAP up 0.7% to 204.67
- MXAPJ up 0.3% to 670.22
- Nikkei up 2.0% to 29,128.11
- Topix up 1.6% to 2,015.45
- Hang Seng Index down 0.7% to 25,901.99
- Shanghai Composite down 0.4% to 3,581.73
- Sensex little changed at 57,857.78
- Australia S&P/ASX 200 up 0.5% to 7,522.91
- Kospi up 0.8% to 3,201.06
- Brent Futures up 0.4% to $73.33/bbl
- Gold spot up 0.2% to $1,812.66
- U.S. Dollar Index little changed at 92.18
Top Overnight News from Bloomberg
- Employers probably added 725,000 positions in August after a gain of 943,000 in July, according to a Bloomberg survey of economists. Data on Thursday showed applications for U.S. state unemployment benefits fell last week to a fresh pandemic low
- Stock markets soared in Tokyo after Suga’s shock resignation as investors expressed hope that a new leader would lift the cloud of uncertainty that has depressed sentiment in equities for months
- China’s services activity contracted for the first time since April last year, a private gauge showed, further evidence of the blow to the economy that’s come from fresh virus outbreaks
- The European Central Bank will start slowing down its pandemic bond purchases in the fourth quarter and may not exhaust the whole 1.85 trillion-euro ($2.19 trillion) program before it ends next year, according to economists surveyed by Bloomberg
- The war for talent in the U.K. shows little sign of abating, with employers adding almost 200,000 job adverts in the last week of August
A more detailed look at global markets courtesy of Newsquawk
A positive leaning bias was seen for Asia-Pac bourses after further disappointing PMI data from China only partially offset the tailwinds from US where the S&P 500 and Nasdaq Comp registered fresh all-time highs after encouraging US data, but with price action limited for most indices as the NFP jobs report looms on the horizon. ASX 200 (+0.5%) was kept afloat by strength in commodity-related stocks as energy names took inspiration from the outperformance of the sector stateside and with news of a vaccine swap deal with the UK for 4mln Pfizer vaccine doses helping ease some of the concerns from a record jump of infections in New South Wales. Nikkei 225 (+2.0%) was underpinned amid reports that Japan is drafting a roadmap for relaxing COVID-19 restrictions and with exporters helped by recent weakness in the domestic currency although not all have benefitted with index heavyweight Fast Retailing among the worst performers following a near-40% Y/Y drop in last month’s sales. The Japanese benchmark then extended on gains and the TOPIX printed its highest since 1991 after reports that PM Suga will not run in the LDP leadership race which paves the way for a new PM and could effectively lead to additional stimulus considering recent comments from leadership contender Kishida who had called for swift economic measures worth tens of trillions of yen to cope with the virus pain. Hang Seng (-0.7%) and Shanghai Comp. (-0.4%) lagged with the mainland indecisive as participants digested the recent announcement by Chinese President Xi to set up a Beijing stock exchange for SMEs and following another bout of disappointing PMI data in which both Caixin Services and Composite PMIs fell into contraction territory, while Hong Kong tech names continued to suffer from Beijing’s regulatory crackdown with China reportedly to strengthen its review of game content and had also ordered ride hailing companies to correct their unfair market practices. Finally, 10yr JGBs were initially flat as downward pressure from the gains in Japanese stocks was counterbalanced by the presence of the BoJ in the market for over JPY 1tln of JGBs, although 10yr JGBs eventually breached the 152.00 level to the downside in reaction to the announcement that PM Suga will not be seeking another term which spurred expectations of future stimulus measures.
Top Asian News
- HDFC Life to Acquire Rival in India’s Biggest Insurance Deal
- Traders Look to U.S. Jobs Data to Back Rallies in Risk Assets
- Chaos in Supply Chain Won’t Last, Top Nissan Supplier Says
- Key Contender to Lead Japan Warns Taiwan Is ‘Next Big Problem’
Cash bourses in Europe trade mixed (Euro Stoxx 50 -0.2%; Stoxx 600 -0.1%), although with price action caged in the run-up to the US jobs report (full preview available on in the Newsquawk research suite). News flow has once again been quiet in early European hours, with catalysts also light, although the downward revisions in EZ services and composite PMIs had little effects on stocks, the release was balanced by commentary suggesting: “…another strong quarter-on-quarter rise in [EZ] GDP is on the cards for the third quarter, and we’re certainly on track for the eurozone economy to be back at pre-pandemic levels by the end of the year, if not sooner". US equity futures trade with an upside bias, but the NQ (Unch) lags the RTY (+0.4%), YM (+0.1%) and ES (+0.2%), with yields proving to be a headwind for the former. Back in Europe, sectors are mixed but the breadth of the price action is narrow and with no overarching theme. Travel & Leisure reside as the laggards following yesterday’s outperformance, whilst Basic Resources sit at the top of the pile despite waning base meal prices. Banks have made their way up the list in tandem with the ticks higher in yields, and subsequently, tech is pressured. In terms of individual movers, Ashmore (-5.0%) resides at the foot of the Stoxx 600 post-earnings, whilst Nexi (-1.5%) is pressured after the Italian watchdog opened a probe into the Nexi-SIA tie-up. Meanwhile, Deutsche Boerse is poised to release the details today of the DAX expansion – which will see 40 constituents as of mid-September. Little has been released thus far about the announcement but by historical standards, it is likely to take place after the European cash close, with the expansion assumed to come into effect after Quad witching on the 17th.
Top European News
- HSBC CEO Plans for Permanent Hybrid Work, Much Less Jet- Setting
- Sunak to Scrap Key U.K. Pension Pledge to Help Fix Coffers
- U.K. Aug. Composite PMI 54.8 vs Flash Reading 55.3
- Credit Suisse, Gupta Legal Fight Delayed as Financing Sought
In FX, it’s probably far too premature to suggest that Dollar/major and EM pairs may have marked out ranges for the big BLS release already, but the index looks pretty restrained having slipped into a lower range either side of 92.200 and just above the last fairly recent low ahead of 92.000. Thursday’s more encouraging US jobs data proxies have not made a lasting impression as the DXY meanders between 92.262-151 after another ‘dead cat’ bounce, awaiting the official report to assess further progress towards the ‘substantial’ threshold set by the Fed for tapering. Meanwhile, the Loonie has extended its oil-fuelled recovery towards 1.2530 against the Greenback, but could now face more than mere psychological resistance at 1.2500 given 1.4 bn option expiry interest at the strike, not to mention even heftier expiries at 1.2550 (1.8 bn) that may yet exert upside influence in Usd/Cad. Similarly, the Euro has inched further beyond 1.1850 and closer to 1.1900 irrespective of softer than forecast or downwardly tweaked final Eurozone services and composite PMIs, and dire retail sales, but may be thwarted by 1.4 bn rolling off in Eur/Usd between 1.1875-80 at today’s NY cut. Sterling is also digesting weaker than preliminary UK services and composite PMIs that may keep a lid on Cable into 1.3850 along with 1 bn expiry interest residing at 1.3815-20 vs the current circa 1.3824 low. Elsewhere, the Yen has settled down somewhat after a hectic Asian session when Usd/Jpy was rattled by Japanese PM Suga confirming reports that he will not contend the LDP leadership race and instead concentrate on tackling the COVID-19 outbreak, and is now very near 110.00 again where 1.5 bn expiries could be tripped.
- AUD/NZD - The Aussie and Kiwi have picked up where they left off yesterday following only slight and brief hesitation around their newly attained big figure levels, and the former appears unfettered by 1.8 bn expiry interest at 0.7350 within a 0.7395-0.7438 range, while the latter is sitting comfortably on the 0.7100 handle even though the Aud/Nzd cross remains elevated above 1.0400 amidst positive news on the vaccine front for Australia that has secured a 4 mn Pfizer shot swap deal with the UK.
- EM - More bad news for the Cnh/Cny via contractionary Caixin services and composite PMIs, but little fallout as the PBoC renews its pledge to make prudent monetary policy flexible, targeted and appropriate, while improving financial risk prevention and maintaining the stable operation of bond, currency and stock markets, plus preventing external shocks. Moreover, China’s Cabinet stated its intent overnight to accelerate measures to attract overseas investors in domestic futures trading and establish an international Yuan-denominated commodity futures market. Conversely, the Try has been rocked by yet another Turkish CPI overshoot that increases the CBRT’s policy dilemma and raises more doubt about the Bank and Government’s belief that inflation will start to slow down in Q4. Note, headline inflation is now higher than the 19% 1 week repo rate at 19.25%.
In commodities, WTI and Brent front month futures trade sideways with the former around USD 70/bbl and the latter just under USD 73.50/bbl. The contracts have displayed some divergence in recent trade, with the Brent-WTI arb widening to around USD 3.3/bbl from around USD 2.8/bbl at worst yesterday. The mild divergence between the contract could be related to reports that around 94% of GoM crude production remains shut-in, with production also reportedly facing recovery issues, whilst the remnants of Hurricane Ida wreaked havoc across the East Coast – all pointing to more subdued demand for US oil. In contracts, with OPEC+ out of the way, Brent also saw a sizeable upside revision from OPEC’s JTC, with the next focus from a policy perspective being the Iranian nuclear talks. In terms of today’s trade, crude prices will likely track sentiment ahead of the US labour market report. Elsewhere, spot gold and silver are underpinned by the softer pre-NFT dollar, with little new to report on that front ahead of the Tier 1 US data. From a technical standpoint, spot gold remains sandwiched between its 100 DMA (1,814/oz) and 200 DMA (1,809.31/oz). LME copper remains capped by the dismal Chinese data overnight and caged head of NFPs. Elsewhere and further to yesterday’s Dalian Commodity Exchange margin requirements increase for coke and coking coal futures, the DCE is also to limit single-day open positions for coking coal and coke futures to 100 lots for non-futures companies as of the September 6th trading day.
US Event Calendar
- 8:30am: Aug. Change in Nonfarm Payrolls, est. 725,000, prior 943,000
- Change in Private Payrolls, est. 610,000, prior 703,000
- Change in Manufact. Payrolls, est. 23,000, prior 27,000
- 8:30am: Aug. Unemployment Rate, est. 5.2%, prior 5.4%; Underemployment Rate, prior 9.2%
- 8:30am: Aug. Average Weekly Hours All Emplo, est. 34.8, prior 34.8
- 8:30am: Aug. Labor Force Participation Rate, est. 61.8%, prior 61.7%
- 8:30am: Aug. Average Hourly Earnings YoY, est. 3.9%, prior 4.0%; Average Hourly Earnings MoM, est. 0.3%, prior 0.4%
- 9:45am: Aug. Markit US Composite PMI, prior 55.4; Markit US Services PMI, est. 55.2, prior 55.2
- 10am: Aug. ISM Services Index, est. 61.7, prior 64.1
DB's Jim Reid concludes the overnight wrap
Working from home yesterday meant I stumbled across my soon to be 6-year old daughter’s first boyfriend when I went down for lunch. They were having a play date. I asked him what his intentions were and how much he earnt but that just got me a stern send-off back to my home office from my wife. When I venture back into the office for part of next week I will have to remind myself to return to more politically correct mode. 18 months of daily jibes to the family during working hours can be habit forming.
Before we get there we have a big data day today in the form of the US employment report. If you remember back a month ago, July’s strong payroll number did what multiple higher than expected inflation numbers couldn’t do and encouraged a sharp rise in yields. 10 year USTs sold off +7.5bps on the day. That took them to 1.299% by the close of play. 4 weeks later and this morning we’re pretty much at the same level. The daily move last month perhaps reinforced the view that the Fed in a FAIT world are currently much more focused on employment getting back to normal than they are about inflation which they wrongly or rightly see as mostly transitory.
At the Jackson Hole symposium last week, Fed Chair Powell said that there had “been clear progress toward maximum employment”, but he also noted that the recorded unemployment rate understates the amount of slack in the labour market. Indeed, a footnote to his speech referred to the fact that if you adjust the unemployment rate of 5.4% for misclassification errors and reduced labour force participation, it stands at 7.8% instead. So the Fed are still cognisant of the progress still to travel on the employment side, even though inflation has been running ahead of their previous expectations, and Powell said that the “substantial further progress” test had been met on the inflation side. Furthermore, Atlanta Federal Reserve President Bostic supported this thought yesterday when saying “we’re going to let the economy continue to run until we see signs of inflation,” before moving on rates. The fact that inflation is already at multi decade highs hasn’t made much impression on him evidently. To wrap up, employment is seemingly more important to the Fed than CPI. For now at least.
In terms of what to expect today, our US economists see nonfarm payrolls growing by +700k in August, which follows an 11-month high of +943k in July, and that in turn should see the unemployment rate fall to a fresh post-pandemic low of 5.2%. One caveat they do note however, is that historically the August report has disappointed consensus expectations, so it’ll be interesting to see if that happens again. Bloomberg’s consensus estimate currently stands at +725k. Staying on the US labour market, yesterday saw the release of some positive numbers from the weekly initial jobless claims for the week through August 28, which fell to their own post-pandemic low of 340k (vs. 345k expected), sending the 4-week average down to 355k. However remember that ADP was weak at +374k (+625k expected) on Wednesday even if it hasn’t been a great predictor of late. In addition we also have August services and composite PMIs from around the world which will be closely watched. As you’ll see below, China’s were weak this morning.
With all that to look forward to, it was a familiar story for markets yesterday as global equities edged ever higher to fresh records, the dollar weakened for a 5th consecutive session, and commodities continued to rebound and close in on their highs for the decade. In more detail the S&P 500 (+0.28%), the NASDAQ (+0.14%), and the MSCI World Index (+0.28%) all rose to fresh records, whilst Europe’s STOXX 600 (+0.31%) closed less than 0.3 per cent away from its own record high.
US equities dipped in the second half of their trading session for a third straight day though, with comments from Senator Manchin putting fresh doubts around Biden’s $3.5 trillion economic/infrastructure package. He said he wants the party to “hit the pause button” on the stimulus package citing “runaway inflation” and uncertain geopolitics. Members of the Democratic party in both chambers continue to work on the legislation but it will require every Democrat in the Senate to pass, giving Manchin power over the final output.
Energy stocks were the best sectoral performer on both sides of the Atlantic, which came against the backdrop of further rises in oil prices, with WTI (+2.04%) and Brent crude (+2.01%) both on track for a second weekly gain after a tough August. Those rises in oil prices helped commodities more broadly to put in another decent performance, with Bloomberg’s commodity spot index up +0.67%, which left it less than 1% away from its high for the decade seen back in late July.
Over in foreign exchange markets, the dollar (-0.24%) continued to fall yesterday, recording its 9th decline in the last 10 sessions and finishing at its lowest level in nearly a month. However, US Treasuries were subdued, with 10yr yields edging -1.0bps lower to 1.289%, their fourth decrease in the last five sessions. In Europe there was a consistent move lower in yields, with those on 10yr bunds (-1.2bps), OATs (-1.0bps) and BTPs (-2.2bps) all declining on the day.
Overnight in Asia one of the key headlines is that Japanese PM Suga intends to resign from his post. Japan has to hold a general election by the end of November and the LDP party leadership contest is now likely to be between former Foreign Minister Fumio Kishida and Shigeru Ishiba, a former defense minister. The news is coming at a time when Suga’s approval ratings has taken a severe beating due to the rise in coronavirus cases in the country. PM Suga will speak with reporters at 1 pm local time. The Japanese yen (-0.08%) is trading slightly down at 110.02.
Asian markets are mostly trading up overnight with the Nikkei (+1.83%) leading the advance on the above news which highlights the negativity surrounding Suga of late. Elsewhere the Asx (+-0.57%) and Kospi (+0.78%) are also up. The Shanghai Comp (-0.15%) and Hang Seng (-0.54%) are down though on weakness in Chinese technology stocks. Meanwhile, China’s President Xi Jinping has said that the country will set up a new stock exchange to provide financing for innovative smaller firms. In terms of overnight data releases, China’s August services PMI came in at 46.7 (vs. 52.0 expected and 54.9 last month), the weakest reading since April 2020 while Japan’s final services PMI got revised down to 42.9 from 43.5 in the flash. Similarly, Australia’s final services PMI reading got revised down to 42.9 as well from 43.3 in the flash. Lastly, yields on 10y USTs are up +1bp to 1.294% while S&P 500 futures are up +0.18%.
With just 3 weeks this weekend until the German election, we had yet more signs of the centre-left SPD cementing their hold on first place yesterday. Firstly, a poll by Kantar put them at 25%, four points ahead of Merkel’s CDU/CSU bloc on 21%, who were themselves not far ahead of the Greens on 19%. Later on, we then had an Infratest poll, with the SPD also on 25%, ahead of the CDU/CSU on 20% and the Greens on 16%. For those interested in the potential implications of the election on the euro, DB’s FX Strategist Robin Winkler put out a note yesterday (link here) going through what different scenarios might mean.
In terms of the latest on the pandemic, Israel – one of the most inoculated nations in the world – recorded another record number of new cases, at 11,187, as the country increased testing capacity ahead of the start of the school year. The rise in infections has prompted the government to extend the use of booster jabs in order to improve the population’s immunity. Speaking of waning immunity, my chart of the day yesterday (link here) pointed out that the US and Europe could experience the same waning efficacy in time, potentially in the middle of winter given they started to vaccinate later. We’ve already begun to see this in the UK, where the percentage estimated to test positive for antibodies has dropped by a few percentage points among the elderly over the last 2-3 months, even though it still remains very high for the population as a whole (c.94%). So this could still be a big issue for the winter, when respiratory viruses spread more easily as people spend more time indoors in less well ventilated areas. As a minimum the debate over boosters looks set to grow.
Wrapping up with yesterday’s other data, producer price inflation for the Euro Area rose to +12.1% in July (vs. +11.1% expected). Separately, the US trade deficit narrowed to $70.1bn in July (vs. $70.9bn expected), and factory orders grew by +0.4% in July (vs. +0.3% expected).
To the day ahead now, and the main data highlight will be the aforementioned US jobs report for August, as well as the August services and composite PMIs from around the world. On top of that we’ll get Euro Area retail sales for July, and the ISM services index for August from the US.