Futures Jump, Gold Soars As Dollar Destruction Accelerates

Everyone is piling into everything.

That's probably the best way to describe the market frenzy this week which has seen an all time high in the Nasdaq and gold, an all time low 10Y yields, and an S&P that is just shy of its all time highs.

Sure enough, on Wednesday, gold jumped to a new record high pushing further past $2,000...

... as the dollar tumbled on U.S. Treasury yields falling to fresh all time lows, and expectations of more stimulus measures for the pandemic-ravaged global economy. 

S&P futures rose and European stocks climbed to a one-week high as investors focused on U.S.-China trade discussions and American lawmakers making progress on an economic aid package.

U.S. stock futures rose on Wednesday after Disney squeezed out a quarterly profit despite taking a $5-billion charge due to the pandemic, while investors awaited data on private payrolls and the service sector to gauge the country’s economic health. Square rallied in the pre-market trading as revenue surged.  Moderna Inc rose 2.3% ahead of its quarterly results. Activision Blizzard raised its full-year forecast for adjusted sales encouraged by a pandemic-driven surge in gaming. Its shares fell 1.4% after closing at a record high on Tuesday.

Investors had been concerned about signs that the U.S. economic activity is stalling amid a surge in COVID-19 infections in parts of the country, strengthening the case for more fiscal aid, although with the S&P just shy of all time highs, clearly these concerns have eased. White House negotiators on Tuesday vowed to work “around the clock” with congressional Democrats to try to reach a deal on coronavirus relief package by the end of this week.

Pressure is growing on Republicans and Democrats to resolve differences over a new U.S. virus relief package. Treasury Secretary Steven Mnuchin said the goal is to strike a deal on legislation by the end of the week.

“Hopes of a fiscal package will indeed be instrumental in any improvement in risk sentiment,” said Padhraic Garvey, head of Americas research at ING Financial Markets.

Meanwhile, America and China plan to assess their trade agreement in mid-August against a backdrop of rising bilateral tension, according to people briefed on the matter. China’s yuan strengthened to its highest level since March 11.

In Europe, the Stoxx Europe 600 Index posted broad-based gains, with travel companies, commodity producers and retailers leading the charge. European stocks rallied thanks to a batch of positive earnings even though the final July Services PMIs from France, Germany and the Eurozone as a whole were revised lower from flash prints. AS a result, the Stoxx 600 gave back some of its initial 1% gains, with the DAX outperforms peers. Travel, real estate and mining stocks lead broad-based gains; food & beverages and health care the only two sectors in the red. V2X slips back toward a 24-handle

Earlier in the session, MSCI's broadest index of Asia Pacific shares outside Japan hit a 6-1/2 month peak, though the blue-chip Nikkei dipped. Most markets in the region were up, with South Korea's Kospi Index gaining 1.4% and Jakarta Composite rising 1%, while Australia's S&P/ASX 200 dropped 0.6%. The Topix was little changed, with SIGMAXYZ rising and Yamazaki Baking falling the most. The Shanghai Composite Index rose 0.2%, with Sichuan Western Resources Holding and Qinghai Spring Medicinal posting the biggest advances.

But it was the relentless surge in gold that held the spotlight as prices hit a record around $2,044 per ounce. The precious metal, which has soared more than 30% this year, is benefiting from heightened uncertainty around the long-term effects of the global health crisis.

Weakness in the dollar, which fell back towards recent two-year lows, and falling U.S. yields have encouraged investors to look for an alternative store of value - boosting the appeal of gold.

In rates, yields were higher by 0.5bp to 3bp across the curve, steepening 2s10s and 5s30s spreads by ~2bp each; 10-year yields around 0.53%, cheaper by 2.3bp vs Tuesday’s close. Treasuries bear-steepened, unwinding a portion of Tuesday’s long-end-led gains ahead of Wednesday’s refunding announcement for August-October, in which the Treasury Department unveils expected auction sizes. S&P 500 E-mini futures are higher with European stocks as risk sentiment gets boost from U.S.-China trade discussions and progress toward a U.S. economic aid package.

Elsewhere, Lebanon’s bonds were steady following the deadly blast in Beirut on Tuesday. The stock market was closed.

“Yesterday’s events could motivate the political parties to set aside their differences and make efforts to break the deadlock and begin to fix the economy,” said Richard Segal, a senior analyst at Manulife Investment Management in London.

In commodities, oil climbed to a five-month high in London, topping $45 a barrel after U.S. industry data showed a decline in the nation’s stockpiles.

Investors’ focus on Wednesday is on the ADP National Employment Report, a precursor to the monthly jobs report on Friday, which is expected to show private payrolls rose by 1.50 million in July after a strong rebound of 2.37 million in June.

Market Snapshot

  • S&P 500 futures up 0.3% to 3,310.50
  • STOXX Europe 600 up 0.3% to 364.55
  • MXAP up 0.5% to 169.16
  • MXAPJ up 0.6% to 563.81
  • Nikkei down 0.3% to 22,514.85
  • Topix down 0.04% to 1,554.71
  • Hang Seng Index up 0.6% to 25,102.54
  • Shanghai Composite up 0.2% to 3,377.57
  • Sensex down 0.04% to 37,672.96
  • Australia S&P/ASX 200 down 0.6% to 6,001.30
  • Kospi up 1.4% to 2,311.86
  • German 10Y yield rose 1.1 bps to -0.542%
  • Euro up 0.08% to $1.1812
  • Brent Futures up 0.8% to $44.77/bbl
  • Italian 10Y yield fell 6.0 bps to 0.822%
  • Spanish 10Y yield rose 1.1 bps to 0.294%
  • Brent Futures up 0.8% to $44.77/bbl
  • Gold spot up 0.6% to $2,031.16
  • U.S. Dollar Index down 0.2% to 93.18

Top Overnight News

  • Army personnel and rescue workers sifted through mountains of rubble from a massive explosion that flattened Lebanon’s main port, looking for survivors from a blast that roared through the capital, Beirut, killing dozens and wounding thousands more. Officials blamed highly explosive materials equivalent to 1,800 tons of TNT that had been stored at the port for years, without saying what triggered the blast
  • Businesses in the euro zone saw stronger growth than initially reported in July, with output expanding for the first time since coronavirus lockdowns hit the economy in March. Services providers and manufacturers both saw activity pick up. A composite purchasing managers’ index rose to 54.9, the highest level in just over two years
  • Gold’s scorching rally gathered more force, with prices driven higher into record territory above $2,000 an ounce as investors assessed prospects of more stimulus to combat the coronavirus pandemic’s fallout, another slide in U.S. real yields and increased geopolitical risks
  • Health and Human Services Secretary Alex Azar will lead a delegation to Taiwan in the highest-level visit by a U.S. cabinet official since Washington cut ties with Taipei more than 40 years ago. Azar is scheduled to arrive in Taiwan “in the coming days” to discuss the global response to Covid-19, as well as medical and technology supplies, according to a statement on Wednesday from the Department of Health and Human Services

Global market details courtesy of NewsSquawk:

Asian equity markets traded mixed after the marginally firmer handover from Wall St amid the toing and froing in US COVID-19 relief discussions and after the tech rally lost steam. ASX 200 (-0.6%) was negative and slipped back below the 6000 milestone with the losses led by financials amid notable weakness across the Big 4 banking names and as the virus outbreak causes further disruption with the Queensland state declaring New South Wales and the Australian Capital Territory as coronavirus hotspots and will shut its borders with those areas from August 8th. Conversely, Australia’s commodity-related sectors just about remained afloat as gold miners outperformed after the precious metal surged through the USD 2000/oz level for the first time ever. Nikkei 225 (-0.3%) was also subdued with exporter sentiment dampened by recent currency strength and with earnings also directing price action as the likes of Mitsubishi UFJ Financial Group and SoftBank Corp suffered after weaker results, while Sony also failed to sustain the early boost provided by improved earnings and  a JPY 100bln buyback announcement, as some fretted over the Co.’s cautious outlook. Hang Seng (+0.6%) and Shanghai Comp. (+0.2%) were choppy after slightly inconclusive data in which Caixin Services PMI missed estimates and Caixin Composite PMI was lower than previous but both remained in firm expansionary territory. In addition, the PBoC continued to refrain from liquidity efforts and it was also reported that US and China have agreed to conduct high-level talks on August 15th to assess Beijing’s compliance with the bilateral trade agreement. Finally, 10yr JGBs were higher and briefly prodded above the 152.50 level as they tracked the upside in T-notes and amid the weakness in Japanese stocks, while the BoJ were also present in the market today for JPY 570bln of JGBs predominantly focused in the belly of the curve and also offered to purchase JPY 300bln of corporate bonds from August 7th.

Top Asian News

  • Indonesia Economy Shrinks for First Time Since Asian Crisis
  • Singapore Finds 908 Virus Cases as Most Worker Dorms Get Cleared
  • Thai Central Bank Holds Rates Steady, Sees Gradual Recovery
  • Sibling Rulers Eye More Power From Sri Lanka Parliament Vote

European stocks trade higher across the board [Euro Stoxx +0.9%] as sentiment picked up following the mixed APAC lead, with the region’s eyes set on the slew of pre-market earnings as the season remains in full swing. Bourses see broad-based gains with no major standout performer, while DAX cash and front-month futures briefly topped the psychological 12,750 mark. European sectors are all in the green and retain a cyclical bias – with Energy leading the pack amid price action in the complex. The sectoral breakdown sees Travel & Leisure outpacing, with Oil & Gas a close second and defensives lagging, with the former propped up by airlines amid reports easyJet (+8.5%) is to carefully expand its flight schedule, also supporting the likes of Air France-KLM (+4.2%) and Lufthansa (+6.0%) in sympathy. Individual movers again mostly comprise of earnings, particularly in Germany: Allianz (Unch) swung between gains and losses before stabilising around the flat mark amid a mixed bag of results. BMW (-3.0%) is pressured by dismal earnings, in which the Co. expects profit before tax is expected to be significantly lower than in 2019. However, other auto names have shrugged off this report and trade higher in tandem the cyclical performance seen in the sector. Elsewhere, Accor (-0.5%) trimmed post-earnings losses of around 4%, with downside cushioned by the broader performance in the Travel & Leisure names. Other earnings-related movers include Commerzbank (+4.7%), Deutsche Post (+2.8%), Vonovia (+3.2%) and William Hill (+4.4%).

Top European News

  • London Rents Set to Slump to Lowest Level in Nearly Six Years
  • Euro-Area Economy Staged Stronger-Than-Expected Comeback in July
  • U.K. Services Activity Expands at Fastest Pace in Five Years
  • Italy’s Bold Intervention Halts Telecom Italia Stake Sale to KKR

In FX, the Dollar and DXY are on the brink of another collapse as bullion extends its surge through the Usd 2000/oz barrier towards Usd 2050 and the next technical resistance level at Usd 2058.94. Treasury yields have actually firmed up a tad and the curve has re-steepened slightly, but momentum has carried Gold and other precious metals to fresh record/multi-year peaks to the broader detriment of the Greenback. The index has tested support around the 93.000 level and the Buck key downside chart points vs major rivals, as the DXY teeters between 93.247-92.846 parameters in the run up to ADP, trade, Markit PMIs and the non-manufacturing ISM.

  • AUD/NZD - Multiple factors behind firm Aussie and Kiwi rebounds vs their US counterpart, including the aforementioned commodity advances and for the latter much better than expected NZ jobs data. Hence, Aud/Usd has revisited 0.7200 and Nzd/Usd is back above 0.6650, as the Aud/Nzd cross straddles 1.0800 ahead of the NZ labour cost index and AIG services PMI due later today and on Thursday respectively.
  • CAD/CHF/EUR/GBP - The next best G10 performers, with the Loonie latching on to firmer crude prices and finally breaching resistance around 1.3330 on the way through the 200 DMA to best levels since February circa 1.3264, while the Franc is on the cusp of reclaiming 0.9100+ status and having another look its pre-month end pinnacle at 0.9056. Similarly, the Euro has cleared a Fib hurdle at 1.1823 and now eyeing 1.1900 again, and Sterling has regrouped after a sharp stop-chase reversal from 1.3123 to 1.3059, with Cable back up to 1.3100. Note, somewhat mixed EU services and composite PMIs have hardly impacted amidst all the renewed downside Dollar pressure, but the Pound is lagging as Eur/Gbp hovers near the top of a 0.9013-44 range.
  • JPY - Not much extension beyond 106.00 for the Yen vs the Greenback as relatively buoyant risk sentiment on some improvement in daily rates of COVID-19 cases and deaths combines with signs of progress in terms of extra US fiscal support to sap safe haven demand. Hence, Usd/Jpy is contained within a tight 105.80-50 band awaiting further direction.
  • SCANDI/EM - Contrasting fortunes for the Norwegian and Swedish Krona as the former gleans traction from the recovery in oil, but the latter fails reap reward via a return to growth in the services PMI in wake of weak industrial orders and the first look at Q2 GDP missing consensus. In the same vein, the Yuan has made a decisive break through 7.0000 vs the Buck following news of a top level US-China meeting to assess the Phase 1 trade deal in stark contrast to the Lira that has tumbled below the psychological mark even though post-Turkish holiday strains in the OIS market have eased appreciably. Elsewhere, the Real is likely to benefit from the latest Usd slide alongside other EM currencies, though may be subject to a degree of pre-BCB caution given expectations for a 25 bp SELIC rate cut and prospects that this may be the last ease in the cycle.                          

In commodities, the strength seen in the oil complex during the APAC session persisted and intensified in early European trade, with WTI and Brent front-month prices now north of USD 42/bbl (vs. low 41.47/bbl) and USD 45/bbl (vs. low 44.24/bbl) respectively – with the former eclipsing the July 21st high at USD 42.51/bbl and topping its 200 DMA (42.59/bbl) in what seems to be more of a risk-induced move alongside a weaker Dollar, as fresh fundamental catalysts are scarce. That being said, the complex is underpinned by yesterday’s Private Inventory figures showed a much larger than expected draw of 8mln barrels vs. Exp. -3mln, with traders now looking ahead to the DoEs for confirmation. Elsewhere, spot gold continues to plough ahead to fresh all-time highs, currently around USD 2040/oz amid a softer USD, and as macro uncertainty and inflation fears prompts participants to flock to the yellow metal, with the Dec’20 futures now above the USD 2050/oz mark. Similarly, spot silver remains buoyed above 26.50/oz. In light of the precious metal rally, the Shanghai Gold Exchange has asked investors to rationally invest in gold & silver contracts and to raise awareness and prevent risks given high prices. Elsewhere Shanghai copper prices edged lower amid rising production in Chile and Peru.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -0.8%
  • 8:15am: ADP Employment Change, est. 1.2m, prior 2.37m
  • 8:30am: Trade Balance, est. $50.2b deficit, prior $54.6b deficit
  • 9:45am: Markit US Services PMI, est. 49.6, prior 49.6; Markit US Composite PMI, prior 50
  • 10am: ISM Services Index, est. 55, prior 57.1