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Futures Rebound As Chinese Rout Fades, All Eyes On The Fed

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by Tyler Durden
Wednesday, Jul 28, 2021 - 07:48 AM

With the rout in Chinese markets stabilizing after three days of mayhem following speculation that the Chinese "National Team" is set to start propping up the domestic market, on Wednesday stock-index futures rose along with European shares as investors digested a barrage of tech earnings earnings which saw Apple, Microsoft and Apple post $57 billion in combined profit, while Treasuries fell and the dollar was steady with traders reluctant to place large bets ahead of the outcome of the Federal Reserve meeting and Powell's subsequent press conference at 2 p.m. EDT.

At 730 a.m. ET, S&P 500 e-minis were up 2.25 points, or 0.05% after falling as much as 0.3%, while Dow e-minis were down 54 points, or 0.18%. Contracts on the Nasdaq 100 led gains, rising 39.75 points, or 0.26%, as technology shares jumped in Europe, though Asian equities were weaker amid the market turbulence triggered by China’s regulatory clampdown.

"China and the Fed are the two key things for today," said Tai Hui, chief market strategist for Asia Pacific, at JPMorgan Asset Management.  Major questions were whether markets would stabilize as they processed the news out of China and whether the spread of the Delta variant posed a risk to growth in the United States and Europe, he added. "We are still trying to digest the news from China, what's going to be new is how the Fed view the latest round of (COVID-19) infections and whether they need to readjust their view," he said.

In U.S. premarket trading, Microsoft gained after the software giant delivered another strong quarterly report that beat consensus. Apple fell after its warning on sales growth, but analysts were nevertheless positive on the tech giant’s update. Cryptocurrency-exposed stocks also jumped as Bitcoin rallies, on course for its longest winning streak this year. Payment company Visa Inc slipped 1.6% despite beating estimates for quarterly profit. Here are some of the biggest U.S. movers today:

  • Alphabet (GOOGL) shares rise 3.9% in premarket trading with analysts saying the Google-parent’s results look strong across the board. The group continues to benefit from a strong digital advertising market, with JPMorgan saying the bull thesis on the stock is continuing to play out.
  • Apple (AAPL) shares slip 1% after the iPhone maker warned that sales growth could be slowing. Analysts were nevertheless positive on the tech giant’s update, saying that product demand remains robust, while the 5G upgrade cycle should continue to provide a boost.
  • Cryptocurrency-exposed stocks jump in premarket trading as Bitcoin rallies, on course for its longest winning streak this year. Bit Digital (BTBT) surges 22% and Ebang International (EBON) climbs 5.6%, while Riot Blockchain (RIOT) advances 6.4%.
  • Infinity Pharmaceuticals (INFI) soars 28% in premarket trading, rebounding from Tuesday’s 32% slide tied to a disappointing breast cancer study, as Wells Fargo raised its rating to overweight.
  • Mattel (MAT) shares rise 5.3% in premarket trading with analysts saying its second-quarter results look strong, as had been expected following peer Hasbro’s recent update.
  • Microsoft (MSFT) shares edge 0.4% higher after the software giant delivered another strong quarterly report that beat consensus, even if it failed to meet the most bullish expectations.
  • Starbucks (SBUX) shares fall 2.3% with slowing growth in China overshadowing a jump in U.S. same-store sales in its quarterly results. However, analysts raise their respective share price targets as they remain optimistic on the long-term story.

Large-cap Chinese stocks listed in the U.S. rebounded in premarket trading Wednesday as a record slump by the shares showed signs of easing. Alibaba gained 1.6% in premarket trading, JD.com rose 1.9%, Baidu climbed 2.1%, Pinduoduo added 6.9% and NIO increaseed 4.2%. Education also rose in premarket, extending their rebound from yesterday: TAL Education +5.3%, Gaotu Techedu +4.5%, 17 Education & Technology Group +6.9% and New Oriental Education shares -0.5%.

Worries around China’s regulatory crackdown across multiple sectors, including heavyweight technology companies, have weighed on investors’ mood this week. However, anticipation of stellar results from Wall Street’s technology majors had sent the three major indexes to record highs on Monday. The Fed’s policy-meeting outcome is in focus as investors seek hints on the central bank’s plan to taper its large asset purchases programme, amid risks of a COVID-19 resurgence in the United States and rising inflation.

Major questions were whether markets would stabilise as they processed the news out of China and whether the spread of the Delta variant posed a risk to growth in the United States and Europe, he added.

"We are still trying to digest the news from China, what's going to be new is how the Fed view the latest round of (COVID-19) infections and whether they need to readjust their view," he said.

In Europe, the Stoxx Europe 600 Index snapped a two-day loss, rising 0.5% at 10:34am in London. Most sectors made gains, with retail, technology and travel shares leading on the benchmark. Here are some of the biggest European movers today:

  • St James’s Place shares rise as much as 6.6%, the most since Nov. 9 and hitting a record, after the U.K. wealth manager’s 1H results, which Shore Capital says look strong.
  • Indra Sistemas shares surge as much as 11%, most since April 2020, following 2Q results and upgrading of 2021 outlook.
  • Wizz Air shares jump as much as 6.1%, the most intraday since March 8, after its fiscal 1Q net profit beat consensus, Citi (buy) says in a note.
  • Smurfit Kappa shares fluctuate after results, rising as much as 3.5% having briefly turned negative. Goodbody analyst David O’Brien says the packaging group’s update is “impressive” and shows strong momentum.
  • Vopak shares fall by as much as 8.9%, the most since March 2020, after 2Q21 Ebitda that ING (buy) says was below its expectations though it was in line with consensus.
  • Sodexo shares fall as much as 2.3% after unexpected CEO exit. CEO Denis Machuel is largely viewed as having done a good job, dealing with a major profit warning just two months after joining and fixing company’s issues, so his departure in September is “mostly a surprise,” according to Bernstein (market perform).

Asian equities fell for a fourth day, with Japan and the Philippines among the biggest losers on concerns related to coronavirus infections. MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.35% in early trading, having fallen in each of the three previous sessions as regulatory crackdowns in China roiled stocks in the technology, property and education sectors, leaving international investors bruised. However, as noted last night, stocks in China halted a three-day selloff. The MSCI Asia Pacific Index slipped 0.3%, with SoftBank Group the biggest drag. China’s CSI 300 Index edged higher -- after earlier fluctuating on the brink of a bear market -- as state media tried to bolster investor confidence shaken by Beijing’s escalating regulatory campaign.

The Hang Seng Index reversed losses to gain 1.5%, after closing at its lowest level since November the day before. Renewed Covid-19 worries add to headwinds in Asia as investors continue to weigh China’s crackdown on the tech sector. The region’s equities have already been underperforming their global peers, with the MSCI Asia Pacific Index wiping out all its gains for 2021 just as the S&P 500 and the Stoxx Europe 600 hit all-time highs in recent days.

“China’s “national team” may be getting ready to ‘stabilize’ markets,” Jeffrey Halley, senior senior market analyst at Oanda Asia Pacific Pte., wrote in a note echoing our own observations.

“It is doubtful, though, that the repricing of China equities for government regulatory risk has run its course.” There is also an element of wait-and-see in Asian markets ahead of the outcome of the FOMC decision later today. Halley added. Japanese stocks fell, snapping a three-day winning streak and becoming the worst performer of the day among Asian markets as a spike in virus cases in the country and a drop in U.S. tech stocks weighed. Tokyo saw a new daily record of over 3,000 new coronavirus cases on Wednesday. The Philippines’ equity benchmark also declined amid concern over more lockdowns. Taiwanese and Australian stocks also declined.

Japanese equities fell, ending a three-day win streak, as rising virus cases and declines in U.S. tech giants including Apple weighed on investor sentiment. Japan's Nikkei slid 1.01%, while electronics makers and telecoms were the biggest drags on the Topix, which also fell 1%. SoftBank Group and Fast Retailing were the largest contributors to a 1.4% loss in the Nikkei 225. The Mothers Index tumbled 3.5%, the most since May 17. Daily coronavirus infections in Tokyo surged to a record 2,848 cases on Tuesday as the capital hosts tens of thousands for the Olympics. U.S. stocks ended a five-day win streak overnight as megacap technology stocks slid ahead of their earnings reports. “Autos and semiconductor stocks that have been on the rise might be prone to profit-taking by investors,” said Mitsushige Akino, a senior executive officer at Ichiyoshi Asset Management. “While new cases are increasing in Japan, the number of severe cases aren’t as high, so if the vaccine rollout progresses, we can expect the economic impact to be limited.”

In Australia, the S&P/ASX 200 index fell 0.7% to close at 7,379.30 after Covid restrictions in Sydney were extended by at least another four weeks. All sectors on the benchmark dropped except for real estate. Nickel Mines was the worst performer after it issued a production report. Spark Infrastructure was the top performer after Ontario Teachers’ Pension Plan Board and KKR made an improved takeover offer that values the company at about A$5.2 billion. Rio Tinto also reported 1H results after the market close, saying its profit for the half more than doubled to a record. In New Zealand, the S&P/NZX 50 index was little changed at 12,595.32.

In FX, the U.S. dollar sat below recent highs after a month long rally, the safe-haven yen gained and the risk-sensitive Australian and New Zealand dollars dropped back. Most of G-10 currencies stayed in narrow ranges before the Federal Reserve’s policy decision Wednesday. The pound touched its strongest level since April against the euro after a fall in virus cases. “Market attention will be focused on the FOMC meeting today, although with both policy metrics and the message communicated to the market expected to remain unchanged, the event could pass without leaving much volatility in its wake,” says Equiti Capital’s Stuart Cole

In rates, treasuries are weaker led by long-end of the curve, unwinding a portion of Tuesday’s bull-flattening move. Yields are cheaper by nearly 2bp across long-end of the curve; 10-year is more than 2bps higher at ~1.263%, 2bps cheaper vs bunds while gilts broadly keep pace. Focal points for U.S. session are Federal Reserve’s rate decision at 2pm ET, followed by Chair Powell’s press conference. U.S. auction cycle concludes Thursday with 7-year note sale.

In commodities, oil prices rose as industry data showed U.S. crude and product inventories fell more sharply than expected last week, outweighing worries about the consequences of surging COVID-19 cases. U.S. crude ticked up 0.47% to $72.01 a barrel and Brent crude rose 0.35% to $74.77 per barrel. Gold was slightly lower, with spot trading at $1,798.45 per ounce.

Looking at the day ahead the highlight will be the aforementioned Federal Reserve decision and Chair Powell’s subsequent press conference. On the data side, there’s the preliminary wholesale inventories for June. Finally, earnings releases today include Facebook, PayPal, Pfizer, Ford, Thermo Fisher Scientific, McDonald’s, Barclays, Qualcomm, Bristol Myers Squibb and Boeing.

Market Snapshot

  • S&P 500 futures up 0.2% to 4,401.25
  • STOXX Europe 600 up 0.4% to 460.56
  • German 10Y yield fell 0.1 bps to -0.442%
  • Euro down 0.1% to $1.1802
  • Brent Futures up 0.5% to $74.84/bbl
  • MXAP down 0.2% to 195.78
  • MXAPJ up 0.3% to 643.21
  • Nikkei down 1.4% to 27,581.66
  • Topix down 0.9% to 1,919.65
  • Hang Seng Index up 1.5% to 25,473.88
  • Shanghai Composite down 0.6% to 3,361.59
  • Sensex down 0.4% to 52,346.68
  • Australia S&P/ASX 200 down 0.7% to 7,379.30
  • Kospi up 0.1% to 3,236.86
  • Brent Futures up 0.5% to $74.84/bbl
  • Gold spot up 0.0% to $1,799.78
  • U.S. Dollar Index up 0.16% to 92.58

Top Overnight News from Bloomberg

  • Stocks in China and Hong Kong halted a three-day rout as the Chinese state media sought to reassure investors shaken by the government’s regulatory crackdown
  • Europe has caught up, and in some instances surpassed, the U.S. on inoculation as well as reopening, which is increasingly proving key to the path toward normalization
  • Singapore is aiming for a feat no country has achieved so far: reopen to the world and emerge from the pandemic with a death toll still in the double digits
  • After a years-long campaign to tame property prices, China is upping the ante to break a stubborn cycle of gains that’s made homes increasingly unaffordable
  • Taiwan’s life insurers are taking the opportunity of lower costs to extend their hedging horizon beyond the usual one-year period.

A more detailed look at global markets courtesy of Newsquawk

Asian equity markets traded mostly lower following on from the subdued mood in global counterparts with risk appetite sapped by the recent China sell-off, pre-FOMC cautiousness and mixed US data. Focus was also on the mega-cap tech earnings which failed to inspire index futures despite Alphabet, Apple and Microsoft all beating on top and bottom lines with shares in the iPhone maker pressured after-hours as it also warned that chip shortages could impact iPhones and iPads during the current quarter. ASX 200 (-0.7%) was dragged lower by underperformance in tech and commodity-related sectors, while growth concerns were also stoked after the New South Wales Premier announced a four-week extension to the lockdown in Sydney with CBA and ANZ Bank now forecasting a quarterly contraction for Q3 of 2.7% and 1.3%, respectively. Nikkei 225 (-1.4%) was pressured by the recent haven flows into the JPY and amid reports that several prefectures were seeking state of emergency declarations due to the ongoing COVID-19 outbreak. Hang Seng (+1.5%) and Shanghai Comp. (-0.6%) were choppy whereby the former attempted a rebound from this week’s bloodbath with early reprieve for the tech sector and education stocks. However, the recovery for tech and the Hong Kong benchmark was then briefly wiped out alongside the continued rout in the mainland where reports that China may raise fiscal spending and instigate new supportive policies in H2, as well as several attempts by Chinese press to soothe investor concerns regarding the stock rout, ultimately fell on deaf ears. Finally, 10yr JGBs eked marginal gains amid the downbeat mood in Tokyo stocks and with the BoJ also in the market for over JPY 1tln of JGBs, mostly concentrated in 3yr-10yr maturities although the upside for JGBs was only marginal amid the flat overnight picture for Bunds and T-note futures with the FOMC on the horizon.

Top Asian News

  • Tokyo Olympics Find 16 More Covid Cases, None Athletes
  • U.S., India Must Work Against Threats to Democracy, Blinken Says
  • Steel Rebar Rebounds as Demand Prospects, Tighter Market Eyed
  • Olympic Athletes Struggle With Tokyo’s Sweltering Heat

European equities trade marginally firmer (Stoxx 600 +0.4%) in what has been a busy morning of earnings for the region, with macro developments relatively light ahead of the FOMC policy announcement. In terms of commentary on European stocks, Barclays notes that the pullback in reopening plays has presented a buying opportunity and subsequently upgraded the Travel & Leisure sector to overweight. Travel & Leisure names have been supported throughout the session with stocks also likely bolstered by reports suggesting that the UK is considering relaxing travel restrictions from the US and EU. Sectors in Europe show a largely positive bias with outperformance in Tech names following large-cap US earnings after hours yesterday. Autos are on a firmer footing with Renault (+5.4%) a key performer in the sector following earnings from Nissan, in which it holds a 43% stake. To the downside, Chemical names lag peers amid losses in BASF (-1.4%) post-earnings. Elsewhere, Barclays (+4.5%) stand near the top of the FTSE 100 after solid earnings and plans to pay out billions via share buybacks and dividends. Other notable banking names reporting include Deutsche Bank (-0.3%) and Santander (-0.2%) with the former unable to appease investors after exceeding profit expectations with some concern surrounding investment banking revenues and unanticipated costs. For the luxury sector, Kering (-3%) are trading higher after strong performance in Gucci boosted sales metrics for the Co. For a full breakdown of earnings in Europe, please refer to the Daily European Equity Opening News. Stateside, futures are a touch firmer with mild outperformance in the Russell (+0.5% vs. ES +0.1%, NQ +0.1%). Focus in the pre-market will fall on after-hours earnings yesterday which saw heavyweights Google (+3.9%), Microsoft (+0.8%) and Apple (-0.9%) report, with the latter cautioning that chip shortages could impact iPhones and iPads during the current quarter.

Top European News

  • Credit Suisse’s Archegos Inquiry Rips Bank’s Due Diligence
  • Inflation Eclipses Virus as Czech Rate Setter Backs Quick Hikes
  • Apple’s European Suppliers Shake Off Growth Slowdown Warning
  • Deutsche Boerse Declines; Citi Says 2Q Beat Is of ‘Low Quality’

In FX, the index maintains the caged horizontal trade experienced overnight amid the looming FOMC statement and Chair Powell’s accompanying presser. Policy parameters are expected to be unchanged, but participants will be eyeing the tone of the statement and presser for any potential policy impacts from the Delta variant, whilst inflation is expected to be passed off as transitory. (full preview available in the Newsquawk Research Suite). In the run-up to the Fed, the Buck could be influenced by a notable change in sentiment or yields, but in the absence of pertinent news flow and a light data/speakers docket, action throughout the European morning will likely be contained. DXY currently resides around the middle of the current 92.398-587 range. Heading into month-end with Citi’s model pointing to mild USD selling for the month-end FX hedging.

  • CNH - The Yuan has held onto a bulk of yesterday’s losses, although USD/CNH has somewhat stabilised around the 6.5000 area, with comments from Chinese media overnight attempting to soothe the crackdown-induced sullied sentiment, whilst the PBoC unsurprisingly opted for a softer CNY fix overnight, in line with expectations. China Securities Journal suggested that investors should not be pessimistic due to stock declines, while a separate Chinese press report suggested that the China stock plunge is unsustainable and the market will stabilise. Furthermore, Chinese press noted that China may raise fiscal spending in Q3 to support the economy and may expand domestic demand with new policies in H2. USD/CNH remains above its 200 DMA (6.4907) but off yesterday’s 6.5285 high.
  • EUR, GBP, JPY, CHF - All trade flat vs the Buck and against each other. EUR/USD meanders just north of 1.1800 within a 23-pip range, unfazed by the sub-par German Gfk Consumer Sentiment for the month ahead. Traders should however be cognizant of lumpy option expiries for the pair ahead of today’s NY cut – which in absence of catalysts may sway exchange rates - with EUR 1.1bln at strike 1.1800 and around EUR 1bln on each side of the round figure. GBP/USD earlier failed to test 1.3900 to the upside after losing steam at 1.3895 and thereafter trickled off best levels to a base at 1.3865. EUR/GBP is also caged above 0.8500 with little reaction seen to reports that the European Commission has paused legal action against the UK for its alleged breach of the post-Brexit deal on Northern Ireland. USD/JPY circles the 110.00 handle ahead of its 50 DMA at 110.03, with a current range between 109.75-99. USD/CHF first with the 0.9150 handle having had moved around 10 pip on either side of the semi-round figure.
  • AUD, NZD, CAD - The non-US Dollars diverge with the antipodeans narrowly underperforming in the G10 bunch. The subdued mood across Australia and New Zealand is in part a function of their largest trading partner China encountering investor jitters amid mass crackdowns. Further, the AUD also bears the brunt of a four-week lockdown extension for Australia’s most populous city which has prompted forecasts for an economic contraction in Q3. This also comes ahead of the RBA policy meeting next week, whereby noise has been growing regarding the need to U-turn on the RBA’s prior taper announcement. Aussie CPI overnight surged from the prior month but largely matched expectations and failed to spur much action. AUD/USD trades on either of USD 0.7350, with yesterday’s trough at 0.7337. NZD/USD has dipped below 0.6950 and resides closer to session lower at 0.6937 (vs high 0.6969). The Loonie in contrast narrowly outperforms the G10 space amid an underlying bid in crude following a larger-than-expected drawdown in Private Inventory stocks, ahead of the Canadian CPI figures at 13:30BST.

In commodities, WTI and Brent front month futures trade on a firmer footing with the former back near the USD 72.50/bbl mark (vs low 71.80/bbl) and the latter north of USD 75/bbl (vs low 74.58/bbl). The bid in the crude complex has been supported by the larger-than-expected drawdown in Private Inventories (Crude -4.73mln vs exp. -2.9mln), with the internals also bullish. News flow for the complex has remained light in the run-up to this week’s main central bank event. Fed aside, markets will be eyeing COVID-19 and international travel developments to gauge upcoming demand, although desks maintain their view of a deficit in the summer followed by a demand lull in H1-2022 – with prior sources via Energy Intel suggesting that OPEC+ may pause the monthly production hikes to accommodate this. Elsewhere, spot gold and silver trade sideways around USD 1,800/oz and under USD 25/oz awaiting the Fed. LME copper meanwhile remains subdued under USD 9,750/oz, but off recent lows and re-eyeing the USD 10k/t mark to the upside, with traders increasingly citing the red metal’s demand prospects, but cautioning over China’s interference.

US Event Calendar

  • 8:30am: June Retail Inventories MoM, est. -0.5%, prior -0.8%; Wholesale Inventories MoM, est. 1.1%, prior 1.3%
  • 8:30am: June Advance Goods Trade Balance, est. -$88b, prior -$88.1b, revised -$88.2b
  • 2pm: July FOMC Rate Decision

DB's Jim Reid concludes the overnight wrap

Facebook report today and I must admit the company have had a strange impact on our house over the last couple of weeks. Ahead of converting an old outbuilding, we’ve been trying to clear it of all the spare furniture from our old house that got stored there. My wife decided to put most of it on Facebook marketplace. She’s sold beds, sofas, a kitchen table, a dining table and chairs, armchairs, sofas, wardrobes, benches, a computer desk, mirrors, a tapestry (!) and much much more all within days of putting them on. It’s been quite a revelation in quickly getting rid of stuff. Anyway my wife had to go out yesterday and left me in charge of opening the door and handing over a high chair we put on. My wife wanted it to go to a good home and put a 2 pound token price tag on it. The guy collecting it was late and I had to cut off a work call to let him in. He saw it, spent ages looking over it and then said “I’ll give you a pound for it”. I was annoyed he’d wasted my time and said no. He said he’d leave it then and drove off. I was flabbergasted. I told my wife when she got home and she was a bit annoyed and said that 20 people had turned up when she was there over the last two weeks and every item sold. She said she leaves me with the lowest value item and I fail miserably. As such if anyone wants an IKEA high chair I can cut you a deal for £1.50.

It’s not only high chairs that are going down in value as after US equities hit an all-time high on Monday, yesterday saw risk-off sentiment prevail once again as the effects of the rout in Chinese equities began to be felt more broadly. By the close of play the S&P 500 (-0.47%) and Europe’s STOXX 600 (-0.54%) had both lost ground even if they were off their lows and broadly halved their losses. Elsewhere Bloomberg’s Commodity Spot Index (-0.84%) fell from its highest level in a decade, and the VIX index of volatility (+1.8pts) rose to its highest level in a week.

Looking at the moves in more depth, investors sought safety in defensive, bond-proxy industries such as utilities (+1.72%) and real estate (+0.81%). Meanwhile, it was tech stocks that saw the biggest declines, with the NASDAQ (-1.21%) experiencing its worst daily performance since early-May, as the FANG+ index (-1.42%) also suffered significant losses. They were -2.27% and -3.01% at the lows though. We’ve all been looking at if and when big tech would see a regulatory clamp down but that was more in the US. China has stolen a march here and started to rein in private companies that it sees as creating inequality, financial instability risk and challenging the government’s authority. It seems to be putting its longer-term strategy goals ahead of short-term market stability. For more of this see our Asian equity strategist Peter Milliken’s thoughts here and what could be next in the regulatory cross hairs.

We showed in yesterday’s CoTD (link here) that the Heng Seng Tech index (which represents the 30 largest tech companies in HK with high exposure to “innovative tech themes”) was now down c.43% since the February highs and c.-16.6% over the previous three sessions. This morning its broadly unchanged.

Overall, Asian markets are following Wall Street’s lead this morning with the Nikkei (-1.46%), Hang Seng (-0.24%) Shanghai Comp (-0.59%) and Kospi (-0.43%) all down. Various Chinese financial dailies like the China Securities Journal and the Securities Daily are carrying commentaries today to prop up sentiment in Chinese equity markets. China’s Securities Times has carried a commentary saying that there is no systemic risk in the A-share market and that the long-term positive trend won’t change, while adding that the recent market decline reflects some misunderstanding of policies and the venting of emotions by some funds. The report also said that the fundamentals of the economy haven’t changed, and the market will stabilise. Meanwhile, futures on the S&P 500 are down -0.14% while those on the Stoxx 50 (+0.05%) are slightly up. Yields on 10y USTs are slightly lower.

The tech losses around the world came ahead of a raft of earnings releases following the close. Google’s parent company Alphabet rose +3.0% in after-market trading (-2.0% at the earlier close) as the company announced a significant EPS beat of $27.26 (vs. $19.35 est.) on the back of significant growth in three key business lines; Youtube, ads, and cloud services. In the press release, Alphabet cited a “a rising tide of online activity in many parts of the world” during Q2. Microsoft originally saw a -3.0% loss in after-hours trading (-0.87% at the close), possibly due to investors learning that Microsoft’s cloud-services business, Azure, saw slower growth than expected. However, at the end of afterhours trading, the stock was unchanged after investors were calmed by the company’s forecasts on the ensuing earnings call. The largest US company, Apple, warned that sales growth could be slowing and that they are facing supply chains shortages, which could affect production of iPads and iPhones in the coming quarter. The stock was down -2.1% after hours, despite reporting a 50% growth in iPhone sales.

The main highlight today will be the Federal Reserve’s latest decision at 19:00 London time, along with Chair Powell’s subsequent press conference. In terms of what to expect, our US economists write in their preview (link here) that they think this meeting should provide an update on the progress of the taper talks that will help refine the likely timeline for an announcement in the coming months. However, given recent guidance, they expect Powell will stop short of sending a clear signal that tapering is imminent, and their timeline for tapering is that we’ll get a clearer signal that it’s coming into view at the Jackson Hole symposium in August or at the meeting in September, before an official tapering announcement occurs in November.

Ahead of the Fed’s announcement, US Treasury yields renewed their decline, with the 10yr yield down -4.9bps to 1.241% after the latest Chinese tech sell-off. Inflation breakevens (-2.2bps) declined alongside real yields, which fell -2.6bps to -1.1325%, marking their lowest ever closing level (since TIPS used from 1997), having also hit an all-time intraday low of -1.155% earlier in the session. It was a similar story in Europe, where yields on 10yr bunds (-2.3bps) fell to their lowest level since February, whilst those on OATs (-1.2bps) and BTPs (-0.6bps) also fell back.

Here in the UK, we saw another remarkable decline in virus case numbers yesterday, with just a further 23,511 reported. That marks a decline of -49.5% relative to the numbers on the previous Tuesday, which is the largest weekly decline in cases for over a year. Judging by the UK press, even the scientists seem pretty bemused by this turn in events given that the country has basically removed all legal restrictions. It was only 10 days ago we had warnings (including from the Health Secretary himself) that we could soon see cases rise to 100,000 per day. In terms of the reasons behind the decline, the hypotheses include that it’s partly the effect of schools going on summer holidays, people becoming more cautious for fear of being told to isolate, other voluntary mobility reductions, hot weather, and the impact of the European football championships (and associated gatherings) falling out of the equations. Herd immunity is also there to some degree but that wouldn’t explain the sudden drop. Whatever the reason though, this is very promising news for the rest of the world, since (for now) it appears that the UK’s high vaccination rates have not only helped to blunt the impact on hospitalisations and deaths but now seem to be helping reduce cases. The UK even plans that to reopen the country to tourists from the US and EU who are fully vaccinated, according to PM Johnson, with the policy set to take effect as soon as next week.

Over in the US, the CDC announced new mask-wearing guidance, recommending that even vaccinated people wear mask indoors in certain areas of the country where vaccination rates lag or infection rates are particularly high. The CDC also is recommending that masks be worn in schools, because not all children are yet eligible for a vaccine. This is fairly sharp about face from last week when the agency had no plans to update their guidance but according to officials they were swayed by new research that showed even vaccinated people were at risk of spreading the virus. Separately, we also had the news from Tokyo, where the Olympics is currently taking place, that there’d been a record 2,848 new cases – double the number found a week earlier. Lastly, the lockdown in Australia’s city of Sydney will be extended by at least another four weeks.

Looking at yesterday’s other news, the IMF maintained their 2021 global growth forecast of +6.0% in their World Economic Outlook Update, whilst upgrading 2022’s growth to +4.9% (vs. +4.4% in April). That said, the maintenance of the overall global growth projection for this year came in spite of a downgrade in their forecasts for emerging market and developing economies, which are now forecast to grow by +6.3% (vs. +6.7% in April), contrary to the advanced economies where they upgraded their forecast this year to +5.6% (vs. +5.1% in April).

On the data side, the US Conference Board’s consumer confidence index for July rose unexpectedly to 129.1 (vs. 123.9 expected), which marks the index’s highest level since February 2020 before the impact of the pandemic was felt. However, durable goods orders for June came in below expectations, with growth of +0.8% (vs. +2.2% expected), and the S&P CoreLogic Case-Shiller national home price index was up +16.6% on a year-on-year basis, marking the largest annual increase in data that goes back to 1998.

To the day ahead now, and the highlight will likely be the aforementioned Federal Reserve decision and Chair Powell’s subsequent press conference. On the data side, we’ve also got the French and Italian consumer confidence readings for July and Germany’s GfK consumer confidence reading for August. Separately in the US, there’s the preliminary wholesale inventories for June. Finally, earnings releases today include Facebook, PayPal, Pfizer, Ford, Thermo Fisher Scientific, McDonald’s, Barclays, Qualcomm, Bristol Myers Squibb and Boeing.

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