Futures Rebound As Op-Ex Gamma Trapdoor Looms

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by Tyler Durden
Friday, Jul 16, 2021 - 07:55 AM

US equity futures rebounded from yesterday's slide and losses of as much as -0.3% overnight on dismal volumes, as 10Y yields rose up to 1.335% and the dollar pushed higher. At 7:15 a.m. ET, Dow e-minis were up 51 points, or 0.14%, S&P 500 e-minis were up 7.75 points, or 0.17%, and Nasdaq 100 e-minis were up 34 points, or 0.23%.

Volatility shrank, but with today's op-ex seeing a third of SPX gamma expiring, there is a chance volatility may spike, and with the vol trigger level just below spot, there may be some market turbulence today.

Investors piled on economically sensitive energy, banks and travel stocks ahead of key retail sales data that will likely miss expectations of a marginal -0.3% decline based on the latest BofA debit and credit card spending data.

Rate-sensitive banks such as Citigroup, JPMorgan, Goldman Sachs and Morgan Stanley rose between 0.2% and 0.3%, tracking a rise in benchmark 10-year Treasury yield, after sliding following what many saw as strong earnings despite billions in reserve releases.  Oil stocks Chevron, Diamondback Energy, Exxon Mobil, and Halliburton gained between 0.7% and 0.9%. Here are some other notable premarket movers:

  • Moderna (MRNA) gains 8% after the vaccine maker was named to the S&P 500 Index in one of the most noteworthy additions to the index since Tesla Inc. joined late last year.
  • Intel (INTC) added 0.9% after a media report the chipmaker is in talks to buy semiconductor manufacturer GlobalFoundries Inc for about $30 billion.
  • Didi Global (DIDI) drops 7% after China dispatched a team of officials to conduct on-site inspections at the firm as part of a probe into the ride-hailing giant.
  • Fibrogen (FGEN) slumped 35% in premarket trading after the U.S. FDA Advisory Committee voted against approving roxadustat for the treatment of anemia.
  • AMC climbed 5.2% in premarket trading Friday, extending their gains of more than 7% from yesterday as stocks favored by retail traders are broadly higher. Other so-called meme stocks that are trading higher this morning: TDH Holdings +5.2%, GameStop +4.2%, Sgoco +4.5%, Arrival +3.6%, Marin Software +3.7%, Senseonics +2.9% and ContextLogic +2.6% as of 7:04 a.m. in New York

The S&P 500 energy sector index has declined 5% so far this week and is the top loser among the 11 major sectors, followed by consumer discretionary and materials. On the other hand, defensives utilities, real estate and consumer staples were the top gaining sectors, as a spike in coronavirus cases, led by the new Delta variant across the globe, reignited worries about a delay in the economic recovery. Los Angeles County will reimpose its mask mandate this weekend in the latest sign that public health officials are struggling with a rise in cases to worrisome levels in many parts of the United States.

The Russell 2000 small cap index dropped 0.6% to a near two-month low. Once-booming SPACs, or "blank check companies", were completely out of favor, with the Ipox Spac index hitting a seven-month low. Instead investors flocked to bonds, after Federal Reserve Chair Jerome Powell reiterated that rising inflation is likely to be transitory and that the U.S. central bank would continue to support the economy.

“At least for the next 12 to 18 months, we’re going to be living in a period of heightened inflation pressures,” Sean Darby, a global equity strategist at Jefferies, said on Bloomberg Television. “The good news is at least for the next 12 months, I don’t think the profit cycle is going to pull the rug from under the feet of equity investors. It’s still a reasonable environment for equity markets to outperform other asset classes.”

European equities were a mirror image of US futures, turning red after reversing earlier gains and now trading near session lows as basic resources, consumer products and services, and industrials lead the drop while travel was the strongest sector, followed by real estate and utility names. The DAX rose 0.3% and Spain's IBEX was up 0.4% fading a gain as much as 1% in early trade. Here are some of the biggest European movers today:

  • Sinch shares soar as much as 11.8% after company reported 2Q adj. Ebitda that beat average analyst estimate.
  • Getinge shares gain as much as 4.1% to a record high following its second- quarter earnings, which Handelsbanken says were “impressive.”
  • DCC shares rise as much as as 3.9%, the most since March 18, after the company’s 1Q trading update, and RBC (outperform) sees valuation as a buying opportunity and the potential for positive M&A news.
  • Ericsson’s shares slump as much as 10.4%, their worst day in over one year, after the telecom equipment maker’s 2Q adjusted operating profit misses estimates and co. says it sees hit to China market share.
  • AstraZeneca shares fall as much as 2% to a week low after the U.S. FDA Advisory Committee voted against approving its roxadustat for the treatment of anemia. While investor expectations were already low, the decision “still dents sentiment,” Jefferies said.
  • Dometic shares tumble as much as 9.6%, most since April 2020. The recreational-vehicle equipment maker’s “somewhat disappointing” 2Q results will probably raise questions about its performance compared with the market, according to Morgan Stanley.
  • Burberry shares fall as much as 4.7% after the U.K. trench-coat maker’s 1Q sales update failed to impress and as investors remained focused on the risks ahead for a company that hasn’t completed its turnaround yet and now needs to find a new CEO.

Earlier in the session, Asian shares headed lower as profit-taking in Taiwanese chip giant TSMC, despite record profits, weighed on other tech firms and broader risk sentiment. TSMC, Asia's biggest firm by market capitalization outside China, fell almost 4% following its earnings on Thursday. While the world's largest contract chipmaker posted record quarterly sales and forecast higher revenue for the current quarter, investors took profits, fearing its best times could already be behind it.

"Its earnings were excellent and to me, the market seems to be a bit overreacting," said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. "But the fall in its profit margin led to the view that its growth momentum might be peaking out."

TSMC's fall weighed on many other semiconductor related shares in the region, with South Korea's Kospi down 0.6% and Japan's Nikkei losing 1.1%. Weakness in chip-related shares also helped to bring down the S&P 500 0.33% and the Nasdaq Composite 0.70% on Thursday.

Sentiment was also dented after President Joe Biden said his administration will warn U.S. companies about the risks of doing business in Hong Kong. The MSCI Asia Pacific Index dropped as much as 0.5%, dragged down by the information technology and consumer discretionary sectors. China’s liquidity-sensitive ChiNext retreated almost 3%, while the CSI 300 lost more than 1%. Biden said his administration will issue an advisory cautioning U.S. companies about the risks of doing business in Hong Kong because of “what may happen” as China continues to tighten its control over the territory. “This sends the signal that investors will likely have to dust off their playbooks from the Trump presidency,” said Olivier d’Assier, head of APAC applied research at Qontigo GmbH. “In the near-term, risk appetite may decline, while investors evaluate where new longer-term risks may emerge.”

Investors “will be assessing whether developments like the recent regulatory campaign against tech firms in China and U.S. listing restrictions may continue to occur in the coming months,” d’Assier said. Hong Kong stocks erased losses after Bloomberg News reported that China will exempt companies going public there from first seeking the approval of the country’s cybersecurity regulator, removing one hurdle for businesses that list in the Asian financial hub instead of the U.S. The Hang Seng Index finished little changed. The MSCI Asia Pacific gauge is still on track for its best weekly gain since the end May after falling for two straight weeks. Benchmarks in China and Japan were among the biggest decliners, while those in Vietnam and Indonesia outperformed.

Japanese stocks also declined after concerns about the outlook for U.S. economic growth weighed on Wall Street. Shares in Tokyo held losses after the Bank of Japan left its 10-year bond yield target unchanged. The Topix fell for the third day, dropping 0.4% to 1,932.19. Sony Group contributed the most to the decline, decreasing 2.2%. Eisai had the largest drop, falling 13% after two major hospital systems in the U.S. and a group of health insurers said they wouldn’t administer Biogen’s Alzheimer’s disease medicine. The Nikkei closed at 28,003.08, down 1%. Fast Retailing, which has the largest weight on gauge, dropped 2.6% after the Uniqlo operator missed quarterly profit expectations and cut its forecasts for the full year. Today, 1,056 of 2,187 shares fell on the Topix, while 1,006 rose; 21 of 33 sectors were lower, led by electric appliances stocks. Nobuhiko Kuramochi, a market strategist at Mizuho Securities, said a jump in Covid-19 cases continued to weigh on investor sentiment. Tokyo’s new infections tallied 1,308 on Thursday, the most since January, when the capital was experiencing its worst wave of the pandemic. “There’s worry over the spike in coronavirus cases,” Kuramochi said. “It’s possible the state of emergency won’t be lifted early, which would worsen expectations for economic growth in July-September.”

In rates, treasury yields rose and the curve steepened, paring some of the flattening over the past two days. Treasuries were cheaper by as much as 3bp at long end of the curve after facing pressure during Asia session and London morning as U.S. stock futures recouped some of Thursday’s losses. The long-end-led losses steepen 2s10s by ~1.5bp, 5s30s by ~1bp; 10- year yields around 1.322% are cheaper by 2.3bp on the day but still more than 3bp lower on the week and nearer the rich end of 1.29%-1.42% range. Bunds, gilts outperform by 3bp-5bp, narrowing gaps that opened as Treasuries rallied during U.S. afternoon Thursday; S&P 500 futures have erased less than half of Thursday’s 0.4% drop. Focal points include retail sales data and potential for rate-lock flows linked to next week’s credit offerings to influence price action.

Bond yields rose after tumbling earlier even as the latest US data showed consumer inflation hitting its highest in 13 years. "Short positions in bonds simply don't work, so much so that you just lose vigour," said Arihiro Nagata, general manager of global investment at Sumitomo Mitsui Bank. "You can't fight the Fed when there is such a massive easing."

In FX, the Bloomberg Dollar Spot Index hovered and the greenback was mixed against its Group-of-10 peers. In rates, the New Zealand dollar led gains after inflation data jumped above the central bank’s target band, adding to the case for an August rate increase. Westpac Banking Corp. forecasts three RBNZ hikes by year-end.

"Delta variants are raging in countries where vaccination is limited. In a way, the dollar and U.S. assets appear to be bought as a hedge against that," said Sumitomo Mitsui's Nagata.

The pound advanced even as the U.K, held out the prospect of restoring some Covid-19 restrictions amid a surge in new cases, just three days before it plans to drop all remaining social distancing rules. Bearish bets in the pound over the short-term may pick up again as virus concerns come to the forefront. The yen declined against the dollar after rising for two straight days and was the worst G-10 performer; Japan’s government bonds fell, erasing earlier gains after the BOJ kept its main policy setting unchanged as expected and laid out details for its climate-linked funding measures

In commodities, West Texas Intermediate crude contracts rose Friday, but remained on course for the biggest weekly drop since March amid uncertainty over an OPEC+ deal to boost supply. Reuters reported on Wednesday that Saudi Arabia and the United Arab Emirates had reached an accord that should pave the way for a deal to supply more crude to a tight oil market. A deal has yet to be finalized and the UAE energy ministry said deliberations are continuing.

Bitcoin ground lower for a second day, sliding to $31,000.

Looking at the day ahead, data highlights from the US include the aforementioned June retail sales print and the University of Michigan’s preliminary consumer sentiment index for July. Meanwhile from Europe, we’ll get the Euro Area trade balance for May, the final Euro Area CPI reading for June. Central bank speakers include New York Fed President Williams, and today’s earnings releases include Charles Schwab.

Market Snapshot

  • S&P 500 futures little changed at 4,353.25
  • STOXX Europe 600 up 0.2% to 456.97
  • MXAP down 0.4% to 205.03
  • MXAPJ down 0.4% to 686.30
  • Nikkei down 1.0% to 28,003.08
  • Topix down 0.4% to 1,932.19
  • Hang Seng Index little changed at 28,004.68
  • Shanghai Composite down 0.7% to 3,539.30
  • Sensex down 0.2% to 53,032.05
  • Australia S&P/ASX 200 up 0.2% to 7,348.12
  • Kospi down 0.3% to 3,276.91
  • Brent futures up 0.2% to $73.60/bbl
  • Gold spot down 0.4% to $1,822.55
  • U.S. dollar index little changed at 92.62
  • German 10Y yield fell 0.2 bps to -0.336%
  • Euro little changed at $1.1806

Top Overnight News from Bloomberg

  • The Bank of Japan switched its bond purchase plan to quarterly from monthly to help revive the market, Governor Haruhiko Kuroda told reporters
  • Automakers sold almost 2 million fewer cars in Europe during the first half compared with two years ago, as the industry’s recovery in the region falls short of the rebound seen in the U.S. and China
  • The ECB is likely to limit changes to its monetary policy to words at next week’s meeting, leaving decisions on future bond-buying until the economic outlook clears, according to a Bloomberg survey of economists
  • Oil headed for the biggest weekly loss since mid-March as a resurgence of Covid-19 and uncertainty around the prospect for an OPEC+ deal to increase supply clouded the short-term outlook
  • The Bank of England’s asset-buying program risks stoking inflation, widening inequality and has done little to boost economic growth since it began over a decade ago, members of Parliament’s upper chamber concluded

Quick look at global markets courtesy of Newsquawk

Asian stocks were subdued as the region took its cue from the lacklustre performance across global peers amid lingering growth slowdown concerns and ongoing US-China tensions, with the Biden administration preparing sanctions on Chinese officials over the Hong Kong democracy crackdown. The ASX 200 (+0.1) was flat with sentiment not helped by the lockdown affecting Australia’s two most-populated cities, and with underperformance in commodity names after weak quarterly updates from Rio Tinto and Evolution Mining, although the losses for the index were later pared by resilience amongst defensives. The Nikkei 225 (-1.0%) briefly retreated beneath the 28,000 level as participants awaited the BoJ policy announcement - which turned out to be a damp squib and offered little surprises as the central bank kept policy settings unchanged and lowered the growth forecasts for the current fiscal year as expected. That being said, there were notable losses for the likes of index heavyweight Fast Retailing despite an increase in 9-month profits, as it also trimmed FY revenue guidance, and Eisai was the worst hit after the Institute for Clinical and Economic Review unanimously voted that there is no evidence the Aduhelm Alzheimer's drug, which the Co. partners with Biogen on, has any benefits beyond usual care. Hang Seng (U/C) and Shanghai Comp. (-0.7%) conformed to the uninspired mood on continued tensions with US President Biden set to warn investors about Hong Kong and with the US also preparing sanctions (in line with prior source reports), while President Biden earlier noted that the situation in Hong Kong is deteriorating and the Chinese government is not keeping its commitment. China also denied a request for US Deputy Secretary of State Sherman to meet with her Chinese counterpart during a proposed visit to the country, although reports that China is planning to exempt Hong Kong IPOs from cybersecurity reviews later provided tailwinds for the HKEX. Finally, 10yr JGBs are lower after the jittery price action in T-notes which pulled back from yesterday's gains and with prices not helped following the BoJ policy meeting where it also outlined details of its zero-interest climate loans scheme.

Top Asian News

  • China Dispatches Officials to Inspect Didi’s Data Security
  • UST Curve Rises Before Retail Sales Print; BOJ Maintains Policy
  • BOJ Joins Global Climate-Change Fight With Green Loan Help
  • TSMC Tumbles as Margin Concerns Outweigh Strong Demand

Bourses in Europe have held onto the relatively mixed picture seen at the cash open (Euro Stoxx 50 -0.3%), with price action somewhat choppy in recent trade. US equity futures remain flat across the board, with the RTY (+0.3%) recovering a touch more following yesterday's underperformance. News flow has been light thus far, with no headline driving the price action. However, the lessening dovish/increasingly hawkish rhetoric among some of the "non-core" G10 central banks is indeed worth keeping on the radar – with Westpac now expecting the RBNZ to hike its OCR three times this year following the NZ CPI metrics. Overnight Indexed Swaps (OIS) now pricing two full 25bp OCR hikes by year-end. Back to Europe, sectors are mixed with no apparent risk profile nor overarching theme, and essentially a reversal of yesterday's performance. Travel & Leisure resides at the top after the sector lagged in the prior session, whilst Oil & Gas makes its way up the ranks as the broader crude complex gains traction. Telecoms is at the bottom of the pile on the back of Ericsson (-7.9%), whose share slumped after revenues missed analyst forecast. However, the group said it remains cautiously optimistic for the rest of the year. The morning saw a pickup in European earnings, with Richemont (-0.9%) yielding gains of some 2% seen at the cash open with some possible profit taken, whilst others are citing concerns on the outlook ahead. Puma (-2%) opened lower despite raising its 2021 outlook after noting supply chain constraints due to container shortages and port congestion. Elsewhere, Deutsche Bank (-0.3%) is pressured after FT sources stated the Co. might have mis-sold foreign exchange derivatives to between 50 and 100 companies in Spain, suggesting the scandal is wider than previously thought. Finally, in terms of US M&A, Intel (+0.9% pre-market) is said to be in talks to acquire GlobalFoundries for around USD 30bln, according to WSJ.

Top European News

  • Russia Bars News Site That Said Putin May Have Secret Child
  • Swedbank Profit Tops Estimates Amid Record Commission Income
  • BOJ Joins Global Climate-Change Fight With Green Loan Help
  • Burberry Drops as 1Q Fails to Impress, Investors Focus on Risks

In FX, the Kiwi has not advanced on its post-RBNZ peaks vs its US counterpart, but has forged fresh highs against the Aussie in wake of blistering NZ inflation data overnight. To recap, CPI rose well above consensus in Q2 and the Bank’s own forecast to breach the upper end of its 1-3% target band for the first time in a decade, justifying the decision to curtail QE at the end of next week and the assessment that risks are now skewed towards an overshoot of the RBNZ’s policy remit. In response, Nzd/Usd has reclaimed 0.7000+ status and the Aud/Nzd cross is probing 1.0600 to the downside, as Aud/Usd continues to lag under 0.7450 amidst the renewed COVID-19 outbreaks and lockdowns that have dented economic recovery momentum and the hitherto upbeat outlook.

  • USD/GBP/CAD - Kiwi outperformance and relative strength in a few other major rivals aside, the Greenback is holding ground amidst a reversion to bear-steepening along the US Treasury curve, with the DXY looking more solid above 92.500 having eclipsed yesterday’s intraday peak within a 92.720-528 range. However, the index and broad Buck remain off best levels recorded after the latest surge in inflation (92.832 on Wednesday in the case of the former) as the spotlight switches to consumption and the last scheduled Fed speech before the start of the blackout period for July’s FOMC from Williams. Conversely, the Pound has rebounded quite firmly following a deeper retreat from its recent peaks, while also taking advantage of a rather lethargic Euro as Cable trades above 1.3850 vs sub-1.3800 and Eur/Gbp circa 0.8525 compared to 0.8550+. Sterling may be gleaning some traction from a recovery in Brent and the same could be said for the Loonie given WTI’s recovery to just over Usd 72/brl from Usd 71.13, with Usd/Cad paring back from 1.2600 in the run up to Canadian housing starts and wholesale trade.
  • EUR/CHF/JPY - As noted above, the Euro appears somewhat reluctant to deviate far against the Dollar, albeit more responsive to moves elsewhere, as it meanders mostly beyond 1.1800 in tight 1.1820-1.1797 confines, but the Franc and Yen are lagging against the backdrop of recovering risk sentiment due to their stronger safe-haven properties. Indeed, Usd/Chf has peered through 0.9200 again and Usd/Jpy is back on the 110.00 handle after a routine BoJ policy outcome bar revisions to latest Outlook Report forecasts.
  • SCANDI/EM - Some retracement for the Nok vs the Sek and Eur, but only partial compared to the likes of the Try and Zar that are seeing a more pronounced correction from record or extreme bases, irrespective of reports that a Turkish ship opened fire on a Cypriot border guard patrol and ongoing riots in SA that have prompted President Ramaphosa to deploy 25k soldiers in an attempt to diffuse the situation. Meanwhile, the Cnh and Cny seem transfixed with the on-off-on again China-US meeting between the respective Deputy Secretaries of State.

In commodities, WTI and Brent front month futures have rebounded off their overnight and weekly lows, with prices now higher by around USD 0.5/bbl apiece, with the former back above USD 72/bbl (vs low 72.13/bbl), whilst the latter is eyeing USD 74/bbl after confirming support at USD 73/bbl. News flow for the complex has been light of the OPEC+ deliberations, rising cases of the Delta COVID variant, and an expected boom in demand over the summer. As such, in the absence of any macro updates, prices are likely to take their cue from technical and risk sentiment. Elsewhere, spot gold and silver are subdued around USD 1,825/oz (vs high 1,832/oz) and USD 26.15/oz (vs high 26.44/oz), with prices moving in tandem with yields but still within recent ranges. LME copper hold modest gains in a tight parameter after briefly topping USD 9,500/t. Meanwhile, LME nickel high near five-month highs with traders citing robust demand and low supply.

US Event Calendar

  • 8:30am: June Retail Sales Advance MoM, est. -0.3%, prior -1.3%
    • 8:30am: June Retail Sales Ex Auto MoM, est. 0.4%, prior -0.7%
    • 8:30am: June Retail Sales Ex Auto and Gas, est. 0.5%, prior -0.8%
    • 8:30am: June Retail Sales Control Group, est. 0.4%, prior -0.7%
  • 10am: May Business Inventories, est. 0.5%, prior -0.2%
  • 10am: July U. of Mich. 1 Yr Inflation, est. 4.3%, prior 4.2%; 5-10 Yr Inflation, prior 2.8%
  • 10am: July U. of Mich. Sentiment, est. 86.5, prior 85.5; Current Conditions, est. 91.0, prior 88.6; Expectations, est. 85.0, prior 83.5
  • 4pm: May Total Net TIC Flows, prior $101.2b; May Net Foreign Security Purchases, prior $100.7b

DB's Jim Reid concludes the overnight wrap

A late call-up from the subs bench yesterday and I’m back in the starting EMR line up for a special one-off testimonial Friday appearance. Dusting off the boots, it feels hard to get much of a pulse on the market at the moment with this week in particular feeling like some of the summer lull and illiquidity factors are starting to weigh. That being said overall sentiment was definitely weaker yesterday and Asia this morning has followed suit with equity markets for the most part in the red with the Nikkei in particular down close to 1%. Futures aren’t offering much help in the way of direction meanwhile, wrapped around unchanged on both sides of the pond.

This morning’s BoJ meeting was also uneventful. As expected, policy was left unchanged while the growth forecast for this year was trimmed two-tenths to 3.8% however growth in 2022 was raised to 2.7% from 2.4%. One of the bigger talking points has been the headlines around ESG with the statement showing that the BoJ will purchase foreign-currency denominated green bonds issued by governments and other foreign institutions as part of its overall climate change strategy. Governor Kuroda is due to speak shortly.

With the BoJ out of the way, expect the remaining focus today to turn towards some important consumer data in the US this afternoon with June retail sales and the preliminary July University of Michigan consumer sentiment survey both under the microscope. In terms of the latter, all eyes will be on the inflation expectations readings, which over both the short- and long-run have potentially begun to slip after surging through the first half of the year.

Back to yesterday, and as mentioned at the top, risk-off was the prevailing theme. The spread of the more-infectious delta variant is the key emerging threat for the time being, with Covid-19 cases on the rise again at the global level and in most of the G7 economies. But there’s also been a definite hawkish shift from a number of central banks in recent days that’s brought into focus the issue of how long today’s monetary policy support can be expected to last for. By the close of play the S&P 500 had lost -0.33% and the NASDAQ -0.70% while the price of WTI oil (-2.02%) also fell to $71.65 and the lowest since mid-June. We also saw 10y treasuries fall below last week’s low in yield, touching 1.29% (-4.7bps on the day) and this morning are hovering around 1.32%. Curves have generally flattened too with 2s10s -4.9bps flatter yesterday and 5s30s another -3.0bps flatter.

In terms of newsflow, Fed Chair Powell spoke again although much of his comments were a repeat of the day prior. The Senate Banking Committee pressed him harder on inflation than their colleagues in the House, with Chair Powell saying that the recent pricing pressures are a “shock going through the system associated with the reopening of the economy and it’s driven inflation well above 2%, and of course we’re not comfortable with that.” He again reiterated that much of the price increase are in specific parts of the economy, such as used cars, and expects those to be transitory, while also acknowledging that other things might see price increase that take their place.

Powell wasn’t the only Fed official to speak yesterday. St Louis Fed President Bullard said in an interview that “I think we are in a situation where we can taper”. In contrast, notoriously dovish Chicago Fed President Evans said that the FOMC will talk about tapering for “a couple of meetings at least”, which would take us to November at the earliest. Though even Evans thinks that the US economy will see “substantial further progress” by year-end, which is the taper standard we have heard so far.

In Europe yesterday flatter rate curves were also a consistent theme with the exception of gilts, where hawkish comments from the BoE’s Michael Saunders saw them underperform, with 2yr yields in particular up +6.6bps to their highest level in over a year by the close of trade. That follows the stronger-than-expected CPI reading the day before, and in a speech, Saunders said that “if activity and inflation indicators remain in line with recent trends and downside risks … do not rise significantly … then it may become appropriate fairly soon to withdraw some of the current monetary stimulus”. In terms of the possible options for policy, he mentioned the possibility of ending the asset purchase programme before the full £150bn had been purchased. As a reminder, our UK economist now sees CPI peaking at +3.9% on a year-on-year basis in light of Wednesday’s inflation release, which is almost double the BoE’s 2% target.

Staying with the UK, the virus numbers continued to deteriorate yesterday amidst the spread of the delta variant, with the number of daily cases at a 6-month high of 48,553. It’s very clear that this rise is having an impact on hospitalisations, with the numbers admitted to hospital each day now up by more than 5-fold since the recent low in mid-May (when they fell beneath 100 per day). That said, they are still a fraction of the peak of more than 4,000 a day that we saw in early January. Elsewhere, the number of new cases in Tokyo rose to a 6-month high of 1,308 yesterday, which comes ahead of the Olympic opening ceremony in just a week’s time.

As for data yesterday, in the US it was a bit of a mixed bag. Initial jobless claims for the week through July 10 fell to a post-pandemic low of 360k, though this was slightly above the 350k expected and the previous week saw an upward revision of +13k. Separately, the industrial production numbers for June grew by a smaller-than-expected +0.4% (vs. +0.6% expected), and the previous months’ growth was also revised down a tenth. The two manufacturing surveys showed fairly divergent signals meanwhile with the NY Empire Manufacturing survey coming in at 43.0, way outpacing the 18.0 expected reading and the 17.4 result last month. It was a record reading as new orders and shipments increased dramatically, highlighting the inflationary pressures. On the other hand, the Philadelphia Fed Business Outlook survey fell to 21.9 (28.0 expected) from 30.7 the month before. The index has been moderating since its nearly 50-year highs back in April. This highlights how differentiated the reopening has been in the various regions of the US. Turning to the UK, the unemployment rate unexpectedly rose in the three months to May, coming in at 4.8% (vs. 4.7% expected), but the more real-time measure of payrolled employees saw a +356k increase in May, marking its 7th successive monthly increase.

Finally, in terms of the day ahead, data highlights from the US include the aforementioned June retail sales print and the University of Michigan’s preliminary consumer sentiment index for July. Meanwhile from Europe, we’ll get the Euro Area trade balance for May, the final Euro Area CPI reading for June. Central bank speakers include New York Fed President Williams, and today’s earnings releases include Charles Schwab.