U.S. stock index futures rose on Thursday ahead of data expected to show fewer Americans filed for unemployment benefits, while investors looked to another busy day of corporate earnings reports. European stocks hit another all time high despite paring earlier gains on mixed corporate results. At 7:30 a.m. ET, Dow e-minis were up 94 points, or 0.13%, S&P 500 e-minis were up 10.25 points, or 0.23%, and Nasdaq 100 e-minis were up 30 points, or 0.20%. The Treasury 10-year yield eased back to 1.17% and the dollar slipped against a basket of major peers.
Earnings reports continue to pour in as earnings seasons gradually comes to a close, with Uber Technologies falling 4% in premarket trading after its second-quarter earnings missed expectations owing to higher costs in recruiting more drivers. Analysts, however, say the long-term bull case is intact and that the increased expenses will be transient, so would buy into weakness in the stock. Some other notable premarket movers:
- Etsy (ETSY) plunges 13% in premarket trading after providing a revenue forecast for the third quarter that fell short of the average analyst estimate. Truist Securities think the company’s outlook is “disappointing” and Roth Capital Partners cut its rating on the stock.
- Fastly (FSLY) sinks 21% after its guidance misses expectations and Piper Sandler (neutral) says there are concerns if the cut to forecasts will be enough.
- Roku (ROKU) drops 8.5% in premarket trading after the video-streaming platform reported earnings and an outlook analysts say signals a deceleration of growth ahead.
- Uber (UBER) shares fall 3.9% in premarket trading after its second-quarter earnings missed expectations owing to higher costs in recruiting more drivers. Analysts, however, say the long-term bull case is intact and that the increased expenses will be transient, so would buy into weakness in the stock.
- Moderna (MRNA) slips as much as 6.5% in premarket trading Thursday after second-quarter sales beat the average analyst estimate but missed the highest expectation.
Of the 340 companies in the S&P 500 that have reported earnings so far, a record 87.6% have beat profit estimates, however market reactions have been decidedly downbeat with beats barely rewarded by markets. Overall, analysts expect second-quarter profit at S&P 500 companies to jump 90.2% versus a year ago.
US-listed Chinese stocks fell in premarket trading as a fresh series of reports from state media targeting products including video games, tobacco and alcohol weighs on investor sentiment. Among the large-cap stocks declining this morning: Alibaba -0.7%, Pinduoduo -1%, JD.com -1.2%, Baidu -0.5%, Nio -0.7%, XPeng -2% and Didi -1.2%. Meanwhile education names were mixed: Tal Education higher by 0.5%, New Oriental Education gains 0.5% and 17 Education & Technology rises 0.9%.
World stocks eased from all-time highs after Federal Reserve Vice Chair Richard Clarida, a major architect of the Fed's new policy strategy, said on Wednesday he felt the conditions for raising interest rates could be met by the end of 2022. Echoing this take, in an interview with PBS after Wednesday’s close San Fran Fed head Mary Daly said that Fed will do something on QE by end of 2021/early 2022 and expect “substantial progress” on jobs this year or next.
“Employment getting back to full capacity is going to be an important marker for the Fed to start to taper,” Erin Browne, multi-asset strategies portfolio manager at Pacific Investment Management Co., said on Bloomberg Television. “You’re going to continue to see growth numbers look quite robust -- remember, we both have monetary support which is fading but still out there, as well as fiscal support across developed markets which are supporters for growth.”
The Stoxx 600 Index pared an advance amid uneven corporate results. Drugmakers Novo Nordisk A/S and Merck KGaA gained after raising their sales forecasts, and Siemens AG advanced after the German engineering company posted better-than-expected third-quarter earnings. But Bayer AG plunged more than 6% on concern about that rising prices are squeezing margins, while Adidas AG and Zalando SE declined after underwhelming reports. Here are some other notable movers:
- Beiersdorf shares jump as much as 6.1% to their highest since Jan. 2020 after the owner of Nivea reported 2Q sales that were materially ahead of expectations with “notably strong” margins, according to Jefferies (buy).
- Rolls-Royce shares rise as much as 4.6%, to their highest since Jun. 25, after the company posted results that were generally ahead of consensus and showed restructuring and disposal programs going well, according to Jefferies.
- Merck KGaA shares rise as much as 5.8% to record high, after the co. announced 2Q results that analysts say are strong, with 2022 outlook likely to require upgrades.
- Novo Nordisk shares hit a record high, rising as much as 4.2% and extending the gains for the Danish drugmaker seen in the previous session after it had raised its guidance.
- Zalando shares fall as much as 9.5% after the online fashion retailer reported 2Q earnings that were below expectations and upgraded earnings guidance less than some analysts expected.
- Adidas shares fall as much as 5.6%, the most since March 25, after the co. reported results that analysts say were mostly priced in.
- Bayer shares fall as much as 6.1%, hitting the lowest since December 2020, with analysts saying the cost-driven earnings miss in the group’s CropScience arm overshadows an otherwise strong sales performance and an acquisition in the pharma business.
Earlier in the session, equities edged up in Japan but slipped in Hong Kong and China, where Beijing’s regulatory curbs continue to dominate the agenda. Asian equities were mixed as investors mulled the outlook for interest rates following overnight hawkish comments from a Federal Reserve official while awaiting key U.S. jobs data. The MSCI Asia Pacific Index was down 0.1%, with Hong Kong-traded Tencent and Kuaishou among tech shares contributing to losses as financials mostly rose. Fed Vice Chairman Richard Clarida said the U.S. central bank is on course to announce later this year that it is paring bond purchases and move on to a liftoff in interest rates in 2023. Stocks in Asia have had a promising start to August -- the regional benchmark is up about 2% -- after plunging last month by the most since March 2020 amid China’s regulatory onslaught against tech and education firms. Investors sold off Hong Kong’s tech sector in late trading Thursday as a lockup on share sales for Kuaishou Technology expired, leading to a record plunge. Tencent’s losses over the past week increased to about 11%, with state media reporting that scrutiny may turn next to the country’s gaming sector. Still, signs are emerging that investors are selectively returning to the Chinese market after Beijing’s regulatory crackdown. Stocks in Japan climbed on a weaker yen. The delta variant continues to be a concern as Tokyo reported record daily new coronavirus cases, China imposed new travel restrictions and deaths mounted in Southeast Asia. Clarida’s comments “seem to bring inflation risks back into the picture, shifting investor attention back to the ongoing countdown to tapering,” said Jun Rong Yeap, market strategist at IG Asia. “All eyes will be on the jobs report, as the China selloff stabilizes.”
Japanese stocks rose, halting a two-day slump, as the yen weakened against the dollar and corporate earnings beat expectations. The Topix rose 0.4% to 1,928.98 in Tokyo. Today, electric appliances stocks led the market higher, as 18 of 33 sectors gained; 801 of 2,188 shares rose, while 1,290 fell. The Nikkei 225 closed at 27,728.12, up 0.5%. The yen fell 0.2% to 109.68 per dollar, after dropping 0.4% yesterday. Sony Group contributed the most to the Topix’s gain, after it surpassed earnings expectations for the first quarter. Sumitomo climbed after the trading company raised its full-year net income forecast, while Sanrio rallied after the maker of character goods reported a smaller-than-expected operating loss. “The market environment isn’t so bad right now, given how corporate earnings have been beating expectations,” said Tomo Kinoshita, a global market strategist at Invesco Asset Management in Tokyo. “There are companies that have managed to grow despite the pandemic.” U.S. index futures were slightly higher during Asia trading hours. On Wednesday, U.S. equities slumped after the vice-chair of the Federal Reserve suggested rates could rise by 2023 and mixed economic data for July showed U.S. companies adding far fewer jobs than expected
In rates, treasuries rose modestly with the curve flatter and pivoting around an unchanged 5-year sector. Yields were lower by up to 1.5bps across long-end of the curve, flattening 5s30s spread by 1.2bp on the day; 10-year yields around 1.17%, marginally richer and underperforming bunds by 1bp. Treasuries drifted lower over Asia session as investors reacted to Bank of England policy outcome at midday London time; losses were later pared over early European session as bunds outperformed and gilts little changed after Bank of England policy announcement at midday London time, following 7-1 vote to keep bond-buying target unchanged.
Money-market traders boosted bets for an initial U.S. rate hike in early 2023 after Clarida said the central bank is on course to pull back on the massive support it’s providing to the economy, starting with an announcement later this year that it’s paring bond purchases and moving on to a liftoff in interest rates in 2023. San Francisco Fed President Mary Daly said tapering could start later this year or in early 2022 The benchmark 10-year Treasury yield edged up one basis point to 1.19%.
In FX, moves in most G-10 currencies were muted with FX traders reporting light risk-on flows, with the yen trailing and the Australian dollar leading. The pound rose but was unchanged after the BOE reported that it would begin its balance sheet unwind once rates hit 0.5%. The yen slipped for a second day as traders speculated that the Bank of Japan will maintain an easing bias while the Federal Reserve looks to start withdrawing stimulus.
In commodities, crude oil was steady after several days of losses on the risks to demand posed by the delta variant, especially in the key market of China.
Looking at the day ahead, we have the latest weekly jobless claims print and June trade balance. The Fed’s Waller is also due to speak this afternoon. At a more micro level, the earnings calendar remains busy with the likes of Moderna, Siemens, Merck, Cigna, Glencore and Bayer all reporting.
- S&P 500 futures up 0.1% to 4,400.75
- STOXX Europe 600 up 0.3% to 469.72
- MXAP little changed at 201.01
- MXAPJ down 0.3% to 665.30
- Nikkei up 0.5% to 27,728.12
- Topix up 0.4% to 1,928.98
- Hang Seng Index down 0.8% to 26,204.69
- Shanghai Composite down 0.3% to 3,466.55
- Sensex up 0.5% to 54,647.55
- Australia S&P/ASX 200 up 0.1% to 7,511.15
- Kospi down 0.1% to 3,276.13
- Brent Futures down 0.5% to $70.04/bbl
- Gold spot down 0.1% to $1,809.17
- U.S. Dollar Index little changed at 92.28
- German 10Y yield up 0.2 bps to -0.496%
- Euro little changed at $1.1834
Top Overnight News from Bloomberg
- China’s biggest broker of government bonds by trading volume is scaling up its overseas offices to attract more customers in the world’s largest financial hubs
- The Bank of England may move a step closer to tightening monetary policy, unwinding 900 billion pounds ($1.2 trillion) in government bond purchases while also opening the possibility that borrowing costs could be pushed below zero
- As $1 trillion evaporated from Chinese stocks last week, some investors realized they hadn’t paid enough attention to the country’s most important man: President Xi Jinping
- Longer- tenor Thai and Malaysian bonds saw robust demand in July but their fortunes may diverge from here
A more detailed look at global markets courtesy of Newsquawk
Asia-Pac equities saw a mixed session with the breadth of the price action narrow following a subdued lead from Wall Street, in which the DJIA shed 0.9% and the S&P 500 dipped around 0.5%, but the NDX eked out a day of gains. US equity futures resumed trade with mild and broad-based gains across the board, with the ES above 4400 for most of the session. The futures were unfazed by Fed's Daly (2021/24 voter) joining the club calling for a potential QE taper this year, although at several points during her interview she stressed data dependency - ahead of Friday's jobs data. Back to APAC, the ASX 200 (+0.3%) held its head above 7,500, but losses in its heavyweight mining sector capped gains. Nikkei 225 (+0.4%) saw mild tailwinds from currency dynamics, but traders remained cautious as Japan proposed expanding the COVID-related restrictions to eight more prefectures - note, some are urging for a nationwide State of Emergency. The KOSPI (+0.2%) remained caged amid a lack of catalysts. The Hang Seng (-0.2%) and Shanghai Comp (+0.1%) were choppy and dipped at the open following reports in China’s Securities Times targeting gaming tax – albeit Chinese markets thereafter conformed to the tentative tone. Finally, 10yr JGB futures were modestly softer in tandem with their US peer.
Top Asian News
- First Taiwan Arms Sale in Biden Administration Is Approved
- China High-Yield USD Bonds Reverse Earlier Gains; Property Down
- Hong Kong’s Covid-Free Streak Ends With First Case in 58 Days
- Nintendo to Buy Back Shares After Profit Misses Estimates
European equities (Eurostoxx 50 +0.3%) trade firmer in what has been a busy morning of earnings reports for the region as macro developments for the Eurozone remain light. Marginal gains and a subsequent record high for the Stoxx 600 have come amongst the backdrop of a mixed APAC and Wall St. lead whilst US futures currently hug the unchanged mark. Note, Goldman Sachs raised its year-end S&P 500 forecast to 4700 vs prev. 4300. Sectoral performance in Europe is mixed with Tech names top of the leaderboard, closely followed by Industrial Goods and Services which has been bolstered by earnings from Siemens (+3.2%) after the Co. reported solid earnings and raised FY21 guidance. Capping gains for the sector have been Deutsche Post (-1.4%) whose earnings were less well-received by the market. To the downside, Basic Resources names lag peers with earnings from Glencore (-1.1%) unable to grant the sector with much in the way of reprieve after the commodity-trader and mining giant reported record H1 results. Retail names have been hampered by Zalando (-8%) who sit at the bottom of the Stoxx 600 with JP Morgan labelling results as “strong but disappointing in the context of expectations”. In what has been a particularly busy morning for the German corporate calendar, Bayer (-5.3%), Adidas (-4.3%) and Continental (-2.3%) sit at the foot of the DAX post-results. For the banking sector, opening gains for Credit Agricole (-1.2%) proved to be fleeting as optimism surrounding Q2 profits faded. In the UK, Lloyds (-3.5%) and NatWest (-0.6%) have suffered at the hands of action from Goldman Sachs with the former cut to sell from neutral and later removed from GS’ conviction list amid potential headwinds from mortgage pricing. Finally, Rolls Royce (+3.8%) is the best performer in the FTSE 100 post-earnings bolstered by cost reductions and asset sales.
Top European News
- U.K. Eases Quarantine Rules, Opening Up Travel With France
- U.K. Construction Growth Held Back by Staff and Supply Shortages
- Zalando Slumps as Results Disappoint, Wiping Out YTD Gains
- Novo Gains After Sales Forecast Raise on Obesity Drug Demand
In FX, the Dollar has lost a bit of its post-ISM and Clarida vigour after extending recovery gains, as attention turns to the next batch of US data for more assessment in context of further progress towards the ‘substantial’ level that will ignite the Fed’s QE taper. Today’s agenda includes Challenger lay-offs as another proxy for NFP on Friday, plus trade and a timelier snapshot of the labour market via weekly and continued jobless claims, while 2021 FOMC voter and one of the most hawkish policy-makers, Waller, is also scheduled to speak again, albeit on the subject of Digital Currency. In the interim, the DXY has drifted back down from 92.352 at best to 92.173 and may have encountered some technical and psychological offers as the 21 DMA resides just shy of 92.500 at 92.447 today.
- AUD/NZD/GBP - It may be a case of seizing the opportunity when it arrives for the Aussie rather than relying on fundamentals or specifics given the deteriorating virus situation that has prompted a 7 day snap lockdown in the 2nd largest state, but Aud/Usd has bounced quite firmly to probe 0.7400 again and the Aud/Nzd cross is holding around 1.0475 as the Kiwi consolidates near 0.7050. Meanwhile, the Pound is also taking advantage of the broad Greenback retreat, with Cable reclaiming 1.3900+ status awaiting independent impetus and direction from the BoE from high noon when MPC minutes and the latest MPR accompany the rate and APF vote split, and all come before Governor Bailey takes the floor an hour later - full preview in the Research Suite and at 9.57BST on the Headline Feed.
- CAD/CHF/EUR/JPY - All narrowly mixed vs the Buck, as the Loonie rebounds through 1.2550 ahead of Canadian trade data and eases away from hefty option expiry interest between 1.2545-50 (1.6 bn) against the backdrop of firmer crude prices that is also giving the NOK and MXN a fillip, while the Franc meanders within a 0.9078-53 range in the run up to Swiss FX reserves tomorrow, the Euro pivots 1.1840 and Yen rotates around 109.60 (100 DMA), both eyeing some big to mega option expiries either side or above current levels as well (see 7.02BST post on th Headline Feed for sizes and strikes in Eur/Usd and Usd/Jpy).
- EM - The Try is a notable underperformer and back under 8.5000 against the Usd as the Fed tilts more hawkishly vs an essentially redundant or ineffective CBRT due to constraints from Turkish President Erdogan, in stark contrast to the Brl that bucked the weaker trend to end the midweek session just above 5.1700 following the BCB’s latest 100 bp SELIC rate increase and guidance that another is slated for September.
In commodities, crude benchmarks are supported as things stand though magnitudes are slim, and trade has been rangebound for much of the morning, in-fitting with the broader risk tone as we primarily await tomorrow’s US labour data. Currently, WTI and Brent post gains of USD 0.40/bbl and are within reach of the sessions peak. Fresh newsflow explicitly for the complex has been minimal with the main notable update stemming from geopolitics where the Israeli Defense Minister said they are ready to strike Iran; though further details on this are very minimal at present. Elsewhere, UBS wrote that the oil market should resume its upward trend in spite of the COVID-19 delta variant; specifically, expecting a H2 Brent range of USD 75-80/bbl. Turning to metals where spot gold and silver have barely deviated in both European and APAC trade, with fresh catalysts on the macro front slim as players digested yesterday’s Clarida remarks ahead of a speech from voter Waller today; albeit this is on digital currencies. For reference, spot gold lies within a USD 6/oz range around USD 1810/oz. Elsewhere, Glencore reported H1 earnings (see equity section) though the commodity specific commentary was largely a reiteration of the recent production report. However, Glencore does highlight that strong trading performance was delivered in all key commodity teams during the year, benefitting from strong metals pricing and expanded margins; in contrast to the outsized oil earnings which dominated H2-2020.
US Event Calendar
- 8:30am: July Initial Jobless Claims, est. 383,000, prior 400,000; Continuing Claims, est. 3.25m, prior 3.27m
- 8:30am: June Trade Balance, est. -$74.1b, prior -$71.2b
- 9:45am: Aug. Langer Consumer Comfort, prior 53.2
DB's Jim Reid concludes the overnight wrap
After what has felt like a typically slow August week, things should start to heat up a little from here on in with the Bank of England taking centre stage today before the main event with the July employment report in the US tomorrow. No policy surprises are expected from the BoE today and we expect a message expressing patience for the most part; however, the main focus may well be the publication of the Bank's policy tightening review, should it be released today. Our economists noted in their preview last week that the exit strategy, we think, will highlight the Bank's focus on unwinding its bloated balance sheet more so than on hiking rates. The menu of options for the MPC will be large, but ultimately we see two options coming out of the policy review: one, a QT threshold set at 0.25%+; or two, a drop of the QT threshold altogether.
Before we get to that, the main story from the last 24 hours has been some strong signals from a senior Fed official coupled with fairly mixed signals from the latest employment data releases in the US. In terms of the latter, the July ADP employment report printed well below expectations at 330k compared with the consensus of 690k. That is also the lowest since February and on its own should be enough to drag tomorrow’s whisper number lower even though the ADP hasn’t been the greatest predictor of payrolls recently. However, in contrast, the employment component of the ISM services for July came in at 53.8, which was up 4.5pts from June and importantly back in expansionary territory. In fact, the overall message from the ISM services data was positive with the headline very strong at 64.1, up 4pts from June and the strongest since at least 1997 with measures of business activity and new orders also advancing. In contrast to the manufacturing data earlier this week, prices paid also rose, by 2.8pts to 82.3, which suggests no peaking in prices yet.
These data points were followed later in the session by comments from Fed Vice-Chair Clarida, who said the Fed remained on course to announce tapering bond purchases this year and then move on to raising interest rates as soon as early-2023. He said that the “necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022,” as long as the economy continues to grow at a steady rate and inflation does indeed fall back from its current elevated levels. Overnight, we also heard from the San Francisco Fed President Mary Daly and she said that the Fed may start tapering its asset purchases later this year or in early 2022.
Markets were whipsawed somewhat by all this. The 10y Treasury touched as low as 1.126% intraday after the ADP but then promptly sold off as the ISM data and Clarida’s comments both hit the wire at the same time and saw Treasury yields climb as high as 1.214% before paring some of that advance and closing at 1.184%.
As for stocks, the S&P 500 was weaker as the slightly hawkish comments and mixed data took the index down -0.46% from its previous day’s record high. Growth industries such as semiconductors (+1.34%), media (+0.44%), and Software (+0.03%) were the only S&P industry groups to gain yesterday, while cyclicals such as Energy (-2.93%) and Transportation (-1.79%) lagged behind a great deal. The outperformance of growth stocks meant the NASDAQ finished +0.13%, its third consecutive daily gain.
This was all after European equities similarly rose for a third straight day with the STOXX 600 gaining +0.61% to hit another record, while the DAX (+0.88%) outperformed. As was the case in the US, Technology shares outperformed as chipmakers like Novo Nordisk hit a new all-time high after raising sales guidance on the year during the company’s earning’s announcement. Sovereign debt in Europe outperformed with bund yields -1.9bps lower at -0.50% and OATs falling -1.7bps.
This morning in Asia markets are slightly weaker with the Hang Seng (-0.20%), CSI (-0.05%), Shenzhen Comp (-0.29%) and Kospi (-0.04%) all down. The Nikkei (+0.42%) is trading up though. Sentiment in the region remains marred by the headlines in Chinese media pertaining to the ongoing regulatory crackdown in the country with the Securities Times reporting this morning that there is no need for the government to continue tax incentives for the gaming industry. Outside of Asia, futures on the S&P 500 are up +0.17% while yields on 10y USTs are up +1bps to 1.194%.
Back to yesterday. There were also reports yesterday that UK Prime Minister Johnson and Chancellor Sunak will urge UK institutional investors to direct more assets into long-term British assets, with a Sky News editor reporting that they will call for an “investment big bang” to jumpstart the country’s recovery. The pair of leaders are said to be penning a letter to funds indicating that their clients are missing out on “better retirements” because they are under-allocated to the UK assets and that they would be hosting an investment summit at Downing Street in October for investors “willing to make specific commitments to invest more in Britain’s long-term growth.”
In other news, July final PMIs from Europe were strong overall, but worse than initially expected as the final Euro Area services PMI was revised down to 59.8 from 60.4, although this was still up from the prior month’s 58.3 reading. This took the composite reading to 60.2 (initial reading 60.6), which still represented the fastest activity increase in over 15 years. The largest economies in the region, Germany and France, saw their initial composite readings drop 0.1 and 0.2 respectively to 62.4 and 56.6. Growth rates appear to be slowing but at very robust levels.
Taking a quick look at the latest pandemic developments now, China has imposed new travel restrictions across the nation to check the spread of the delta variant with public transport and taxi services being curtailed in 144 of the worst-hit areas alongside curbing train service and subway usage in Beijing. In Japan, the public broadcaster NHK reported that the government plans to extend a quasi-state of emergency to eight more prefectures. Elsewhere, Bloomberg reported that the US is developing a plan to require nearly all foreign visitors to the US to be fully vaccinated against Covid-19.
Lastly, in terms of the day, the aforementioned BoE meeting should be the main focus this morning with June factory orders in Germany the only data point of note. In the US this afternoon, we have the latest weekly jobless claims print and June trade balance. The Fed’s Waller is also due to speak this afternoon. At a more micro level, the earnings calendar remains busy with the likes of Moderna, Siemens, Merck, Cigna, Glencore and Bayer all reporting.