Futures Rise As Jackson Hole Looms, Dollar Slides, Bitcoin Surges

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by Tyler Durden
Monday, Aug 23, 2021 - 11:49 AM

US stock-index futures gained along with global equities as concerns about China’s crackdown faded and as investors sought to take advantage of last week’s market weakness after Dallas Federal Reserve President Robert Kaplan said on Friday he’s open to adjusting his view that the central bank should start tapering its asset-purchase program sooner rather than later if the delta variant persists and hurts economic progress. Bond yields rose as demand for havens eased. Commodities also rallied after China announced no new cases suggesting the Delta scare is ending; The dollar was weaker and Bitcoin surged above $50,000, the highest level since mid-May. At 7am ET, Emini S&P futs were up 15 points or 0.34% to 4,452; Dow futures rose 158 points or 0.45% and Nasdaq futures were 40 points higher or 0.27%.

Oil shares led the pack, as investors returned to riskier assets after a sharp selloff last week on worries about a slowing pace of U.S. economic growth. Oil majors Chevron Corp, Exxon Mobil, Schlumberger NV and Occidental Petroleum gained between 2% and 3.6% in premarket trading, tracking a 3% jump in crude prices. The S&P 500 energy sector slumped 7.3% over the past week, its worst fall since mid-July, on concerns over the outlook for fuel demand due to new coronavirus restrictions in some parts of the world. Other economy-sensitive stocks also rose, with major Wall Street banks up about 0.8%.

Boeing added 1.3% after a media report that the planmaker was planning investment in Virgin Orbit’s $3.2 billion SPAC listing. General Motors fell 2.1% after the largest U.S. automaker said it would take a $1 billion hit to expand the recall of its Chevrolet Bolt electric vehicles due to the risk of fires from the high-voltage battery pack. Walt Disney rose 0.9% after the media company raked in $125 million in online revenue from Marvel superhero film “Black Widow”.

Here are some of the biggest premarket movers:

  • Cryptocurrency-exposed stocks rise after Bitcoin topped the closely watched $50,000 level for the first time since mid-May. Ebang (EBON) climbs 7.1% and Bit Digital (BTBT) surges 6.5%, while Riot Blockchain gains 6.3%.
  • Meanwhile, Uber, Lyft and DoorDash shares fell after a California state judge struck down a ballot measure that declared drivers for the companies were independent contractors. Uber drops 3.8% and Lyft slides 4.2%, while DoorDash slips 0.6%.
  • Greenpro Capital (GRNQ) soars 33%, extending Friday’s gains, after forming a partnership to create a satellite network and services platform in Southeast Asia.
  • Robinhood (HOOD) climbs 3.3% in premarket trading as analysts across Wall Street start coverage of the commission-free trading app with mostly positive outlooks.
  • Trillium soared 228% in premarket trading after Pfizer agreed to buy Trillium Therapeutics shares it doesn’t already own for $18.50 per share in cash, helping the acquiring company strengthen its leadership in oncology. The stock already surged past the price tag for the deal, which already represented 204% premium for the clinical stage immuno-oncology company

A raft of "flash" manufacturing surveys for August out on Monday will offer an early indication of how global growth is faring in the face of the Delta variant, with analysts expecting some slippage and especially in Asia. Investor will also be looking to the Federal Reserve’s Jackson Hole (now virtual) symposium later this week, which will be scrutinized for hints on upcoming changes in stance. Traders are also preparing for a busy week of economic releases, kicked off by August PMI readings due Monday.

“Disappointing retail sales and consumer sentiment suggest the U.S. consumer is fading,” Morgan Stanley strategists led by Michael Wilson wrote in a note. “Most blame delta, but we think this is more about a payback in demand. We reiterate our defensive tilt and remain underweight discretionary and most cyclical sectors.”

On the the virus front, China once again squelched local Covid-19 cases down to zero. Australia and New Zealand are reviewing their strategies of eliminating infections. Australian Prime Minister Scott Morrison said it’s highly unlikely his country will ever return to zero cases.

The spread of the Delta variant also has the potential to upset the timing of the U.S. Federal Reserve's tapering plans, boosting stocks even higher. Dallas Fed President Robert Kaplan, a well-known hawk, on Friday said he might reconsider the need for an early start to tapering if the virus harms the economy. read more That added additional uncertainty to Fed Chair Jerome Powell's speech at Jackson Hole this week, which was moved online because of pandemic restrictions.

"Our base case is that the FOMC will announce a taper in September if the August non‑farm payrolls is strong," said Joseph Capurso, head of international economics at CBA. "We anticipate the taper will be implemented in October or November, though the recent increase in Covid infections and deaths in parts of the U.S. may give Powell pause."

That is in market contrast to the European Central Bank which is under pressure to add more stimulus, giving the dollar a leg up on the euro. "Unlike the Fed, we do not expect the ECB to shift away from its ultra‑dovish monetary policy stance," said Capurso. "We expect EUR to decline to a low of $1.12 in Q1 2022, before gradually appreciating."

And speaking of Europe, stocks on the continent rose Monday along with U.S. futures as traders took advantage of last week’s selloff. Retailers headed the advance in the Stoxx Europe 600 index after a report of a possible takeover bid for Sainsbury sent the grocer’s shares up more than 12%. European luxury stocks also rebounded, helping lift the Stoxx 600’s consumer products and services subgroup higher, along with the retail sector, paring some of last week’s declines prompted by nervousness over China’s aims to reduce its wealth disparity.  Burberry +4%, Richemont +3.9%, Kering +3.5%, Swatch +2.6%, LVMH +1.9%, Hermes +1.6%. While China is still the main engine for growth in the luxury space, “more volatility looks here to stay,” Jefferies analyst Flavio Cereda wrote in a note Friday.  Here are some of the biggest European movers today:

  • Sainsbury shares rise as much as 13% after a weekend report in the Times newspaper that private equity firm Apollo is considering a bid of more than GBP7 billion for the U.K. supermarket chain. Apollo isn’t holding talks with Sainsbury, people familiar with the matter told Bloomberg News, and the firm hasn’t hired advisers to explore a potential deal, one of them said.
  • Pearson shares gain as much as 4%, their sharpest jump since end-July, after JPMorgan upgrades the education publisher to overweight from neutral.
  • Maersk Drilling shares rise as much as 8.3%, the most intraday since Feb. 15, after DNB upgrades the firm to buy from hold, saying the magnitude of the selloff the stock suffered after its earnings was surprising. Kepler also upgrades its rating to hold from reduce.
  • Cembra Money Bank falls as much as 29%, the steepest drop on record, after the ending of a key credit card partnership with Migros that analysts expect to deal a blow to profit.
  • U-Blox shares fall, extending Friday’s 10% slump, as Kepler Cheuvreux downgrades the semiconductor device maker to reduce from hold, saying the company’s guidance cut is “disturbing.
  • Pennon shares fall as much as 4.7%, the most since July 5, after Credit Suisse downgrades the U.K. water services firm to underperform from neutral on valuation grounds.

Earlier in the session, Asian markets tried to pick up the pieces on Monday following last week's thrashing as coronavirus concerns showed little sign of abating, while safe-haven flows benefited the dollar ahead of a key update on U.S. monetary policy. While concerns over China's economy have intensified in recent weeks, with Beijing's regulatory crackdown on the tech sector delivering a double blow to markets as more than $560 billion was wiped from Hong Kong and mainland China exchanges last week, concerns about China's crackdown eased; sentiment was also boosted after Beijing announced zero new covid cases.

As a result, Asian stocks were set for their biggest gain in three weeks, led by strong rebounds in Hong Kong, Japan and Taiwan following last week's steep selloffs. The MSCI Asia Pacific Index jumped as much as 1.7%, driven by tech stocks, with almost all industry groups in the green. TSMC, Toyota and Tencent were the biggest contributors to the regional benchmark’s advance. Gains were strong across Asia Pacific, even as Beijing continued a regulatory campaign that has sent shockwaves through the region’s markets. On the coronavirus front, meanwhile, China brought its daily number of news cases back down to zero. While the crackdown and weak economic data in China contributed to last week’s Asia selloff, “both of these were well anticipated and may indeed result in more policy support,” Mixo Das, Asia equity strategist at JPMorgan Chase & Co., wrote in a note.

“Covid-19 developments are, if anything, improving on the margin in the region.” Taiwan’s Taiex led gains in the Asia Pacific, climbing almost 2.5%. Hong Kong’s benchmark bounced after plunging into a bear market last week, down more than 20% from its February high. The Topix climbed as the Japanese market recovered from its worst week in 13 months amid concerns on Toyota output cuts

Japanese stocks also rose, halting a two-day drop, as gains in U.S. shares bolstered sentiment ahead of the Jackson Hole symposium this week. The Topix index advanced 1.8% to 1,915.14 at 3 p.m. close in Tokyo, while the Nikkei 225 Stock Average climbed 1.8% to 27,494.24. Toyota Motor Corp. contributed the most to the Topix’s gain, increasing 3.4%. Shoji Hirakawa, the chief global strategist at Tokai Tokyo Research Institute, said a Yokohama mayoral election result may spur speculation the government will boost stimulus spending. Takeharu Yamanaka, a candidate nominated by Japan’s opposition Constitutional Democratic Party, won against a candidate backed by Prime Minister Yoshihide Suga, Kyodo reported. “The loss could push the administration to put forward stimulus big enough to help the economy and tackle the pandemic, which would support the stock market,” Hirakawa said

Australian shares snapped a five session of losses with the S&P/ASX 200 index rising 0.4% to close at 7,489.90, ending five straight sessions of losses. Technology and mining stocks helped lift the benchmark.  Among top performers was Charter Hall Group after the company reported FY earnings. The biggest laggard was Nib, which reported results and signaled FY22 market conditions would be similar to the past year.  In New Zealand, the S&P/NZX 50 index rose 1% to 13,064.07. Earlier, the country further extended a strict, national lockdown as the delta outbreak continues to grow.

“We do not expect much of ‘breaking news’ to come from the Jackson Hole symposium, but rather some form of relief that the policy course remains lower for longer,” said Daniel Egger, the CIO at St. Gotthard Fund Management. “There appears to be growing consensus that the Fed will tread very cautiously in this regard.”

The dip-buying suggests investors have faith in central banks to maintain stimulus amid lingering risks to the global economy, according to Bloomberg. Euro-area PMI indexes on Monday signaled a strong recovery, though factories continue struggle with supply bottlenecks and rising input costs, while the virus resurgence casts a pall on the outlook. Traders will scrutinize U.S. manufacturing, gross domestic product and jobs data this week as they wait for further guidance from the Fed at Jackson Hole.

In rates, Treasuries traded heavy ahead of this week’s issuance and as US stock futures extend gains beyond Friday’s highs. Yields were higher by up to 2.1bp across 20-year sector which lags on the curve, cheapening 10s20s30s fly by 0.8bp; 10-year yields around 1.275%, and bunds and gilts lag by ~1bp. Gains for Asian equities boosted risk sentiment overnight, while Aussie bonds weighed along with JGBs. Along with belly auctions, focus this week will include Fed’s Jackson Hole summit beginning Friday.

In FX, the Bloomberg Dollar Spot Index fell for the first day in six as commodity currencies led gains among Group-of-10 peers; Norway’s krone was the best performer as oil prices rallied. The pound held on to gains after a mixed bag of flash PMIs. The Bank of England meeting in September is now captured by one-month options and naturally the gauge rallies on a risk event, yet the daily weighting of the meeting is also higher Monday, suggesting some fresh gamma demand has emerged. Australia’s dollar climbed amid risk-on price action in stocks and commodities. The Aussie was also supported on hopes that the nation may ease virus curbs sooner as Prime Minister Scott Morrison suggested that the government’s virus strategy may shift away from totally eliminating infections.  The yen and bonds fell as market players speculate over the timing and pace of the Federal Reserve’s tapering of bond purchases.

In commodities, some of the recent weakness in commodities abated, with oil in New York pushing toward $64 a barrel. Commodity-linked currencies like the Australian dollar and South African rand strengthened. Last week oil suffered its sharpest week of losses in more than nine months as investors anticipated weakened fuel demand worldwide due to a surge in COVID-19 cases. However, some of this reversed early Monday amid hopes the Delta variant was ending; Brent jumped more than up 37 cents to $65.55 a barrel, while U.S. crude added 27 cents to $62.41. Gold was steadier at $1,777, following a one-day plunge earlier in August.

Bitcoin retook $50,000 for the first time since mid-May.

Looking at today's calendar, we get August flash manufacturing, services and composite PMIs for Australia, Japan, France, Germany, Euro Area, UK and US, Euro Area advance August consumer confidence, US July existing home sales, July Chicago Fed national activity index

Market Snapshot

  • S&P 500 futures up 0.3% to 4,448.75
  • STOXX Europe 600 up 0.3% to 470.23
  • MXAP up 1.4% to 193.55
  • MXAPJ up 1.2% to 632.22
  • Nikkei up 1.8% to 27,494.24
  • Topix up 1.8% to 1,915.14
  • Hang Seng Index up 1.0% to 25,109.59
  • Shanghai Composite up 1.5% to 3,477.13
  • Sensex up 0.5% to 55,616.24
  • Australia S&P/ASX 200 up 0.4% to 7,489.93
  • Kospi up 1.0% to 3,090.21
  • Brent Futures up 2.9% to $67.04/bbl
  • Gold spot up 0.2% to $1,784.90
  • U.S. Dollar Index down 0.24% to 93.27
  • German 10Y yield rose 3.0 bps to -0.465%
  • Euro up 0.2% to $1.1725

Top Overnight News from Bloomberg

  • Jerome Powell’s chances for a second term as Federal Reserve chair gained momentum with Treasury Secretary Janet Yellen’s endorsement, a move that would reduce uncertainty about the path for monetary policy amid risks from inflation and the delta variant
  • President Xi Jinping’s rhetoric about “common prosperity” surged this year, evidence of the Communist Party’s commitment to closing the country’s yawning wealth gap
  • The Chinese Communist Party has a new catchphrase to guide its economic policy, a “cross-cyclical” approach that government advisers say means taking action sooner, in smaller steps and with a longer time frame in mind
  • Swiss National Bank Chairman Thomas Jordan underwent a medical procedure over the weekend following a preventive check-up. The operation was successful and Jordan, is in “good condition,” the central bank said in a statement. Jordan, who has lead the SNB since 2012, will fully devote himself to official business after the medically recommended period of convalescence
  • U.K. Prime Minister Boris Johnson will push President Joe Biden to delay the departure of U.S. troops from Afghanistan beyond the end of August to allow for more and safer evacuations of foreign nationals and their Afghan staff, a person familiar with the matter said

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac bourses traded higher with the region encouraged as Bitcoin returned to the 50k level, and after last Friday's stock rebound in Europe and the US, despite the ongoing Delta variant fears and with participants looking ahead to the Jackson Hole Symposium later in the week. The ASX 200 (+0.4%) was kept afloat amid the outperformance in tech and mining names although gains were capped after Australia recently extended on its record daily infections, and following clashes between anti-lockdown protesters and police in Melbourne and Sydney. The Nikkei 225 (+1.8%) rallied at the open, helped by a more favourable currency and with the index unfazed by the Yokohama mayoral election that was won by the opposition candidate and viewed as a voter rebuke against PM Suga. The Hang Seng (+1.0%) and Shanghai Comp. (+1.5%) were both lifted with the former front running the advances among the major indices on a rebound from bear market territory, with HKEX shares boosted after it agreed to launch MSCI China A 50 Connect Index Futures and after last week’s quarterly review announcement in which the number of constituents in the Hang Seng Index will increase to 60 from 58 which boosted new additions Li Ning, Xinyi Glass, and China Merchants Bank but dragged BoCom shares which were dropped from the benchmark effective September 6th. In addition, mainland China was also buoyed after zero locally transmitted COVID cases were reported and with China’s securities regulator planning to create conditions for audit cooperation with the US, although it was also said to possibly ask Chinese companies seeking US listings to hand over data supervision to third-party firms. Finally, 10yr JGBs were lower and T-notes suffered similar losses with haven demand sapped by the broad rebound in global sentiment and amid the BoJ's absence from the market.

Top Asian News

  • India Is Said to Plan $81 Billion of Infrastructure Asset Sales
  • Asia Stocks Rise Most in Three Weeks as Hong Kong, Japan Rebound
  • Korea to Take Steps in FX, Financial Markets If Needed: Hong
  • Evergrande Shareholder Exodus Quickens as EV Unit Plunges 29%

Equities remain on a firmer footing, but the region lost momentum shortly after the cash open and following a string of mixed/disappointing Flash PMI figures. All metrics remained in expansionary territory, but the common themes were COVID-related growth slowdown concerns alongside supply/demand led price pressures. Meanwhile, the Fed’s Jackson Hole Symposium format has shifted to an online event as opposed to the initial in-person meeting – with some suggesting that this shift in format signals near-term COVID caution from policymakers. Meanwhile, US equity futures hover around the levels seen heading into the European cash open, with the RTY (+1.0%) the marked outperformer vs the ES (+0.3%), NQ (+0.3%) and the YM (+0.5%). Back to Europe, the majors see somewhat of a varying picture vs the broad-based gains seen at the open. The DAX (Unch) resides as the laggard following an overall soft German PMI release, whilst the latest German INSA poll shows the CDU/CSU and the SPD neck-and-neck – marking the worst result ever for the CDU and an unexpected comeback for the SPD. Elsewhere, the CAC (+0.7%) narrowly outperforms as luxury names rebound from last week’s selloff. In terms of sectors, Retail (+1.3%) is the standout winner as Sainsbury’s (+12%) soars on the back of PE takeover speculation, with the Times noting of potential bids in excess of GBP 7bln, with the likes of Tesco (+2.0%) also lifted in tandem. Sticking with sectors, the broader picture is a pro-cyclical one with defensives towards the bottom of the bunch. In terms of other individual movers, Prosus (+1.0%) gains on the announcement of a USD 5bln share buyback scheme. On the flip side, DAX-listed Vonovia (-1.8%) announced a public takeover for Deutsche Wohnen (-0.4%)

Top European News

  • Merkel Struggles to Wrap Up Unfinished Business With Putin
  • Gupta’s GFG in Talks With White Oak Over European Financing
  • Goldman Sachs-Backed CityFibre Nears Stake Sale: DJ
  • Vonovia Says Sweetened $22 Billion Deutsche Wohnen Bid Is Final

In FX, far from all change within the G10 ranks, but the Loonie is rebounding further and firmly from recent lows with the aid of a similar recovery in oil prices that has lifted WTI back up beyond Usd 64/brl. Indeed, Usd/Cad is currently testing support just below 1.2750 having retreated from around 1.2840 and last Friday’s peak only just shy of the 1.2950 mark, while the Greenback has reversed from best levels almost across the board with the index hovering under 92.500 within a 93.485-209 band vs 93.734 at one stage on August 20. Ahead, US National Activity Index, Markit’s flash PMIs and Existing Home Sales.

  • AUD/NZD - The Aussie and Kiwi are also regaining some composure and the former is gleaning encouragement from a rebound in iron ore and other base metal prices as well to offset a degree of the ongoing COVID-19 issues that are adversely impacting both Antipodean countries and currencies. Hence, Aud/Usd is back above 0.7150 and Nzd/Usd has reclaimed 0.6850+ status as the Aud/Nzd cross straddles 1.0450 in wake of hawkish/bullish comments from RBNZ chief economist Ha overnight. Next up for the Kiwi, Q2 retail sales.
  • CHF/EUR/GBP - All firmer vs the Buck, with the Franc pivoting 0.9150 irrespective of latest weekly Swiss sight deposit balances indicating little in the way of intervention and Eur/Chf remains relatively depressed between 1.0742-16 parameters. Meanwhile, the Euro has bounced from sub-1.1700 amidst mixed Eurozone flash PMIs and the Pound from the low 1.3600 zone following even more contrasting UK preliminary prints.
  • JPY - The major laggard against the backdrop of firmer Treasury yields and a steeper curve, as the Yen recoils through a couple of technical supports and soaks up some export offers said to be layered upwards from 110.00, including the 55 DMA and 200 HMA at 109.80 and 109.91 respectively.

In commodities, WTI and Brent front month futures remain on the front foot as optimism from the APAC session reverberated into Europe. That being said, the benchmarks have only chipped away at a fraction of last week’s losses. The fundamental landscape remains unchanged – with COVID the overarching force. On this note, Australia’s Victoria state expanded its lockdown beyond the city of Melbourne whilst New Zealand is to remain on a nationwide alert level 4 until at least midnight on Friday. Looking ahead, this week could see the release of OPEC sources heading into next week’s confab. Traders will also be cognizant of geopolitics as China, Iran, and Russia are poised to hold joint maritime exercises in the Persian Gulf late-2021/early-2022. WTI Oct’ inches towards USD 64/bbl from a base of USD 61.74/bbl, while its Brent counterpart mounts USD 67/bbl (vs low USD 64.60/bbl). Elsewhere, spot gold and silver gain as a softer Dollar keeps prices buoyed, but spot gold sees more contained trade in the run-up to this week’s Fed Jackson Hole Symposium. Meanwhile, base metals are bolstered by risk appetite and a broader rebound in commodities LME copper has reclaimed USD 9,000/t status whilst Dalian coke and coking coal hit limit up at the open, with traders also citing supply concerns arising from suspended Mongolian imports amid COVID concerns.

US Event Calendar

  • 9:45am: Aug. Markit US Manufacturing PMI, est. 62.2, prior 63.4
  • 9:45am: Aug. Markit US Composite PMI, prior 59.9
  • 9:45am: Aug. Markit US Services PMI, est. 59.2, prior 59.9
  • 10am: July Existing Home Sales MoM, est. -0.5%, prior 1.4%;

DB's Jim Reid concludes the overnight wrap

Happy Monday and hope you all had a great weekend. Here in London it was a rather wet one, which tells me we may be approaching the end of summer now, but for markets it’s likely to hotten up from here as we approachthe Jackson Hole symposium and Fed Chair Powell’s speech later in the week. On top of that, we’ve got the release of the August flash PMIs to look forward to today, which will give us an initial indication of how the global economy has fared into the month. And Covid developments will remain in focus as a number of countries grapple with a renewed wave of the virus, which was a major factor in last week’s selloff across multiple risk assets.

Indeed, those risks from Covid have already had an impact on this week’s highlight at Jackson Hole, with the Kansas City Fed saying last Friday that the symposium would be moving over to a virtual format, rather than the in-person gathering that’d been planned. Of course this is just one event, but it’s indicative of the broader shift in sentiment we’ve seen in the US over recent weeks as the virus has surged once again, with the University of Michigan’s preliminary consumer sentiment index for August having fallen to its lowest level in nearly a decade.

In terms of what to expect at Jackson Hole, the big question is what Powell might say about a potential timeline for when the Fed could begin to taper their asset purchases, so all eyes will be on whether he gives any hints about that. The focus on that for the coming months has been heightened after the July FOMC minutes said that “most participants” thought that “it could be appropriate to start reducing the pace of asset purchases this year”, so long as the economy evolved broadly as expected. However, our US economists are of the view that Powell’s speech on Friday will largely mirror his remarks at the press conference following the July FOMC meeting, as well as in the minutes, and so are not expecting a strong signal with respect to the Fed’s next gathering in September. Their view is instead that a tapering announcement is likely to come at the following meeting in early November. Separately, they’re also expecting Powell will emphasise the point from the minutes that there isn’t a mechanical link regarding the timing of tapering and any hikes in the federal funds rate, as well as to reiterate the transitory narrative when it comes to inflation.

Staying on the Fed, over the weekend we had a potentially significant piece of news on the central bank’s leadership from Blomberg, who reported that Treasury Secretary and former Fed Chair Yellen had told senior White House advisors that she was in favour of reappointing Chair Powell for a second term. The people cited in the article said that President Biden was likely to make his decision around Labor Day (September 6), but was yet to make one yet. Powell’s four-year term comes to an end this February, so assuming the decision is anything like the last couple of timelines, we should likely hear an announcement before the end of the year on this, with the Senate required to confirm whoever’s nominated. As a reminder, DB’s global head of economic research, Peter Hooper, put out a note a couple of weeks back (link here) making the case for why Powell’s reappointment had a high probability.

This morning in Asia, equity markets have started the week on the front foot after last week’s declines, with the Nikkei (+1.68%), Hang Seng (+1.84%), Shanghai Comp (+1.00%) and Kospi (+1.46%) all advancing. Elsewhere, futures on the S&P 500 are up +0.36% while yields on 10y USTs have risen +1.4bps to 1.270%. Commodities are also staging something of a recovery, with WTI and Brent crude oil prices up +1.75% and +1.84% respectively, having just experienced their worst weekly performance of 2021 so far.

On the pandemic, there have been further concerning developments from Australia and New Zealand over the weekend as they both face a major surge in cases that have raised questions about the sustainability of their zero-Covid strategies. In New Zealand, the total number of community cases connected to the latest outbreak now stands at 107, with a further 35 cases reported this morning, and Prime Minister Ardern said that the nationwide lockdown would be extended until midnight on Friday, with Auckland’s extended until midnight on August 31. Meanwhile in Australia, Prime Minister Scott Morrison has said it was “highly unlikely” that the country will get back to a zero-Covid situation and a further 818 new cases were reported in New South Wales over the last 24 hours.

At the global level, we’ve now had 9 consecutive weeks of rising cases, according to data from John Hopkins University, though the one slither of good news is that the rate of increase has been slowing down for the last 3, so if that’s maintained we could soon be past the worst of this current wave. As mentioned at the top though, the US is facing a deteriorating situation and has begun to record more than 1,000 daily deaths again for the first time since March, which marks a big shift from the situation in June, where cases were at their lowest since March 2020. Separately, the New York Times reported over the weekend that the FDA are aiming to give full approval for the Pfizer vaccine today, with the vaccine having been used in the US so far on an emergency authorisation.

With the delta variant continuing to spread, the flash PMIs for August today will help us work out the extent of the impact on the global economy. Overnight we’ve already had the releases from Japan and Australia with Japan’s composite reading falling to 45.9 from 48.8 last month as the Covid restrictions got expanded to more regions. And as we’ve seen in the past, much of that decline came from a drop in the services PMI (at 43.5 vs. 47.4 last month), whereas manufacturing was relatively stable at 52.4 (vs. 53.0 last month). Australia’s composite PMI was also in contractionary territory at 43.3 (vs. 44.2 last month) as amidst a worsening Covid situation there as well. The numbers from the US and Europe will be out later on, though the US composite PMI has already been edging down for a couple of months now, coming in at 59.9 in July, which is still strong but some way beneath the 68.7 reading back in May.

In the political sphere, there are now less than 5 weeks to go until the federal election in Germany, which will come into increasing focus over the month ahead given the implications for EU as well as domestic policy. Moreover, with Chancellor Merkel standing down, there’ll be a change in the country’s leadership regardless of who forms a coalition. Over the weekend there were further indications that the race is tightening up, with an INSA poll showing Merkel’s CDU/CSU bloc tied with the centre-left SPD on 22% each. That’s the first time that the SPD have been in (joint) first place in an opinion poll since back in early 2017 when they got a temporary bounce after selecting Martin Schulz as their chancellor candidate. It’s also a reasonably marked shift from the previous week’s INSA poll when the CDU/CSU led the SPD by 25% to 20%, and fits into the broader pattern of strengthening support for the SPD in recent weeks. However, the Greens slipped back further onto 17%, which echoes other polls putting them in third place around the high-teens recently, and is a big drop back from the spring when they briefly were polling in first place in the high-20s.

Elsewhere on the political scene, it’ll be worth watching out for what’s happening in the US, as the House of Representatives returns from their summer recess today with Democrats seeking to pass their economic agenda into law. As a reminder, that includes a $3.5tn reconciliation bill, along with the bipartisan infrastructure package that the Senate has already passed. However, 9 moderate House Democrats have said they won’t pass the reconciliation bill unless there’s a vote on the infrastructure bill first, whilst those on the progressive wing have said they won’t vote for the infrastructure package without the reconciliation bill. So how this plays out over the coming days and weeks could have big implications as to how much new spending gets passed.

Recapping last week now, there was a clear theme for each of the first four days of risk assets sagging – led by cyclical equities and commodities – and havens gaining. However, there was something of a reversal on Friday as the S&P 500 recorded a +0.81% gain that pared back the index’s losses to just -0.59% on the week. Amidst the decline in risk appetite, commodities also suffered significantly, with Bloomberg’s Commodity Spot index down every day last week as it fell to its worst week since mid-June, with a -4.21% loss (-0.82% Friday). Oil prices fell in particular as ongoing delta variant concerns weighed on the demand outlook, and both WTI (-8.94%) and Brent (-7.66%) witnessed their worst weekly performance of 2021 so far. Elsewhere, the industrial bellwether of copper fell -5.80%, though the classic safe-haven of gold was just better than flat on the week (+0.08%).

Back in equity markets, Europe’s STOXX 600 saw a better Friday (+0.33%) as well, but was still down -1.48% for the week as a whole, with the CAC 40 (-3.91%) and FTSE MIB (-2.76%) noticeably underperforming. Meanwhile in Asia, ongoing headlines about Chinese regulation coupled with slowing economic data saw equity indices decline across the region, with the Nikkei (-3.45%) and the Shanghai Composite (-2.53%) losing ground over the week. That left the two indices down -1.6% and -1.3% on an YTD basis respectively, while the Hang Seng (-5.84% last week) was over -8% lower on the year.

With equities falling back, sovereign bonds gained on either side of the Atlantic. US 10yr Treasury yields were -2.2bps lower at 1.255%, with real yields not increasing (+9.6bps) enough to overcome softening inflation expectations (-11.8bps). In fact, US 10yr breakevens fell to their lowest levels since early July and are -30bps lower than they closed in mid-May, following the first big upside surprise in CPI. In Europe, 10yr bunds saw yields fall a similar -2.8bps, though peripheral spreads widened somewhat, with Italian (+2.8bps) and Spanish (+2.1bps) 10yr yields both widening over bunds.