Futures started off the week on the wrong foot, sliding overnight from Friday's record high before recovering some losses as Chinese stocks crashed on multiple parallel crackdowns by Beijing (more on this shortly), souring global bullish sentiment while cryptos exploded higher further kicking Keynesian apes in the groin. All of this is happening ahead of the busiest week of Q2 earnings season and Thursday's FOMC meeting, while a majority of traders are rushing to catch some rays ahead of the next round of covid lockdowns/vote-purchasing stimmies. S&P 500 E-minis were down 11.00 points, or 0.25%, at 715 a.m. ET. Dow E-minis were down 131 points, or 0.37%, while Nasdaq 100 E-minis were down 21.75 points, or 0.14%. Treasuries pushed higher, with the 10-year real yield hitting a record-low -1.127%. The dollar fluctuated and oil declined below $72 a barrel.
The culprit for the risk off was China and HK, where shares tumbled amid a selloff in education tech companies after Beijing announced sweeping reforms of the industry, souring sentiment at the start of a week packed with tech earnings. China last week announced sweeping new rules on private tutoring and online education firms, the latest in a series of crackdowns on the technology sector that have roiled financial markets this year. E-commerce major Alibaba Group and search engine Baidu Inc, two of the largest listed Chinese stocks in the United States, slipped 4.2% and 4.6% in premarket trade, respectively. Ride-sharing app Didi Global, whose takedown earlier in July had brought Chinese regulations back into the spotlight, sank 14.0%. Here are some of the biggest U.S. movers today:
- Cryptocurrency-exposed stocks surge after a weekend rally for Bitcoin extended, with the token now trading around $38,000 and coming close to hitting the $40,000 level. Riot Blockchain (RIOT) jumps 19% and Marathon Digital (MARA) rallies 19%, while Bit Digital (BTBT) climbs 15%.
- Shares of Chinese education stocks listed in the U.S. plunge in premarket trading after Beijing banned companies that teach the school curriculum from making profits, raising capital or going public. TAL Education Group (TAL) sinks 20% and New Oriental Education & Technology Group (EDU) plummets 23%, while Gaotu Techedu (GOTU) slumps 25%.
- Tencent Music (TME) dives 14% after Chinese regulators ordered the company to give up exclusive music streaming rights and pay half a million yuan in fines.
- Tonix Pharmaceuticals (TNXP) drops 34% in premarket trading after saying it will stop enrollment in the Phase 3 Rally study of TNX-102 SL 5.6 mg for the management of fibromyalgia.
- Tesla was flat in early trade, ahead of its second-quarter earnings report after the market closes.
"While we see the Fed as being more hawkish this week, it is only one of several speed bumps ahead in what is an environment supportive for risk," said Sebastien Galy, a strategist at Nordea. "The current profit-taking induced in part by pressure on China's Tech is unlikely to last long as U.S. stocks should again be bought on the dip."
Oliver Jones, a senior markets economist at Capital Economics, noted U.S. earnings were projected to be roughly 50% higher in 2023 than they were in the year immediately prior to the pandemic, significantly more than was anticipated in most other major economies. "With so much optimism baked in, it seems likely to us that the tailwind of rising earnings forecasts, which provided so much support to the stock market over the past year, will fade," he cautioned.
European stocks followed US futures and also fell from an all-time high, with data showing German business morale fell unexpectedly in July on continuing supply chain worries and amid rising coronavirus infections, a survey showed on Monday. The Ifo institute said its business climate index fell to 100.8 from a revised figure of 101.7 in June. A Reuters poll of analysts had pointed to a July reading of 102.1."The mood in the German economy has been dampened," Ifo President Clemens Fuest said in a statement.
Supply problems are weighing on the manufacturing and the retail sectors, with almost 64% of industrial firms complaining about shortages in materials, according to the institute. Companies gave a slightly better assessment of their current situation, but optimism with regard to the coming months waned. The Ifo expectations index fell to 101.2 from 103.7 in June, while the current conditions index rose to 100.4 from 99.7.
Events including the COVID-19 pandemic, natural disasters in China and Germany and cyber attacks have conspired to drive global supply chains towards a breaking point, threatening the fragile flow of raw materials, parts and consumer goods, according to companies, economists and shipping specialists. The tourism and consumer sectors were especially worried about a fourth coronavirus wave.
Here are some of the biggest European movers today:
- Ryanair shares gain as much as 4.3% after 1Q results; Bernstein says the low-cost carrier gave a confident update adding that FY passenger traffic seen at 90m-100m provides further evidence that “the recovery is real and happening right now.”
- About You shares gain as much as 4% after at least four analysts initiated coverage with buy or equivalent ratings citing the company’s growth potential, following the end of a blackout period for banks involved in the online fashion retailer’s IPO.
- Meyer Burger shares fall as much as 18% after Oxford Photovoltaics unilaterally terminated a collaboration agreement, which is a “negative” for the Swiss maker of solar modules, according to Zuercher Kantonalbank (outperform).
- Vonovia share fall as much as 3.3% after saying closing condition for its tender offer for Deutsche Wohnen has definitively failed, after company missed the 50% minimum acceptance threshold.
- Philips shares fall as much as 4.2%, the most since July 8, with analysts saying the medical-device maker’s 2Q update looks mixed, weighed down by provisions on a product recall and differing performances for its divisions.
Earlier in the session, Asian equities also slid as Chinese stocks slumped after Beijing unveiled a sweeping overhaul of the education tech sector, banning firms that teach the school curriculum from making profits, raising capital or going public. The MSCI Asia Pacific Index dropped as much as 1% while MSCI's broadest index of Asia-Pacific outside Japan closed down 2.1% to its lowest since December. Shares of Chinese private education firms plummeted, causing the Hang Seng Tech Index to plunge by a record 7.1% intraday.
Tencent and Alibaba were the biggest drags on the regional benchmark. China’s latest move extends a corporate crackdown that has already rattled some of the nation’s biggest internet companies and mainland firms that have sought overseas listings. The government says it is trying to decrease workloads for students and overhaul a sector that has been “hijacked by capital.”
“While we see social merit in this move, we do think it has the potential to further dent foreign investors’ confidence in China stocks,” Nomura Singapore strategists including Chetan Seth wrote in a note. “Until news flow on regulation starts abating (no signs of it yet), we think most foreign investors will likely remain on the sidelines despite some areas of the market looking attractive over the medium term on valuation grounds.” Japanese shares climbed, following U.S. equities higher, as the market reopened after a four-day weekend. Electronics and machinery makers were the biggest boosts to the Topix gauge. Stocks also dropped in the Philippines, Korea, Singapore and Taiwan. The Thai market was closed for a holiday.
In rates, the real yield on U.S. 10-year debt fell to a record low on mounting concern the delta virus variant will derail the economic recovery. Treasuries held gains and bull flattened after retreating from session highs reached during European morning as regional equity benchmarks and U.S. stock index futures followed Asian bourses lower. U.S. 10-year yield is lower by ~4bp at ~1.23% after falling as much as 5.7bp to 1.2196%, lowest since July 21; 2s10s and 5s30s curves are flatter by 2.7bp and 1.2bp, respectively. Long-end leads, with yields lower by 3bp-4bp. Ten-year TIPS yield has rebounded to about -1.10% after falling to record low -1.127%.U.S. 10-year yield last week touched 1.126%, lowest level since February, as virus developments called into question economic growth assumptions. Treasuries outperformed among developed market sovereigns, with 10-year narrowing by nearly 4bp vs Germany and ~1.5bp vs U.K.
Chris Scicluna, head of economic research at Daiwa Capital markets, said yields were falling because of geopolitical worries and tighter Chinese regulations: "These developments compound fears about the medium-term outlook for global growth, which is one of the factors that has been pushing yields down," he said.
“The second half of the year is going to be this glass half-full, half-empty context” spanning monetary and fiscal support and good earnings but also concern about the virus, Virginie Maisonneuve, Allianz Global Investors global chief investment officer for equities, said on Bloomberg Television.
In FX, the dollar slid as futures declined; the pound led G-10 currencies, shrugging off early weakness to climb to the highest in 10 days as a gauge of the dollar slid. The Japanese yen outperformed earlier in the session as market sentiment was dampened by concern over the rising number of coronavirus cases. China’s crackdown of its $100 billion education tech sector and a tense start to talks with the U.S. also weighed on risk assets. Australia’s dollar led declines. Leveraged funds sold the Aussie against the greenback and the New Zealand dollar on worsening Covid data from Sydney and as volatile China stock indexes weighed on U.S. equity futures, according to Asia-based FX traders. “Positive U.S. equity out- turns last week, on robust corporate earnings, failed to translate into Asian equity positivity this morning,” said Yanxi Tan, a foreign-exchange strategist at Malayan Banking Bhd. in Singapore. “Regional sentiments seem to be leaning toward caution, with the delta spread still a key concern, and signs of a bad start to U.S.-China talks.”
As noted overnight, Bitcoin soared 11% to approach $40,000, while Ether was trading around $2450. The surge has been attributed to short-covering, speculation that Amazon may accept digital coins for transactions and positive comments from the likes of Tesla’s Elon Musk and Ark Investment Management’s Cathie Wood.
In commodities, oil prices have been buoyed by wagers that demand will remain strong as the global economy gradually opens and supply stays tight, but they fell on Monday. Brent weakened 35 cents to $73.75 a barrel, while U.S. crude declined 45 cents to $71.62. WTI and Brent front-month futures have trimmed overnight losses, but sentiment across markets remains to the downside, while the US and China underwent a tense first day of meetings. Despite these influences, overarching factor dictating oil is the supply/demand balance. Thus, investors remain wary of the COVID hindrance in the recovery, as expressed in the Flash PMIs on Friday and the German Ifo figures today, albeit, the summer months are still expected to see a supply deficit. WTI has reclaimed a USD 71/bbl handle after dipping to a base of around USD 70.60/bbl, whilst Brent inches closer towards USD 74/bbl from a USD 72.80.bbl low. Elsewhere, spot gold and silver remain underpinned above USD 1,800/oz and USD 25/oz as the US 10yr real yield fell to a record low, although gains are capped by the Buck. Copper overnight hit near-six-week highs amid expected demand following the floods in China, although LME copper is more subdued amid the risk profile across Europe.
While investors have cheered a positive start to the earnings season so far, concerns linger about the pace of economic growth and inflation. A slew of earnings this week from Wall Street giants including Apple this week and Tesla after today's close may provide clues on the corporate recovery and outlook. 120 of the companies in the S&P 500 have reported earnings so far, of which 88% have beaten consensus, according to Refinitiv. A two-day meeting of the Federal Reserve starting on Tuesday will also be watched by investors for more clues on the bank’s planned tightening of monetary policy, given that inflation has been accelerating sharply in recent months.
The week is also packed with U.S. data. Second-quarter gross domestic product is forecast to show annualised growth of 8.6%, while the Fed's favoured measure of core inflation is seen rising an annual 3.7% in June.
- S&P 500 futures down 0.5% to 4,382.00
- MXAP down 1.0% to 198.85
- MXAPJ down 2.1% to 657.77
- Nikkei up 1.0% to 27,833.29
- Topix up 1.1% to 1,925.62
- Hang Seng Index down 4.1% to 26,192.32
- Shanghai Composite down 2.3% to 3,467.44
- Sensex little changed at 52,946.53
- Australia S&P/ASX 200 little changed at 7,394.27
- Kospi down 0.9% to 3,224.95
- STOXX Europe 600 down -0.4% to 459.50
- German 10Y yield fell -1.9 bps to -0.439%
- Euro little changed at $1.1776
- Brent Futures down 1.3% to $73.15/bbl
- Brent futures down 1.3% to $73.13/bbl
- Gold spot up 0.4% to $1,809.24
- U.S. dollar index little changed at 92.85
Top Overnight News from Bloomberg
- Global investors from Tiger Global Management to Temasek Holdings Pte are reeling after China imposed the harshest curbs yet on its $100 billion private tutoring and online education sector
- China lashed out at U.S. policies in a tense start to high-level talks in Tianjin, handing the Americans lists of demands and declaring the relationship between the world’s two largest economies in a “stalemate”
- Traders in China are flocking to sovereign bonds as an expanding regulatory crackdown and concern that growth is slowing pressure risk markets
- The real yield on U.S. 10-year debt fell to a record low, pointing to souring investor sentiment amid the rapid spread of the delta variant that threatens to derail the economic recovery
A more detailed look at global markets courtesy of Newsquawk
Asian equity markets were mixed as the early momentum following last week’s record-setting session across the major indices on Wall St. was partially offset by cautiousness ahead of this week’s risk events including the latest FOMC meeting, mega-cap tech earnings and month-end, with underperformance seen in China after Beijing tightened its regulatory screws. ASX 200 (Unch.) was kept afloat for most of the session by strength in mining names in which Lynas the biggest gainer on improved output levels and Rio Tinto shrugged off the announcement of a strike involving about 900 workers at its aluminium smelting facilities in Kitimat, British Columbia. However, gains for the index were limited amid varied COVID-19 headlines including speculation that the Sydney lockdown could be extended to mid-September which the state premier denied and neighbouring South Australia is set to exit its lockdown mid-week. Nikkei 225 (+1.0%) outperformed as it played catch-up from the four-day weekend to briefly break above the 28,000 level where it then met resistance and with some of the gains pared on currency moves. Hang Seng (-4.1%) and Shanghai Comp. (-2.3%) underperformed due to a further regulatory crackdown by China including its announcement to ban companies that offer tutoring on the school curriculum from going public or raising capital and is considering for them to go non-profit, which imposes a new set of restrictions on the USD 100bln education tech industry and resulted to losses of as much as 40% for New Oriental Education & Technology Group. Property names were also pressured after the PBoC asked Shanghai lenders to raise mortgage rates and Tencent (700 HK) was among the worst performers in the Hong Kong benchmark after China’s market regulator issued an order for the Co. to waive its exclusive rights to music labels. The rhetoric from China’s Vice Foreign Minister Xie Feng in the meeting with US Deputy Secretary of State Sherman was quite punchy as although he stated China is willing to deal with the US on an equal footing and wants to seek common ground, he urged for the US to correct its extremely wrong mindset and extremely dangerous China policy, as well as criticized that the US is not in a position to talk human rights issues in front of China. Finally, 10yr JGBs were little changed with demand sapped by the strength in Japanese stocks and lack of BoJ presence in the market today, although downside was also limited as Bunds and T-notes gained amid the China regulatory woes.
Top Asian News
- TSMC Mulls German, Japan Plants to Diversify Supply Chain
- Evergrande’s Special Dividend Has Investors Seeking Clues
- China High-Yield Dollar Bonds Drop as Property Sector Woes Grow
- Gold Gains as China’s Education Crackdown Hurts Risk Sentiment
Stocks in Europe trade predominantly lower (Stoxx 600 -0.4%), following on from a downbeat Asia-Pac session which saw notable losses in Chinese bourses (Shanghai Comp -2.3%, Hang Seng -4.1%). Sentiment in China was hampered by a further domestic regulatory crackdown, including an announcement to ban companies that offer tutoring on the school curriculum from going public or raising capital and considerations for them to go non-profit. Property names were also pressured after the PBoC asked Shanghai lenders to raise mortgage rates and Tencent (-7.7%) was among the worst performers in the Hong Kong benchmark after China’s market regulator issued an order for the Co. to waive its exclusive rights to music labels. Furthermore, tensions between the US and China have been another source of pessimism with Chinese Vice Foreign Minister Xie Feng stating that the relationship with the US is in a stalemate and now faces difficulties. The above, allied with ongoing COVID concerns and subsequent political unrest in various nations prompted losses in European bourses, which were then exacerbated by a soft Ifo report from Germany. Ifo economists noted that supply issues are weighing on the domestic economy in both industry and retail, adding that industry cannot produce as much as it would like. Sectors in Europe are predominantly lower with the exception of Travel & Leisure which has been bolstered by earnings from Ryanair (+3.9%), which saw the Co. revise up its FY traffic guidance. Basis Resources are also firmer with Antofagasta (+1.6%) an outperformer in the sector following a broker upgrade at Peel Hunt. To the downside, Autos lag after a strong outing on Friday, whilst Banks are softer amid the less favourable yield environment and therefore shrugging off Friday’s decision by the ECB to lift restrictions on dividends. Stateside, futures are softer (ES -0.2%, NQ -0.1%, RTY -0.2%) with underperformance seen initially in the Russell ahead of what is a particularly busy week of earnings with over a third of the S&P 500 due to report; highlights include Alphabet, Apple, Facebook, Tesla. On the stimulus front, the final version of the bipartisan infrastructure bill could be unveiled today, however, it is worth noting that House Speaker Pelosi continues to insist that the House will not open the debate on the legislation unless the Senate passes the reconciliation legislation.
Top European News
- ABB Is Said to Near Sale of Dodge Business to RBC Bearings
- Europe’s Banks to Rejoin Dividend Stars as ECB Gets Out of Way
- German Business Confidence Unexpectedly Falls as Risks Mount
- Gold Gains as China’s Education Crackdown Hurts Risk Sentiment
In FX, the index remains within a contained narrow band having had traded sideways overnight following a tense US-Sino meeting over the weekend, and in the run-up to the FOMC showdown, before facing US GDP, PCE and month-end flows. Elsewhere, the bipartisan infrastructure bill continues to make progress, although outstanding issues remain. Getting a bipartisan bill on the President’s desk without reconciliation legislation is framed as a positive as it dwindles tax hike risks, although House Speaker Pelosi on Sunday maintained that both bills need to be in hand before voting. The index remains under 93.000 having printed a 92.686 overnight base, with Friday’s 93.024 peaks also within a reaching distance. Technicians will also be cognizant of the “golden cross” formed as the 50 DMA (91.378) mounts the 200 DMA (91.354). Westpac’s FX model meanwhile has implemented “a decidedly risk-averse slant for the week ahead”. The Aussie bank notes that “overweight longs in CAD and NOK are ditched, small shorts in AUD are opened; while on the safe-haven currency side, USD shorts are exited and CHF longs are opened”
- JPY - The risk aversion across markets has fed the JPY with haven flows, and with Japanese players back in the market following the long weekend and the start of the Olympics. USD/JPY has pulled back from its 110.58 overnight top and resides around the 110.25 area at the time of writing, with formidable support expected at the 110.00 and stops beneath, with the 50 DMA also present at 109.99 and the 10 DMA beneath that at 109.53.
- CAD, NZD, AUD - The non-US Dollar high-betas are the clear G10 laggards amid the soured risk sentiment. The antipodeans underperform with the Aussie bearing the brunt following a tense US-Sino meeting, losses in base metals and with the AUD/NZD pair around 1.0550, whilst AUD/USD itself loses further ground under 0.7400. Technicals have also turned bearish for the AUD alongside the fundamentals, although overnight rumours of Sydney lockdown extensions were refuted by the NSW premier. NZD/USD struggles to regain a footing above 0.7000 following the post-RBNZ unwind in gains, with an overnight base printed at 0.6947 and clean air seen until the round number to the downside. The Loonie’s gains meanwhile remain capped by losses across the crude sector, with USD/CAD currently meandering the 1.2575 area, with the 200 DMA seen just north of 1.2600 at 1.2614.
In commodities, WTI and Brent front-month futures have trimmed overnight losses, but sentiment across markets remains to the downside, whilst the US and China underwent a tense first day of meetings. Despite these influences, overarching factor dictating oil is the supply/demand balance. Thus, investors remain wary of the COVID hindrance in the recovery, as expressed in the Flash PMIs on Friday and the German Ifo figures today, albeit, the summer months are still expected to see a supply deficit. Elsewhere, OPEC remains out of the question (barring a major shock) until September, whist Iranian nuclear talks look to get underway next month. Until then, sentiment, COVID developments will likely dictate price action, alongside major scheduled events such as the Fed policy decision on Wednesday, followed by US GDP and PCE at the end of the week. WTI has reclaimed a USD 71/bbl handle after dipping to a base of around USD 70.60/bbl, whilst Brent inches closer towards USD 74/bbl from a USD 72.80.bbl low. Elsewhere, spot gold and silver remain underpinned above USD 1,800/oz and USD 25/oz as the US 10yr real yield fell to a record low, although gains are capped by the Buck. Copper overnight hit near-six-week highs amid expected demand following the floods in China, although LME copper is more subdued amid the risk profile across Europe.
US event calendar
- 10am: June New Home Sales MoM, est. 4.0%, prior -5.9%
- 10am: June New Home Sales, est. 800,000, prior 769,000
- 10:30am: July Dallas Fed Manf. Activity, est. 32.2, prior 31.1
DB's Jim Reid concludes the overnight wrap
The first weekend of no legal covid restrictions in England was a bit of a shock to the system. We went swimming as a family on Saturday and only then fully appreciated that it had been running at around half capacity when open over the last 16 months. I think I’m going to miss the half capacity venues. Then yesterday I had my second trip to London over the same 16 month period as we went to a theatre adaptation of kids’ book “What the ladybird heard”. What struck me at the end was how emotional the cast were about being able to work again and play to a live audience. Whether these restrictions prove to have been lifted too early or not only time will tell but there is a mental, physical and economic cost both ways. I’ve written a lot over the last couple of weeks that England will be a fascinating test case over the next few weeks as to how easy/difficult it will be to fully open up a highly vaccinated country with high levels of Delta in the community. It really could turn a lot of the global negativity from Delta seen over the last couple of months around or it could be a failure and consign us to a very difficult period up to and including winter. As recently as last weekend the escalating English case numbers were making the risks of the latter more elevated. However a dramatic reversal of new cases over the last handful of days has been nothing short of remarkable. Yesterday saw 29,173 new cases which was c.40% lower than last Sunday. It’s was 54,674 last Saturday at the rapidly reached local peak. We’ve now seen five consecutive days of declines and four successive week-on-week daily declines. Given all legal restrictions were lifted a week ago today you’d be surprised if there wasn’t a pick up again because of this but it may be from a much lower base than feared a week ago. I really think this is potentially very very good news for the globe albeit with fears it’s a head fake. The fact that around a million people have been self isolating in recent days, we’ve had a heatwave where no one wants to be inside (although not during the floods yesterday), and the fact that many are still working from home and also voluntarily reducing mobility means normality is far from restored but very good news is very good news. Everyone from around the world should be watching the English experiment with huge interest. My inbox has seen many emails suggesting I’m exaggerating the importance of this experiment but I truly believe it’s a huge test case and one in which the evidence of the last week has been incredibly encouraging.
Back to the immediate future and before we see if they’ll be a mass August holiday exodus for markets, it’s a pretty busy week. Clearly the Federal Reserve’s decision on Wednesday is likely to be the focal point. As well as that, there are a number of key data releases, including the first look at Q2’s GDP reading for the US (Thursday) and the Euro Area (Friday), whilst earnings reports will include Tesla (today), Alphabet, Apple, Microsoft (all tomorrow), and Facebook (Wednesday). So get ready for a barrage of early week tech earnings after a good start to the US season.
Looking at some of the highlights in more detail let’s start with the Fed. At last meeting in June the FOMC undertook a hawkish shift by moving their median dot to show two rate hikes in 2023, compared to none before. Meanwhile inflation data has continued to surprise to the upside since then, with the latest CPI reading at +5.4%, and core CPI at +4.5%, which is the highest for the latter since 1991. At this meeting, our US economists (link here) are expecting them to provide an update on the progress of taper discussions that will help refine the likely timeline for an announcement in the coming months. Their view is that there’ll be a clearer signal from the Fed’s leadership that the timeline is coming into view at the Jackson Hole economic symposium in August or at the September meeting, before an official announcement at the November meeting, though the incoming data will dictate the exact sequence. Basically the meeting can be simplified to working out which the committee sees as the biggest risk - the recent rise in inflation vs the recent rise in the delta variant.
Elsewhere it’s quite an eventful week ahead on the data front, and we’ll get the first look at the Q2 GDP figures for a number of key economies. On Thursday we could well see US real GDP exceed its pre-Covid peak for the first time since the crisis began, which would be a much, much quicker return to the pre-crisis peak than after the GFC. We’ll also get the Q2 GDP release for the Euro Area (Friday), but they remain some way behind their pre-crisis level, having contracted in Q4 2020 and Q1 2021 as further restrictions were imposed again. Inflation will also be in focus, with the Euro Area flash CPI reading out this week (Friday) for July. Our economists are expecting headline inflation to tick back up to +2.0% this month, which is exactly at the ECB’s new target, before peaking at c.3.0% yoy in the latter months of the year. The rest of the week’s data is in the day by day guide at the end.
Moving on to earnings releases, and the coming week will see the season in full flow, with 177 companies in the S&P 500 reporting and Europe starting to get busy too. Among the highlights are Tesla, LVMH and Lockheed Martin today. Then tomorrow we’ll hear from Apple, Microsoft, Alphabet, Visa, UPS, Starbucks and General Electric. Wednesday sees releases from Facebook, PayPal, Pfizer, Ford, Thermo Fisher Scientific, McDonald’s, Barclays, Qualcomm, Bristol Myers Squibb and Boeing. On Thursday, we’ll then get reports from Amazon, Mastercard, Comcast, L’Oréal, Merck & Co., T-Mobile US, AstraZeneca, Volkswagen, Sanofi, Credit Suisse and Lloyds Banking Group. Finally on Friday, the releases include Procter & Gamble, Exxon Mobil, AbbVie, Chevron, Charter Communications, Linde, Caterpillar, Natwest Group and BNP Paribas.
Finally tomorrow, the IMF will be releasing their latest projections for the global economy in their World Economic Outlook Update. So expect plenty of headlines.
Asian markets have started the week on a weaker footing with the exception of the Nikkei (+1.13% ) which is up as it reopened post a pre-weekend holiday. The Hang Seng (-2.91%), Shanghai Comp(-2.18%) and Kopsi (-0.52%) are all down. Sentiment has come under pressure due to a widening tech crackdown in China. The Chinese government has decided to reform its education tech sector and the new regulations that were released over the weekend (but were materialising on Friday) ban companies that teach school curriculums from making profits, raising capital or going public. Futures on the S&P 500 are also down -0.28% and those on the Stoxx 50 are down -0.56%. Meanwhile, yields on 10y USTs are down -1.5bps to 1.263%. In terms of overnight data releases, Japan’s preliminary PMI for July came in weak with the composite reading dropping to 47.7 from 48.9 last month with a bulk of that decline coming from weakness in the services PMI (at 46.4 vs. 48.0 last month). The Manufacturing PMI was relatively stable at 52.2 (vs. 52.4 last month).
Turning to the latest on the pandemic, countries are still continuing to impose restrictions to check the spread of the Delta variant. In Asia, South Korea will expand social distancing measures outside the capital Seoul from today and ban gatherings of more than five people. Indonesia is also extending its mobility curbs for another week until August 2 as cases remain high and in Vietnam, Ho Chi Minh city will likely impose a 6pm to 6am curfew from today, news website VnExpress has reported. Elsewhere, Dr Anthony Fauci said that the US is moving in the “wrong direction” in combating a new wave of Covid-19, and a booster vaccine shot may be needed especially for the most vulnerable.
Last week risk markets bounced back, albeit after a pretty poor Monday. Strong earnings seemed to help and global indices rose to new all-time highs by the end of the week. In all, the S&P 500 gained 1.96% (+1.01% Friday) as growth industries such as semiconductors (+4.28%) and software (+2.77%) outperformed cyclicals, namely banks (-0.48%) and energy (-0.39%). It was the second best week for the broad index since early April and left the S&P at another record high. The tech gains led the NASDAQ to add +2.84% last week (+1.04% Friday) to also finish at a new all-time high. Small caps broke their streak of three consecutive weekly losses for the index as the Russell 2000 increased +2.15% (+0.46% Friday). European equities also finished at new highs as the STOXX 600 ended the week +1.49% higher (+1.09% Friday), with the IBEX (+2.48%) outperforming.
Staying with Europe and in response to the ECB, sovereign bond yields moved lower across the continent, with those on 10yr bunds (-6.7bps) hitting their lowest levels since mid-February. Similarly, yields on OATs (-7.2bps) and BTPs (-8.9bps) both fell to their lowest levels since March.
Over in the US, 10yr Treasuries under performed as yields ended the week just -1.4bps lower (-0.2bps Friday) at 1.276%, their 9th weekly decline in the last 10 weeks to leave yields at their lowest level since mid-February. However yields did rise c.14bps off the lows from Tuesday morning.
Global PMI data was the main data highlight on Friday and showed a continued momentum in the economic recovery in Europe. The July Euro Area composite PMI came in at 60.6, its highest level in 21 years with the German composite PMI hitting an all-time high of 62.5. The US composite reading was 59.7, which is the lowest since March and is the second monthly decline, supporting the view that growth may have peaked in mid-Q2 even if remaining fairly robust. There was lots of talk in the press release about capacity constraints so it feels like demand is still high. Elsewhere, Russia raised its key lending rate by 100bps in response to growing inflationary concerns after recently recording annual inflation of 6.5 per cent, its highest level since August 2016.