Global stocks and US futures fell on Tuesday ahead of data that will show consensus badly missed its expectations on retail sales amid global concern that more lockdowns are becoming necessary to contain a fast-spreading pandemic compounding the risks posed by any tapering of Federal Reserve stimulus, regulatory clampdowns by China and travel curbs. New Zealand discovered a positive case and announced a lockdown, sending the NZD plunging amid expectations the RBNZ's rate hike plans had been crashed At 730 a.m. ET, Dow e-minis were down 208 points, or 0.59%, S&P 500 e-minis were down 20 points, or 0.45%, and Nasdaq 100 e-minis were down 54.25 points, or 0.35%.
Global equities started the week on the backfoot as tighter scrutiny of China's internet sector and signs of slowing economic recovery, particularly in China, drove investors towards defensive parts of the market. A stronger dollar and a slide in Treasury yields underscored the risk-off mood Tuesday. Gold rose for a fifth day and oil declined.
In an ominous development overnight, New Zealand officials said they were investigating a Covid-19 case, triggering a tumble in the currency and bond yields. Australia’s dollar slid after the central bank signaled it’s ready to act if lockdowns take a bigger economic toll.
Home Depot fell 3.9% after it missed estimates for U.S. quarterly same-store sales, as a pandemic-driven surge in demand for do-it-yourself home-improvement products waned with people increasingly venturing outside their houses. WalMart also fell despite strong results, as investors fretted over the surge in inventory and weak e+commerce growth. Spirit Airlines dropped 4.7% after it cut its revenue and margin forecast for the third quarter, as a resurgence in COVID-19 cases drags booking trends. Other notable pre-market movers include:
- 23andMe (ME) rises 2.9% in premarket trading after getting a buy rating at Credit Suisse with a share price target of $13. Analyst Tiago Fauth praised the company for its mining of the human genome for new drug targets and “unprecedented statistical power.”
- Chinese stocks listed in the U.S. fall in premarket trading after China’s market regulator issued draft rules banning unfair competition among the nation’s online platform operators. This comes after SEC Chair Gary Gensler issued his most direct warning yet about the risks of investing in Chinese companies. JD.com (JD) drops 3.5%, while Baidu (BIDU) falls 3%.
- Global-E Online (GLBE) shares are up 4.4% in premarket trading on Tuesday, after the e-commerce platform reported its second- quarter results and raised its full-year revenue outlook. Analysts see the results as confirming the company’s growth prospects.
- Helius Medical Technologies (HSDT) jumps 11% in premarket trading after it said it has received breakthrough designation status from the FDA for its PoNS device with the proposed indication for use as a temporary treatment of dynamic gait and balance deficits due to symptoms from stroke.
- Home Depot (HD) shares falls 3% premarket Tuesday after the home improvement retailer reported comparable sales for the second quarter that missed the average analyst estimate. Rival Lowe’s, which reports Wednesday, is down 2.4% on light volume.
- Moderna (MRNA) and BioNTech (BNTX) are poised to slip even after reports that the U.S. was mulling new guidelines for third Covid-19 shots for the already vaccinated. The stocks have seesawed as investors weigh their heady valuations against the future size of the market for new jabs.
- Ocean Power Technologies (OPTT) gains as much as 20% in premarket trading after the renewable energy firm said the U.S. Department of Energy chose it to further the development of a next-generation wave energy converter.
- Powerbridge Technologies (PBTS) rallies 14% after entering a collaborative agreement with Cryptodigital Holdings.
- Roblox (RBLX) shares are down 5.9% in premarket trading on Tuesday, after the video game company reported second-quarter results that Benchmark wrote were disappointing. Analysts singled out weaker-than-expected bookings as a key issue.
- Sea Ltd (SE) shares rallied as much as 5.9% in premarket trading after the company boosted its e-commerce revenue forecast for the full year, beating the average analyst estimate.
- U.S.-listed shares of Tencent Music (TME) are down 3.8% in premarket trading on Tuesday, after the China-based online music entertainment platform reported its second-quarter results. Analysts are also expressing uncertainty over the regulatory situation.
Market gyrations this week are “coming alongside eight consecutive weeks of rising Covid cases at the global level that’s raised the prospect of a further deterioration in the outlook over the weeks and months ahead,” Deutsche Bank strategists wrote in a note.
The Commerce Department's closely watched retail sales report, due at 8:30 a.m. ET is expected to show retail sales slipped 0.3% last month after rising 0.6% in June, but as we noted, real-time card spending data from BofA and JPM indicates that a big miss is coming.
Ahead of next week's Jackson Hole meeting, investors will also be looking for hints on monetary policy which may come later today when Fed Chair Jerome Powell speaks at a town hall.
European stocks reversed early losses, turning flat as gains in basic resources and technology shares offset losses in automotive and travel stocks. Basic resources sub-index climbs 0.9%; technology sub- index up 0.3%. Automobiles & Parts sub-index down 0.9%; travel & leisure sub-index down 0.8%. Here are some of the biggest European movers today:
- BHP shares jump as much as 9.8% after the mining giant’s 1H results, the merger of its oil & gas operations with Australia’s Woodside and as the company plans to review its dual-listing structure.
- Just Eat Takeaway rises as much as 3.9%, reversing an earlier decline, with analysts welcoming the food-delivery company’s reiterated guidance and signs of a turnaround in its U.K. market.
- DFDS climbs as much as 9% after its 2Q results, with RBC saying the Danish shipping firm has the potential to deliver significant earnings growth.
- Partners Group gains as much as 1.8% after its 1H profit beat estimates, with Vontobel saying the investment firm’s performance fees were “very strong.”
- Ambu drops as much as 8.2% following its 3Q results, with DNB saying the main negative was the postponement of the medical-equipment maker’s aScope Bronco 5 product.
- Prosus declines as much as 4.8% and Naspers drops as much as 5.4%, tracking a fall for Tencent amid a continued crackdown on Chinese internet companies.
- Jyske Bank slides as much as 5.9% after its 2Q earnings, with Citi saying the main weak point in the Danish lender’s numbers was a soft core revenue performance.
Asia stocks also fell for a fourth straight day, weighed down by declines in Chinese tech shares on lingering concerns about Beijing’s clampdown on internet giants. The MSCI Asia Pacific Index declined as much as 1.3%, with Tencent and Alibaba the biggest drags. The Hang Seng Tech Index slid as much as 3.7% as China’s market regulator released draft rules banning unfair competition among online platform operators. South Korea’s Kospi dropped for an eighth day, set for the longest losing run in three years, as foreign investors continued to sell local shares. Asian equities are falling further behind their U.S. and European peers as investors fret over the economic impact of the delta variant of Covid-19, while also grappling with the uncertainty brought upon by China’s regulatory campaign. Tencent lost as much as 4.6% ahead of its earnings report due Wednesday. “State media commentaries or official measures are still affecting market sentiment,” said Daniel So, a strategist at CMB International Securities Ltd. in Hong Kong. “Investors are adopting a wait-and-see attitude toward any guidance as Tencent releases earnings tomorrow.” Elsewhere in the region, Japanese stocks declined, while Australian equities also dropped. Stocks rose in Malaysia and the Philippines, while trading in Indonesia was shut for a holiday
Japanese equities closed lower, erasing earlier gains and extending Monday’s sharp losses amid concerns over rising infections and a possible extension of the state of emergency. Electronics makers and telecommunications providers were the biggest drags on the Topix, which fell 0.5%. Drug and food makers advanced. SoftBank and M3 were the largest contributors to a 0.4% loss in the Nikkei 225. “Caution is needed on Japan’s state of emergency situation,” said Ryuta Otsuka, a strategist at Toyo Securities Co. “While the market has already priced in the potential extension of the time period and expansion to more areas, it may serve as reason for some speculative selling.” Asian stocks fell broadly Tuesday, led by Hong Kong and China after a regulator released draft rules banning unfair competition among the online platform operators. Terminal users can read more in our markets live blog. Insights.
In Australia, The S&P/ASX 200 index fell 0.9%, the most since June 21, to close at 7,511.00. The benchmark closed lower for a second day and was weighed down by losses in financials and miners. The best performing stock was Domain after its results beat estimates. Magellan was the worst performer after forecasting FY expenses of A$125m to A$130m. In New Zealand, the S&P/NZX 50 index fell 0.7% to 12,635.32. After the market close, the country announced it will enter a nationwide lockdown from tonight after reporting its first community transmission since February
In rates, Treasuries held gains in early U.S. trading amid weakness in many risk assets, following a rally that sent most yields to lowest levels in at least a week. Yields were lower across the curve by 3bp-4bp in intermediate sectors, 10-year by ~4bp at 1.222% after falling as much as 5bp to lowest level since Aug. 5; U.K. and German 10-year yields are lower by ~2bp. Most government bond markets are higher globally, adding to gains fueled by virus spread and Afghanistan turmoil. Highlights of U.S. session include July retail sales data and participation by Fed Chair Powell in a town hall discussion with educators. Up to 7am ET, Treasury futures volumes were running at around 116% of 20-day average levels. Coupon auctions ahead this week include $27b 20-year new issue Wednesday, $8b 30Y TIPS.
In FX, the Bloomberg Dollar Spot Index rose a second day with the dollar advancing against all of its Group-of-10 peers apart from the Swiss franc. New Zealand’s dollar was the worst G-10 performer and slid as much as 1.6% to 69.07 U.S. cents, while the benchmark 10-year bond yield dropped as much as 10 basis points to 1.72%, the steepest decline since March, as the discovery of a local virus case prompted the government to impose a lockdown and damped speculation of an imminent rate hike. Australia’s dollar fell to the lowest level since November after RBA minutes showed policy makers are prepared to act in response to further bad news on the economy. Japan’s benchmark 10-year yields declined toward zero on concern that a resurgence of the virus will derail the global economic recovery, boosting demand for havens. The pound fell to the lowest level against the dollar in three weeks amid concern the U.K. labor market could start cooling as government support is withdrawn. U.K. companies posted more than 1 million new job vacancies for the first time as loosening coronavirus rules led to an unprecedentedscramble for staff.
In commodities, oil fell for a fourth day, heading for the longest losing run since March. Gold dripped and bitcoin rebounded back over $47,000.
Looking at the day ahead now, and the main highlight will likely be Fed Chair Powell’s appearance at a town hall with educators, while other Fed speakers include Minneapolis Fed President Kashkari. Data highlights from the US include July’s retail sales, industrial production and capacity utilisation, along with the NAHB housing market index for August. Elsewhere, the UK will also be releasing unemployment data for June. Finally, earnings releases today include Walmart, Home Depot, BHP and Agilent Technologies.
- S&P 500 futures down 0.5% to 4,453.25
- STOXX Europe 600 down 0.3% to 472.20
- German 10Y yield rose 4.7 bps to -0.491%
- Euro little changed at $1.1780
- MXAP down 1.1% to 196.09
- MXAPJ down 1.3% to 642.68
- Nikkei down 0.4% to 27,424.47
- Topix down 0.5% to 1,915.63
- Hang Seng Index down 1.7% to 25,745.87
- Shanghai Composite down 2.0% to 3,446.98
- Sensex little changed at 55,616.50
- Australia S&P/ASX 200 down 0.9% to 7,511.00
- Kospi down 0.9% to 3,143.09
- Brent Futures down 0.5% to $69.17/bbl
- Gold spot up 0.3% to $1,793.29
- U.S. Dollar Index little changed at 92.66
Top Overnight News from Bloomberg
- Option markets signal investors aren’t expecting any currency fireworks before the Jackson Hole symposium next week, leaving them vulnerable to surprises when Federal Reserve Chair Jerome Powell hosts a town hall meeting later Tuesday
- The latest shifts in volatility skews for currency risk proxies point to an eventual pick up in demand for riskier assets, yet that may be slightly misleading
- China’s sovereign bonds are set to face a liquidity test as a long-awaited spike in municipal debt issuance finally appears on the horizon
- The Chinese yuan has been making inroads in the world of cross-border payments in recent years, but a pair of data points due this week will reveal whether the country’s sudden industry crackdowns have dented international trust in the currency
- The partial closure of the world’s third-busiest container port is worsening congestion at other major Chinese ports, as ships divert away from Ningbo amid uncertainty over how long virus control measures in the city will last
- Afghanistan’s central bank acting governor departed the country as Taliban fighters took control of the capital, with the rising political turmoil pushing the nation’s currency to a record low
- After months of slow progress, trading in derivatives pegged to Japan’s main Libor replacement, the Tokyo Overnight Average Rate, leaped to 23% of transactions in July, more than triple the amount in June, based on one measure from the International Swaps and Derivatives Association. The remainder was tied to legacy benchmarks including yen Libor and Tibor
A more detailed look at global markets courtesy of Newsquawk
Asian equity markets were subdued following the mixed performance on Wall Street, where the S&P 500 and DJIA recovered from the initial data-triggered pressure to post a 5th consecutive session of record closes and with the former having fully doubled from its pandemic lows, although the gains were only mild and led by defensives, while cyclicals lagged and both the Nasdaq and Russell 2000 finished in the red. ASX 200 (-0.9%) was dragged lower by continued underperformance in the top-weighted financial sector and as energy names suffered from the recent softer oil prices. In addition, a deluge of earnings updates and elevated local infections for New South Wales added to the headwinds for the Australian benchmark. Nikkei 225 (-0.3%) faded early advances with sentiment hampered by unfavourable currency conditions and with the government seeking to extend the state of emergency in Tokyo to September 12th which will be widened to seven additional prefectures, and the government is to also ask shopping malls to restrict entry. Hang Seng (-1.6%) and Shanghai Comp. (-2.0%) were cautious on what is a busy week for earnings releases and due to concerns of Beijing’s tighter scrutiny after the regulator issued draft regulations on banning unfair competition in the internet sector, while there were also reports that Tencent Music Entertainment's planned USD 5bln share sale alongside the Hong Kong listing could be delayed until next year amid China's crackdown on online platforms. Finally, 10yr JGBs were flat amid the non-committal tone seen in Japan and after the recent whipsawing in T-notes which had initially been propped up by weak US data, while the lack of purchases by the BoJ contributed to the uninspired picture with the central bank only in the market for treasury discount bills.
Top Asian News
- China Stocks Listed in U.S. Fall Over Beijing Rules, SEC Warning
- Kiwi Bears In Danger of Falling Into Trap RBA Sprang 2 Weeks Ago
- Bank of Singapore’s Greater China Global Market Head Leaves
- Singapore to Test Modest Business Travel as Opening Inches Ahead
European equities (Stoxx 600 -0.2%) started on a softer footing before trimming losses with the Stoxx 600 pulling back from its longest winning streak in over 10 years. Losses in Europe came in the wake of a despondent Asia-Pac session with downside observed in China amid further scrutiny from regulators in Beijing after issuing draft regulations on banning unfair competition in the internet sector. COVID concerns in New Zealand have also added to the negativity with NZ entering into a three-day nationwide lockdown (Auckland will lockdown for seven days); adds to recent restrictive measures in Australia and Japan. The situation in Afghanistan continues to dominate headlines, however, it is not posing much in the way of market significance at this stage. That said, the defiant tone of President Biden last night will have ruffled some feathers in the Democratic Party. Whether this has any follow-through into Congressional support for Biden’s economic agenda remains to be seen. In the immediacy, focus for the US turns to today’s Retail Sales and Industrial Production metrics; US equity futures are softer with the RTY lagging peers with losses of 1.1% vs. ES -0.4%. Note, DJIA constituent Walmart (2.8% weighting) is due to report at 12:00BST, whilst Home Depot (6.2% weighting) beat on top and bottom lines but comp sales missed, and thus shares are -4.5% in the pre-market. Sectors in Europe are mostly lower with laggards predominantly consisting of pro-cyclical names. Notably lagging the trend is Basic Resources amid gains in BHP (+6.9%) after the Co. announced alongside encouraging earnings that it is to pursue a petroleum merger with Woodside and change its structure to a single primary listing on the ASX. Elsewhere, Just Eat Takeaway (+2.8%) is the second-best performer in the FSTE 100 post results after posting a small-than-expected loss in H1 2021. Finally, Swiss Life (-1.8%) sits at the foot of the SMI post-H1 results which saw the Co. report a 7% decline in Premium Income.
Top European News
- Romania Accused of Squandering Deficit Chance Created by Economy
- Thiel-Backed Crypto Unicorn Triples Valuation to $4.1 Billion
- Just Eat Takeaway Says Losses From Expansion Push Have Peaked
- Poland to Allow Employers to Check Vaccination Status of Workers
In FX, an eventful session for the Kiwi to say the least, as domestic COVID fears are stoked on the eve of the RBNZ policy decision. The central bank was initially wholly expected to hike its OCR by 25bps tomorrow with another 50bps of tightening seen through the rest of the year, but one community-transmitted COVID case in Auckland has put a spanner in the works. The case has prompted the government to issue a three-day nationwide lockdown alongside a seven-day Auckland-specific lockdown in a bid to stem a potential outbreak at the root. This development has triggered an unwind of hawkish bets, with Westpac and ASB now expecting an unchanged OCR tomorrow (both previously called for 25bps hikes), whilst the OIS strip now prices in some 80% of a hike tomorrow (vs prev. 100%). Granted, COVID has always been a risk flagged by the government and central bank, and it is also worth keeping in mind the string of strong data seen from NZ – with desks at the time noting that the Kiwi economy is fast heading into full employment and sharp increases in inflationary pressure – with both areas poised to run hotter than the RBNZ’s prior round of forecasts. Nonetheless, the hawkish unravel took NZD/USD below the 50 DMA (0.7014). through the 0.7000 level, and to a current low of 0.6907 – just shy of its 0.6881 YTD trough. Meanwhile, the AUD/NZD cross has also been in focus as a play between the RBA and RBNZ's diverging policy stances and the overall dichotomy between the Aussie/Kiwi economies. The cross rebounded to around 1.0540 from firm support around 1.0420 (30th Nov low) - a level which traders have been heavily flagging in recent days.
- AUD, CAD - The AUD and CAD are the next set of straddlers after the Kiwi, with the common denominator for the high-beta softness once again a risk-averse tone. Zooming in, the AUD continues to tackle rising domestic cases and fears of a China slowdown. The Aussie currency came under pressure after the RBA Minutes noted that board members considered the case for a delay to the taper despite reaffirming the previously announced change in bond purchases at the meeting. However, the notable upside in AUD/NZD has kept the AUD somewhat cushioned but failed to stop AUD/USD from printing a fresh YTD low at 0.7279 (vs high 0.7341)– briefly dipping under the 24th Nov 2020 low of 0.7283. The next area of support is seen around 0.7265, marking the 20th and 23rd November low. Elsewhere, the Loonie remains underwhelmed by the COVID-hit (and sentiment-hit) crude prices, with the pair topping 1.2600 (vs low 1.2567).
- DXY - The Dollar index had retained an underlying bid as the risk remains defensive, whilst traders look ahead US Retail Sales, and later Fed Chair Powell’s appearance at 18:30BST/13:30EDT who will be hosting a town hall discussion, but focus will likely fall on the accompanied online Q&A against the backdrop of Fed officials tilting towards the hawkish side. Rosengren (2022 voter) has become the latest to suggest that in his view, substantial further progress was made – and his preference would be to start tapering in the fall, potentially October or November and no later than December, contingent on another strong job report. DXY remains caged to its 92.616-777 range, with some questioning why the non-Dollar declines are not providing much more upside. On this, it is worth noting that the antipodeans do not contribute to the DXY basket.
- JPY, CHF - The safe-haven FX diverge with the JPY remaining softer amid its domestic COVID situation. Japan's government confirmed it is to seek an extension of the coronavirus emergency in Tokyo through to September 12th and will extend it to seven additional prefectures. Furthermore, the widening yield spread between the US-Japanese 10yr yields remains supportive for USD/JPY. The pair match confirmed yesterday’s 109.12 low as interim support before recoiling to a high of 109.42. Meanwhile, the USD/CHF eyes 0.9100 to the downside from a 0.9136 intraday peak.
In commodities, WTI and Brent front month future remain subdued amid the overall market risk sentiment, concerns of peak China growth and ongoing COVID concerns as reports of new cases prompt tighter restrictions across some APAC economies. WTI Sept oscillates on either side of USD 67/bbl (vs high USD 67.65) whilst Brent Oct resides just north of USD 69/bbl having dipped below the figure in a fleeting move. Goldman Sachs notes that the move lower in oil prices continues to reflect concern around the impact of the COVID-19 Delta wave on demand; base case remains that this will be a transient demand hit. GS believes the deficit will persist through to year-end, eventually requiring sharp increases in OPEC's output and a further rebound in shale activity and is still forecasting Brent to hit USD 80/bbl by Q4-2021. While breakthrough infections are increasing concerns about the medium-term demand outlook, GS sees growing and offsetting downside risks to global supply and estimate global demand at around 98mln BPD vs August view of 97.8mln BPD. Elsewhere, spot gold and silver have been grinding higher as yields continue to dwindle, with the former some USD 5/oz off USD 1,800/oz (vs low 1,784/oz). LME copper remains subdued by the risk tone alongside China concerns. BHP meanwhile in its earnings noted that they expect Chinese iron demand to be lower than today, which is in-fitting with China’s move to cut its steel output target.
US Event Calendar
- 8:30am: July Retail Sales Advance MoM, est. -0.3%, prior 0.6%
- 8:30am: July Retail Sales Ex Auto MoM, est. 0.2%, prior 1.3%
- 8:30am: July Retail Sales Control Group, est. -0.2%, prior 1.1%
- 9:15am: July Industrial Production MoM, est. 0.5%, prior 0.4%; Capacity Utilization, est. 75.7%, prior 75.4% ; Manufacturing (SIC) Production, est. 0.6%, prior -0.1%
- 10am: June Business Inventories, est. 0.8%, prior 0.5%
- 10am: Aug. NAHB Housing Market Index, est. 80, prior 80
DB's Henry Allen concludes the overnight wrap
Markets got a late surprise yesterday as the S&P 500 reversed course in the US afternoon to finish at yet another record close, in spite of a number of global risks on the horizon that sent European equities lower earlier in the session, along with their Asian counterparts this morning. Weaker-than-expected economic data has been part of that, but it’s also coming alongside 8 consecutive weeks of rising Covid cases at the global level that’s raised the prospect of a further deterioration in the outlook over the weeks and months ahead. And in addition, the crisis in Afghanistan right now has acted as a further dampener on sentiment, even if the market implications have been limited for the time being, and served to remind investors about medium to longer-term geopolitical risks.
Looking at yesterday’s moves in more depth, the S&P 500 rose to a fresh all-time high (+0.26%), with healthcare equipment (+1.27%) and biotech (+1.00%) pacing the gains as the index turned higher just around the time trading stopped in Europe. In fact, this gain means that the S&P now sits at double its pandemic low from March 2020. Outside of Apple, megacap tech stocks in particular were one of the biggest losers, with the FANG+ index (-0.99%) at one point down -2.57%. Tesla (-4.32%) saw the biggest decline after the US opened an investigation into their autopilot system, but others including Nvidia (-1.18%) and Twitter (-1.67%) struggled too. With the majority of the equity bounce taking place in the US afternoon, Europe underperformed with the declines for the STOXX 600 (-0.50%) bringing an end to its run of 10 successive gains thanks to a marked decline among cyclicals, with the FTSE 100 (-0.90%) and the CAC 40 (-0.83%) experiencing even larger losses.
The implications of yesterday’s moves were particularly evident for oil prices, with Brent Crude (-1.53%) and WTI (-1.68%) both losing ground for a 3rd day running as the weak data from China took its toll, and against this backdrop energy stocks were among the worst performers on both sides of the Atlantic. That said, oil did pare back some of its losses later in the session after a Reuters report cited four OPEC+ sources, who said they believed that markets didn’t need further oil supplies than planned in spite of US pressure to increase output.
Haven assets were the beneficiary yesterday as investors sought to protect themselves against the weaker outlook, and yields on 10yr US Treasuries fell -1.2bps to 1.265% to follow up their -8.2bps decline on Friday. The moves lower for yields supported gold prices in turn, which were up +0.43% in their 4th consecutive advance, whilst the boost for havens was evident in foreign exchange markets too, where the Swiss Franc (+0.38% vs USD) was the top-performing G10 currency, followed by the traditional safe haven of the Japanese Yen (+0.32%).
Overnight in Asia, equity indices have taken another leg lower with the Nikkei (-0.04%), Hang Seng (-0.67%), Shanghai Comp (-0.48%) and Kospi (-0.98%) all falling as the spread of the delta variant is continuing to dampen sentiment. One notable mover this morning has been the New Zealand dollar (-0.87%), which comes as they investigate a community case of Covid-19 in Auckland, which is the first community case for New Zealand since last February, and could see a further lockdown confirmed as the country seeks to continue its zero-Covid strategy. Outside of Asia, futures on the S&P 500 are down -0.23% while yields on 10y USTs are down -1.4bps to 1.253%.
In other overnight news, Boston Fed President Rosengren added to the commentary around tapering as he said that the Fed has met its objectives on the inflation side and that the labour market was likely to meet their goal by the September meeting. As a result, he indicated that he’d be supportive of announcing a start to the taper in September if the US gets another “strong” jobs report and repeated that he would favour reducing purchases of mortgage-backed securities and Treasuries by equal amounts, ending the taper by mid-2022. On interest rate rises, he said that if inflation accelerates above 2.1% or 2.2% next year then that would be a reason to think about more hikes.
In terms of the latest in Afghanistan, President Biden said in an address last night that he stood “squarely behind” the decision to withdraw US forces. Although he vowed that the US would continue fighting terrorist organisations in the region, he said that the original mission in Afghanistan “was never supposed to be nation-building.” Biden laid out some steps the administration is taking to quell the current crisis, particularly at the Kabul airport with so many trying to leave the country. The US has taken over air traffic control, and will be using civilian and military flights to evacuate thousands of Americans, as well as increasing help to Afghan citizens, many of whom helped the US effort, who are applying for asylum in the US. Elsewhere, the UK House of Commons is being recalled tomorrow from its summer recess to discuss the situation, and a statement from Prime Minister Johnson’s office said that he plans to host a virtual meeting of G7 leaders on the issue in the coming days.
Although this is undoubtedly the dominant global news story with major humanitarian implications, the market consequences for the developed world have been pretty limited for the time being. Instead, the longer-term risk is that that Afghanistan could become a haven for terrorist groups, and such attacks have historically had serious market ramifications of their own. Indeed, the -11.6% weekly decline in the S&P 500 as it reopened after the 9/11 attacks is the 3rd biggest weekly decline for the index of the 21st century so far, behind only two weeks that took place during the height of the financial crisis in 2008 and the initial phase of the Covid pandemic in 2020. The other potential domestic question is the extent to which this creates difficulties for President Biden’s authority, just as the Democrats are seeking to pass their economic proposals, alongside the potential for another fight over the debt ceiling as well in the weeks ahead. Indeed,Biden’s approval rating has seen a small but perceptible decline recently, with FiveThirtyEight’s average now putting it at 49.9%, which is the lowest so far in his 7-month long presidency.
Turning to the pandemic, we got news from Pfizer and BioNTech yesterday that they’d submitted Phase 1 data to the FDA in the US for a third or booster dose of their vaccine. Their statement said that the results from the trial group “show that the third dose elicited significantly higher neutralizing antibodies against the initial SARS-CoV-2 virus (wild type) compared to the levels observed after the two-dose primary series, as well as against the Beta variant and the highly infectious Delta variant.” With booster shots on the horizon, one of the biggest questions for how the world adapts to Covid in the long term will be the extent to which vaccinated individuals maintain their immunity from the first two doses, or whether further shots will be required on an ongoing basis in order to maximise protection and reduce pressure on health services. And speaking of boosters, the NYT has reported overnight that the White House has decided that most Americans should get a booster shot eight months after their initial vaccination and a final announcement on this could come as soon as this week.
Meanwhile in New York City, it was announced by Mayor de Blasio that the vaccine mandate would be extended to mesums, and other venues including stadiums and casinos. And elsewhere in the US some hot spots have started to see deaths at record levels again – most notably in Florida, Louisiana, Montana and Arkansas. More broadly with global cases on the rise again, Hong Kong increased their travel curbs on multiple countries, with the US and France both moved up to the high-risk category that requires a 21-day hotel quarantine after arriving. And in Japan, public broadcaster NHK has reported that the government plans to expand its virus emergency to 7 more prefectures.
There wasn’t much in the way of data over the last 24 hours, though the Empire State manufacturing survey saw a stronger-than-expected decline to 18.3 in August (vs. 28.5 expected), even if this was down from its record 43.0 in July and still left it firmly in growth territory. Price pressures continued to remain elevated however, with the prices paid index down slightly to 76.1, whilst the prices received hit a new record of 46.0.
To the day ahead now, and the main highlight will likely be Fed Chair Powell’s appearance at a town hall with educators, while other Fed speakers include Minneapolis Fed President Kashkari. Data highlights from the US include July’s retail sales, industrial production and capacity utilisation, along with the NAHB housing market index for August. Elsewhere, the UK will also be releasing unemployment data for June. Finally, earnings releases today include Walmart, Home Depot, BHP and Agilent Technologies.