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Futures Coiled Ahead Of Critical CPI Print

Futures Coiled Ahead Of Critical CPI Print

Having come dangerously close to dropping 6 days in a row, the longest streak since Feb 2020, US stock-index futures and European stocks hugged the unchanged line on Tuesday after rebounding furiousl

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Futures Coiled Ahead Of Critical CPI Print

Having come dangerously close to dropping 6 days in a row, the longest streak since Feb 2020, US stock-index futures and European stocks hugged the unchanged line on Tuesday after rebounding furiously in the last hour of trading on Monday ahead of key CPI data that is expected to show a fourth month of U.S. inflation at 5% or more, and which will shape investor expectations about the likely timing of the Fed taper. S&P 500 E-minis were up 2 points, or 0.04%, at 07:15 am ET. Dow E-minis were up 10 points, or 0.03%, while Nasdaq 100 E-minis were down 2.75 points, or 0.02%. Treasury yields and the dollar were steady.

Oil stocks, which were the best performers on Monday, extended gains into premarket trading, as crude prices hit a six-week high on expectations of more supply disruptions due to a hurricane in the Gulf Coast. Major technology stocks, which had lagged their broader peers in the previous session, were muted in premarket trade.

US-listed Chinese stocks slump in premarket trading Tuesday as China’s sweeping regulatory crackdown on industries from technology to after-school tutoring and ride-hailing continues to weigh on investor sentiment. Regulators in Beijing are going to accelerate the drafting and implementation of laws in order to protect minors on the internet, according to the official Xinhua News Agency. Large-cap tech stocks are leading the decline this morning with Alibaba -1.7%, Pinduoduo -1.9%, NetEase -2.8%, Baidu -1.9% and Didi -0.9% as of 6:35 am in New York. Apple shares rose in pre-market trading as the company patched a security flaw in its Messages app and prepares a highly anticipated product launch on Tuesday.

Here are some of the other notable biggest movers today:

  • Oracle Corp. (ORCL) shares decline 1.8% in U.S. premarket trading after the software maker posted sales that missed analysts’ estimates
  • SeaChange International Inc. (SEAC), the provider of streaming video services, climbs after posting 2Q revenue that beat the average analyst estimate
  • Communications Systems (JCS) shares jump 37% in U.S. premarket trading after the firm declared a special dividend
  • SmileDirectClub (SDC) and Aterian (ATER) both rise in U.S. premarket trading, continuing their gains from the prior session amid discussion and touts for the stocks on Reddit and StockTwits
  • Angi (ANGI) gained as much as 6% Tuesday postmarket after the digital platform for home services reported a 21% jump in total revenue for August
  • Atyr Pharma (LIFE) jump 19% in U.S. premarket as analysts raise their PTs on the stock following its announcement of positive results from a trial on its ATYR1923 lung disease treatment
  • Akerna (KERN) soared on Monday’s extended trading after saying it has signed an agreement to acquire 365 Cannabis in a $17 million deal

Focus now turns to August consumer price data, due at 8:30am ET (1230 GMT), which is expected to show if a spike in inflation this year is as transitory as the Federal Reserve has posited. A Bloomberg poll expects the reading to see a modest drop from July. Investors are concerned that a sustained rise in inflation could push the Fed into tightening policy earlier than signaled, especially after data last week showed a strong rise in August producer prices.

In terms of what to expect, Deutsche Bank economists think there’ll be a deceleration in the month-on-month figures for both headline CPI and core CPI, which should largely be a function of demand continuing to soften in Covid-affected sectors. They see the monthly readings at +0.4% for headline and +0.2% for core, both of which would be the slowest in six months (the YoY print is still expected to be 5.3% and 4.2% for headline and core respectively.). That said, DB's Jim Reid points out that "US inflation has had a regular habit of surprising to the upside in recent months, and you have to go back all the way to November’s print to find the last time that month-on-month headline CPI came in beneath the median estimate on Bloomberg."

“The market should take a breather for a CPI figure softer than the 5.3% expected, but a strong release will likely further dampen the mood,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “High inflation is the major reason why the Fed can’t keep doing what it does: throwing cheap liquidity into the market.”

“Investors don’t want to have massive positions before the inflation data as the risks are to the upside as Covid inflation continues to hamper supply chains,” Edward Moya, a senior market analyst at Oanda, said in a note. “If inflation comes in hotter-than-expected, taper expectations could shift from December to November.”

Focus is also on the possible passage of U.S. President Joe Biden’s $3.5 trillion budget package, which is expected to include a proposed corporate tax rate hike to 26.5% from 21%. A possible hike in corporate taxes comes as yet another uncertainty, along with recent concerns over slowing economic growth due to rising COVID-19 cases.

European equities recovered after selling off at the open; the Stoxx Europe 600 Index was little changed as carmakers gained but mining companies declined. JD Sports Fashion jumped 8.4% to an all-time high after the British retailer published results and guidance that exceeded investor expectations. The FTSE MIB outperformed with a 0.5% gain, DAX and IBEX recover into positive territory. CAC is the notable underpeformer, stalling around the lows as other indexes rebound. Autos, oil & gas and tech are best performers, while basic-resources shares declined as iron ore dropped for a fifth day, with production curbs in China weighing on demand and investors awaiting industrial and economic data due this week.

European luxury stocks slumped again on renewed China covid, regulatory worries: LVMH, Kering and Prada were downgraded at Alphavalue amid worries over sector’s reliance on China, which makes the luxury industry “very vulnerable.” The latest developments around Covid-19 in the country added to worries on the sector.

Spanish utilities stocks fell after the country’s government said it will cap windfall profits for power companies in a bid to curtail the impact of record-high energy prices. Endesa -2.9%, Iberdrola -1.2%; Red Electrica, Naturgy and Enagas all dip. The drop comes after Spanish Prime Minister Pedro Sanchez said the government will seek to “redirect” profits from companies to consumers by “capping gas bills and cutting the size of electricity bills." Meanwhile, Spain electricity prices just hit a new all time high in a bitter lesson for locals that "green" energy comes with soaring costs.

In Asia, Japan’s Nikkei 225 Stock Average closed at the highest level since 1990 as exporters cheered a weaker currency which briefly lifted the index to its highest in more than three decades, while the KOSPI (+0.7%) outperformed despite the lack of fresh catalysts aside from South Korean President Moon targeting fully vaccinating 70% of the population by the end of next month. The Hang Seng (-1.2%) and the Shanghai Comp. (-1.4%) were lacklustre ahead of tomorrow’s activity data and speculation the PBoC may not fully roll over this month’s MLF maturities, while the focus was on China Evergrande with the Co.’s May 2023 Shanghai exchange-traded bond paused due to abnormal fluctuations in which it rose by nearly 23% on denial of bankruptcy rumours, although its actual shares were down 10% after it flagged a continued significant decline in contract sales and is exploring asset sales, as well as hired financial advisers to assess its capital structure. Australia's ASX 200 (+0.2%) traded with a non-committal tone for most of the session as outperformance in energy was offset by losses in the tech sector and although New South Wales posted its lowest daily COVID infections in almost two weeks, this was still over 1,100 cases and there was also the announcement of a four-week lockdown extension for Canberra. 

Here are the main Asian news today:

  • Japanese stocks advanced for a third day, lifting the Nikkei 225 Stock Average to a level last seen during the bubble economy more than three decades ago: Japan’s Nikkei 225 Returns to Bubble-Economy Level Seen in 1990
  • Singapore is planning to boost its domestic stock market by investing in local and regional mid-cap companies, including IPOs: Singapore Is Said to Plan Local Stocks Boost With Temasek Fund
  • China’s government is assembling a group of accounting and legal experts to examine the finances of China Evergrande, a potential precursor to a restructuring of the world’s most indebted developer: China Hires Its Own Evergrande Advisers as Restructuring Looms
  • Indian stocks are throwing up rare signals pointing to the possibility of further gains after a powerful rally: Indian Stocks Outpacing World by Most Since 2018 Emboldens Bulls
  • Surging demand from China’s banks to offload excessive dollar holdings is adding to signs of liquidity stress in swap markets a day before monthly operations from the PBOC: Chinese Banks Are Dumping Dollars in Swap Markets, Traders Say
  • Indonesian high-yield dollar bonds are beating regional peers as prospects for the economy improve after Covid-19 cases dropped to their lowest since May: Junk Bonds Outperform as Economy Reopens

In rates, Treasuries were slightly lower as U.S. trading gets under way, trailing steeper declines for most EGB markets led by gilts, cheapening ahead of supply. Yields are higher across the curve, by as much as 1.2bp at long end, inside Monday’s ranges; 10-year is higher by 1.4bp at 1.339% vs increases of 4.4bp for U.K. 10-year, 2.2bp for German. Breakeven inflation rates for 5-, 10- and 30-year TIPS have stabilized since peaking in May at multiyear highs.

In FX, the Bloomberg Dollar Spot Index was little changed as the greenback traded mixed versus its Group-of-10 peers while Treasury yields were slightly higher. Sweden’s krona rallied to a two-month high against the euro and advanced versus all other G-10 currencies after inflation data out of the Nordic nation beat the highest forecasts in a Bloomberg survey. CPIF came in at 2.4% y/y, versus a median estimate of 1.9%; CPIF ex. energy came in at 1.4% y/y, versus a median estimate of 1.1%. The Australian dollar was the worst G-10 performer and the nation’s sovereign yields declined after Reserve Bank Governor Philip Lowe pushed back on current market pricing, reiterating that conditions for a rate hike are unlikely until 2024. The pound advanced after data showing a buoyant U.K. labor market, with the number of workers on company payrolls climbing above its pre-pandemic level. The yen dropped for a third day before U.S. inflation data; Japan’s benchmark bond wasn’t traded until 3pm Tokyo after recording no transactions on Monday.

In commodities, Crude oil marked up a third day of gains with another hurricane emerging just weeks after Ida encumbered local output. The dip in stocks heading into the European cash open prompted futures to come off best levels at the time. Aside from that, the main driver for prices has been Hurricane Nicholas which made landfall and eyes the Gulf coast. That being said, Nicholas is expected to weaken to a tropical depression by Wednesday. The morning also saw the release of the IEA OMR, which cut its 2021 global demand growth forecast by 105k BPD (in-line with OPEC) but upgraded the 2022 forecast by 85k BPD to 3.2mln BPD (vs OPEC's 4.2mln BPD) and noted signs of abating COVID cases means demand is expected to rebound sharply in Oct by 1.6mln BPD. IEA noted that strong pent-up demand, vaccinations should underpin robust rebound in oil demand from Q4 2021, whilst the report gave a hat-tip to the recent US SPR sales and China's reserves release, which should help balance some of the strong pent-up demand cited by the IEA and expected in Q4. The agency lowered its Aug and Sep demand forecasts by almost 600k BPD on China and Southeast Asia mobility curbs.

Looking at today's session, the focal point is August CPI data, which will help inform the Fed’s deliberations of asset-purchase tapering at next week’s meeting. Other releases include the US NFIB small business optimism index for August, and UK unemployment for July. From central banks, we’ll hear from Bank of England Governor Bailey, and separately, the UN General Assembly will be opening in New York City.

Market Snapshot

  • S&P 500 futures up 0.1% to 4,473.00
  • STOXX Europe 600 little changed at 467.19
  • MXAP little changed at 205.81
  • MXAPJ down 0.3% to 660.12
  • Nikkei up 0.7% to 30,670.10
  • Topix up 1.0% to 2,118.87
  • Hang Seng Index down 1.2% to 25,502.23
  • Shanghai Composite down 1.4% to 3,662.60
  • Sensex up 0.2% to 58,284.08
  • Australia S&P/ASX 200 up 0.2% to 7,437.30
  • Kospi up 0.7% to 3,148.83
  • German 10Y yield rose 1.7 bps to -0.314%
  • Euro up 0.1% to $1.1825
  • Brent Futures up 0.9% to $74.13/bbl
  • Gold spot down 0.2% to $1,789.65
  • U.S. Dollar Index down 0.16% to 92.52

Top Overnight News from Bloomberg

  • Boris Johnson will confirm Tuesday that booster vaccinations against the coronavirus will be rolled out to the most vulnerable people this fall, as he sets out the U.K.’s new approach to tackling the virus.
  • The U.K. delayed the introduction of additional post-Brexit border checks on goods from the European Union, as retailers battle a supply chain crisis fueled by the pandemic and the effects of quitting the EU
  • Surging demand from China’s banks to offload excessive dollar holdings is adding to signs of liquidity stress in swap markets ahead of monthly operations from the People’s Bank of China on Wednesday
  • A relentless rally in Europe’s energy prices is piling up pressure on governments, with Spain and Greece taking steps to cushion the blow for consumers

A snapshot breakdown of global markets courtesy of Newsquawk

Asia-Pac stocks eventually followed suit to the mostly positive handover from the US, where a late rebound helped Wall Street snap a five-day losing streak but with gains capped ahead of US CPI data. The ASX 200 (+0.2%) traded with a non-committal tone for most of the session as outperformance in energy was offset by losses in the tech sector and although New South Wales posted its lowest daily COVID infections in almost two weeks, this was still over 1,100 cases and there was also the announcement of a four-week lockdown extension for Canberra. The Nikkei 225 (+0.7%) gained as exporters cheered a weaker currency which briefly lifted the index to its highest in more than three decades, while the KOSPI (+0.7%) outperformed despite the lack of fresh catalysts aside from South Korean President Moon targeting fully vaccinating 70% of the population by the end of next month. The Hang Seng (-1.2%) and the Shanghai Comp. (-1.4%) were lacklustre ahead of tomorrow’s activity data and speculation the PBoC may not fully roll over this month’s MLF maturities, while the focus was on China Evergrande with the Co.’s May 2023 Shanghai exchange-traded bond paused due to abnormal fluctuations in which it rose by nearly 23% on denial of bankruptcy rumours, although its actual shares were down 10% after it flagged a continued significant decline in contract sales and is exploring asset sales, as well as hired financial advisers to assess its capital structure. Finally, 10yr JGBs were subdued as Japanese stocks traded at 31-year highs and amid the uninspired picture for T-notes and Bund futures, while firmer demand at the enhanced liquidity auction for longer-dated JGBs failed to inspire underlying bond prices.

Top Asian News

  • China Regulator Advises Against Overseas Travel Over Holidays
  • Tata Mulling Leadership Makeover of $106 Billion Indian Empire
  • Facing Pressure, Kakao Billionaire to Jettison Decade-Old Model
  • Evergrande’s Overdue Wealth Products Become Crisis Flashpoint

Bourses in Europe retain the mixed narrative seen at the cash open (Euro Stoxx 50 -0.1%; Stoxx 600 -0.1%), whilst losses in China accelerated towards the close. US equity futures have been largely moving in tandem with their European counterparts ahead of US CPI, albeit in a more contained range and with the tech-laden NQ (Unch) currently narrowly lagging vs cyclical RTY (+0.2%) – with traders also cognizant of Quad Witching this Friday. Sectors in Europe do not portray a particular theme, but Oil & Gas remains as one of the winners amid price action in the crude complex, whilst basic resources hold their spot as the laggard as base metal prices falter. Travel & leisure stays around the middle of the pack and relatively flat, with reports overnight suggesting that UK ministers are said to be mulling axing pre-departure tests to "low risk" countries for Britons who have been fully vaccinated. In terms of individual movers. Ocado (-2.6%) is pressured following a downbeat trading update, but the group expects retail to deliver strong revenue growth in FY22. SAP (-0.3%) is pressured as peer Oracle (-1.9% pre-market) fell post-earnings. Pandora (+5.8%) is bolstered as the group is to up its share buyback programme by some DKK 500mln. Finally, the morning saw the release of the BofA Fund Manager Survey, which noted that equity protection was at the lowest since Jan 2018 and liquidity conditions are viewed as best since just before the 2008 global financial crisis.

Top European News

  • Tesla-Loving Norway Picks Pro-Oil Labor as Coalition Talks Start
  • Ukraine Mulls Production of Turkish Bayraktar Drones: Ministry
  • European Gas Notches Fresh Records as Supply Woes Mount
  • Illumina Warns of Potential $400m EU Fine for Closing Grail Deal

In FX, the Aussie did not get much time to appreciate improvements in NAB business confidence and conditions or stronger than expected Q2 house prices before dovish commentary from RBA Governor Lowe relating to market pricing for tightening next year and in 2023. Although he stressed that the Delta outbreak has delayed rather than derailed the economic recovery, a first OCR hike is not envisaged until 2024 even though other countries may raise benchmark rates earlier. Lowe went on to predict a Q2 GDP contraction of at least 2% with risks of a significantly bigger fall and repeated that the Bank wants to see unemployment in the low 4% area ahead of jobs data on Thursday. Aud/Usd is pivoting 0.7350 amidst decent option expiry interest just below between 0.7340-45 (1 bn), but the Aud/Nzd cross is slipping towards 1.0300 from 1.0350+ at one stage as the Kiwi holds above 0.7100 vs its US rival in the run up to NZ Q2 GDP tomorrow. Meanwhile, the Pound has bounced firmly to top 1.3880 at best against a broadly flagging Greenback post-UK labour and earnings/pre-US CPI, but with barriers in Cable at 1.3900 likely to offer resistance in a similar vein to support via the 200 DMA that resides at 1.3831 today.

  • USD/EUR/CAD/JPY/CHF - As noted above, the Buck has back off a bit further from Monday’s best levels, with the DXY straddling 92.500 within a 92.481-664 range and looking for direction from the aforementioned inflation data in the absence of Fed input due to the usual purdah observed in advance of an FOMC meeting. Hence, the Euro is taking some advantage to form a base beyond 1.1800, but could be capped by 1.2 bn option expiries at 1.1835, while the Loonie is hugging a tight line either side of 1.2650 where 1 bn rolls off and does not appear likely to arouse the same size from 1.2600-10 unless WTI crude spikes or Canadian manufacturing sales are super strong. Elsewhere, the Yen is still clinging to 110.00 ahead of Japanese machinery orders and the Franc remains sub-0.9200 following a pick up in Swiss producer and import prices, though nothing strong enough to warrant any change in the SNB’s policy stance.
  • SCANDI/EM - Conversely, Swedish inflation readings may well resonate with the more hawkish Riksbank Board members given the scale of overshoots vs consensus and the Bank’s own estimate, and Eur/Sek is lower in response, while Eur/Nok is down on the back of another rise in Brent to breach Usd 74/brl briefly and bullish Norges Bank regional survey rather than any obvious reaction to the election result. However, the Rub and Mxn are both softer in the face of higher US Treasury yields and curve re-steepening that is also weighing on the Try and Zar in contrast to resilience in the Cnh and Cny irrespective of reports that the PBoC may not roll all this month’s maturing MLFs.
  • RBA Governor Lowe said the Delta outbreak has delayed but not derailed the recovery and reiterated the OCR is unlikely to rise before 2024, while he noted it is difficult to understand markets pricing in of hikes in 2022 and 2023. Lowe added that rates might increase in other countries but domestic factors are different and that the board judged fiscal policy is best response to current Delta lockdowns. Lowe sees Q3 GDP likely to shrink by at least 2% with risk of a significantly larger contraction and stated they cannot keep buying bonds forever with purchases likely to stop sometime next year. Furthermore, he stated that they need to see unemployment in low 4's to lift wages and that inflation temporarily above 3% would not be a problem. (Newswires)

In commodities, WTI and Brent front-month futures have been choppy but ultimately hold onto gains. The dip in stocks heading into the European cash open prompted futures to come off best levels at the time. Aside from that, the main driver for prices has been Hurricane Nicholas which made landfall and eyes the Gulf coast – although again, it's worth keeping in mind the impact on refinery demand for US crude. That being said, Nicholas is expected to weaken to a tropical depression by Wednesday. The morning also saw the release of the IEA OMR, which cut its 2021 global demand growth forecast by 105k BPD (in-line with OPEC) but upgraded the 2022 forecast by 85k BPD to 3.2mln BPD (vs OPEC's 4.2mln BPD) and noted signs of abating COVID cases means demand is expected to rebound sharply in Oct by 1.6mln BPD. IEA noted that strong pent-up demand, vaccinations should underpin robust rebound in oil demand from Q4 2021, whilst the report gave a hat-tip to the recent US SPR sales and China's reserves release, which should help balance some of the strong pent-up demand cited by the IEA and expected in Q4. The agency lowered its Aug and Sep demand forecasts by almost 600k BPD on China and Southeast Asia mobility curbs. On that note, Chinese regulators have advised against travel over national holidays – with the mid-Autumn festival taking place from Sep 20th. The IEA made no mention of Iranian oil – with participants on the lookout for a potential date for JCPOA talks to resume. From a data perspective, the weekly Private Inventories will be released tonight. WTI resides just under USD 71/bbl, having traded on either side of the figure (vs low USD 70.50/bbl), while its Brent counterpart trades choppily around USD 74/bbl (vs low 73.50/bbl). Elsewhere, spot gold and silver trade on the softer side of today's current tight range, with the former still under the USD 1,800/oz mark and below its 50 and 21 DMAs at 1,797.73 and 1,799.22, respectively. Elsewhere, LME copper is on the backfoot following late-door losses in Chinese stock markets, with the red metal back under USD 9,500/t. Meanwhile, Chinese coking coal and coke futures closed with losses in excess of 5% amid regulatory concerns, according to traders.

US Event Calendar

  • 8:30am: Aug. CPI MoM, est. 0.4%, prior 0.5%; YoY, est. 5.3%, prior 5.4%
  • 8:30am: Aug. CPI Ex Food and Energy MoM, est. 0.3%, prior 0.3%; YoY, est. 4.2%, prior 4.3%
  • 8:30am: Aug. Real Avg Weekly Earnings YoY, prior -0.7%, revised -0.9%
  • 8:30am: Aug. Real Avg Hourly Earning YoY, prior -1.2%

DB's Jim Reid concludes the overnight wrap

Yesterday I released my annual Long-Term Asset Return Study (link here). This year's edition is called “Fiat, Fifty and Frail”, and marks the 50th anniversary of today’s system of fiat money. We show how the last half-century has been the most inflationary in history. So don’t be fooled by the lower inflation in recent years. Fiat money has always been inflationary in aggregate. Indeed in the modern world we’ve stress-tested our monetary system to extremes, with ever-higher levels of debt and unprecedented money printing from central banks. If anything this is increasing post covid. If the exogenous forces keeping inflation down (e.g. globalisation and demographics) reverse then we may have to question what will happen to fiat money. For most of the last few centuries very few would have questioned gold as the permanent anchor of money. So it shouldn’t be too controversial to question whether we will still have fiat money for the entirety of our careers. Please see the full report for much more, including asset returns and economic stats from multiple countries spanning back centuries in some places.

Inflation was one of the big themes of the report, and turning from hundreds of years of data to what’s in front of us today as investors turn their attention to the US CPI release for August later on. In terms of what to expect, our US economists think there’ll be a deceleration in the month-on-month figures for both headline CPI and core CPI, which should largely be a function of demand continuing to soften in Covid-affected sectors. They see the monthly readings at +0.4% for headline and +0.2% for core, both of which would be the slowest in six months. That said, US inflation has had a regular habit of surprising to the upside in recent months, and you have to go back all the way to November’s print to find the last time that month-on-month headline CPI came in beneath the median estimate on Bloomberg. For completeness the YoY print is still expected to be 5.3% and 4.2% for headline and core respectively.

Speaking of inflation, there was continued evidence of building price pressures yesterday from a number of sources. Firstly, there were yet further advances in commodity prices that sent the Bloomberg Commodity Spot index (+0.58%) to its highest level in over a decade by the close, which just shows that for all the discussion about isolated moves lower for specific commodities, it doesn’t appear that we’re yet seeing a broad-based move lower in the aggregate. Among the gainers yesterday were oil prices, with Brent crude (+0.81%) and WTI (+1.05%) both closing at their highest levels in over a month, whilst aluminium rose above $3,000/ton in trading in London before closing down -0.94%, closing at the second highest level since 2008. Liam Fitzpatrick from the DB Metals and Mining team is hosting an expert call on the aluminium market next week, Tuesday 21 September, 15:00 BST / 10:00 EST. Register and access the webinar details (Zoom) here. All important for the macro and for earnings.

The CPI release from the US should reveal more on the inflation front, but equities have put in a steady positive performance over the last 24 hours ahead of that, in spite of continued concerns about the elevated levels of valuations right now. Indeed our survey (link here) results yesterday suggested that 68% expect at least a 5% correction by year end.

By the close of trade, the S&P 500 (+0.23%) had stabilised following a run of 5 successive declines and Europe’s STOXX 600 (+0.29%) also recovered its poise after a run of 4 declines. It was a reasonably broad-based advance given the small overall moves, with over 60% of the S&P’s constituents moving higher on the day. However, energy stocks were the biggest winners on both sides of the Atlantic given those fresh moves higher for commodities mentioned above. Alongside the rally in energy stocks, US cyclicals were broadly very strong yesterday with banks (+1.86%), autos (+1.21%), and airlines (+1.77%) all outperforming at the expense of growth industries such as biotech (-1.16%) and software (-0.31%).

Meanwhile in sovereign bond markets, 10yr US Treasuries ended the session -1.5bps lower at 1.326%, with inflation breakevens (-2.4bps) moving lower over the course of the day, even as the New York Fed’s survey of consumer expectations showed that inflation expectations for 3 years ahead were at a series high of 4%. Over in Europe yields on 10yr bunds (-0.1bps) were little changed on the day,but breakevens (+1.9bps) rose to a post-2013 high of 1.642%, just as the Italian breakeven (+2.3bps) hit a post-2013 high too of 1.557%.

Asian markets are following Wall Street’s lead this morning with the Nikkei (+0.51%) on track for its highest close since 1990. The Kospi (+1.00%), Asx (+0.19%) and India’s Nifty (+0.35%) have advanced too. The Hang Seng (-0.05%) and CSI (-0.29%) are trading weak though while the Shanghai Comp (+0.05%) and ShenZhen Comp (+0.73%) are up. Futures on the S&P 500 are up +0.19% while those on the Stoxx 50 are +0.26%. Elsewhere, crude oil prices are up c. +0.60% as supply in the US is constrained by extreme weather with Tropical Storm Nicholas likely to hit hurricane strength before it makes landfall in Texas, although it’s expected to mostly bypass offshore oil and natural gas platforms.

Turning to the latest on the pandemic, China is experiencing a renewed cluster of cases just a month after it brought the broadest outbreak in the country since the virus first emerged in Wuhan under control. The latest outbreak, which has yet to escape the Fujian province, includes 103 cases in three cities thus far. In order to tame the spread, China has imposed a very strict lockdown for 4.5 million people in the costal city of Xiamen where residents are not allowed to leave for anything other than exceptional circumstances.

Here in the UK, the country’s chief medical officers said that they were in favour of giving children aged 12-15 a single dose of the Pfizer vaccine, which brings them into line with other countries who’ve already been vaccinating healthy individuals in that age bracket. Today, Prime Minister Johnson is expected to outline the government’s plan to manage Covid over the autumn and winter, with details of a booster programme expected next week from the vaccination committee. And that comes against the backdrop of cases having begun to fall again, with the numbers testing positive down -8.4% on the previous week. Separately, Italy’s government announced the country would start administering third doses of Covid-19 vaccines for the most “at-risk” citizens starting next Monday. This comes as a panel of scientists from around the world, including two prominent US FDA experts, published a report in the medical journal The Lancet that stated most vaccinated individuals do not yet need a booster and that governments should focus on getting the unvaccinated their first shots instead.

On the political scene, there was some important news on US taxation from House Democrats, as the Ways and Means Committee released a proposal that would see the top corporate tax rate rise to 26.5% (with an 18% rate on the first $400,000 of income and 21% on income up to $5 million), as the Committees continue to put together the broader reconciliation package that would advance President Biden’s economic agenda. The plan also includes increasing the top personal income tax rate (on dollars earned above $518.4k) to 39.6% from the current 37%, and increasing the capital gains rate on “certain high income individuals” to 25% (from 20%) with an additional 3.8% tax specifically earmarked for Obamacare. The carried interest tax break would be restricted and applied more narrowly, but not eliminated as President Biden has called for in the past. Overall the full tax plan could generate $2.1 trillion of revenue over 10 years, and the committee believes it can derive another $870bn in revenue when tax break language is taken into account. This could go a long way to assuaging some moderate Democrats around the $3.5 trillion over ten year budget reconciliation plan price tag. We will see.

Separately in Germany, with just 12 days left until the federal election, yesterday saw another poll put the centre-left SPD’s lead beyond the margin of error. That was from INSA, and had the SPD on 26%, ahead of Chancellor Merkel’s CDU/CSU on 20.5%, and the Greens on 15%. That pattern of the SPD in first place, followed by the CDU/CSU and then the Greens has been echoed in the averages more broadly as well, with Politico’s poll of polls now putting the SPD on 25%, ahead of the CDU/CSU on 21% and the Greens on 16%.

To the day ahead now, and the aforementioned US CPI reading will be the main data highlight, whilst other releases include the US NFIB small business optimism index for August, and UK unemployment for July. From central banks, we’ll hear from Bank of England Governor Bailey, and separately, the UN General Assembly will be opening in New York City.

Tyler Durden Tue, 09/14/2021 - 07:55

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A significant milestone in the COVID-19 pandemic was crossed this week. The number of deaths in the United States due to COVID-19—more than 675,000—has surpassed the number of deaths that occurred during the 1918 flu pandemic. In addition, there are still roughly 150,000 new cases every day. Eighteen months into the pandemic, the need for effective treatments against COVID-19 remains as great as ever.

One possible treatment, neutralizing single domain antibodies (nanobodies), has significant potential. The unique antibody produced by llamas is small, stable, and could possibly be administered as a nasal spray—an important characteristic as the antibody treatments currently in use require administration by infusion in the hospital. Now, new research shows that nanobodies can effectively target the SARS-CoV-2 virus.

The team from the Rosalind Franklin Institute found that short chains of the molecules, which can be produced in large quantities, showed “potent therapeutic efficacy in the Syrian hamster model of COVID-19 and separately, effective prophylaxis.”

This work is published in Nature Communications in the paper, “A potent SARS-CoV-2 neutralizing nanobody shows therapeutic efficacy in the Syrian golden hamster model of COVID-19.

The nanobodies, which bind tightly to the SARS-CoV-2 virus, neutralizing it in cell culture, could provide a cheaper and easier to use alternative to human antibodies taken from patients who have recovered from COVID-19.

“Nanobodies have a number of advantages over human antibodies,” said Ray Owens, PhD, head of protein production at the Rosalind Franklin Institute. “They are cheaper to produce and can be delivered directly to the airways through a nebulizer or nasal spray, so can be self-administered at home rather than needing an injection. This could have benefits in terms of ease of use by patients but it also gets the treatment directly to the site of infection in the respiratory tract.”

Credit: Rosalind Franklin Institute

The research team was able to generate the nanobodies by injecting a portion of the SARS-CoV-2 spike protein into a llama called Fifi, who is part of the antibody production facility at the University of Reading. They were able to purify four nanobodies capable of binding to SARS-CoV-2. Four nanobodies (C5, H3, C1, F2) engineered as homotrimers had pmolar affinity for the receptor-binding domain (RBD) of the SARS-CoV-2 spike protein. Crystal structures showed that C5 and H3 overlap the ACE2 epitope, while C1 and F2 bind to a different epitope.

Regarding their effectiveness against variants, the C1, H3, and C5 nanobodies all neutralized the Victoria strain, and the highly transmissible Alpha (B.1.1.7 first identified in Kent, U.K.) strain. In addition, C1 neutralizes the Beta (B.1.35, first identified in South Africa).

When one of the nanobody chains was administered to hamsters infected with SARS-CoV-2, the animals showed a marked reduction in disease, losing far less weight after seven days than those who remained untreated. Hamsters that received the nanobody treatment also had a lower viral load in their lungs and airways after seven days than untreated animals.

“Because we can see every atom of the nanobody bound to the spike, we understand what makes these agents so special,” said James Naismith, PhD, director of the Rosalind Franklin Institute. If successful and approved, nanobodies could provide an important treatment around the world as they are easier to produce than human antibodies and don’t need to be stored in cold storage facilities, added Naismith.

“Having medications that can treat the virus,” noted Naismith, “is still going to be very important, particularly as not all of the world is being vaccinated at the same speed and there remains a risk of new variants capable of bypassing vaccine immunity emerging.”

The researchers also hope the nanobody technology they have developed could form a so-called “platform technology” that can be rapidly adapted to fight other diseases.

The post Potential COVID-19 Treatment Found in Llama Antibodies appeared first on GEN - Genetic Engineering and Biotechnology News.

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China Syndrome? Is Evergrande A Symptom Of Deeper Malaise

China Syndrome? Is Evergrande A Symptom Of Deeper Malaise

Authored by Bill Blain via MorningPorridge.com,

“If that’s true, we are very close to the China Syndrome ”

Evergrande’s imminent default is rocking markets – but few believe…

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China Syndrome? Is Evergrande A Symptom Of Deeper Malaise

Authored by Bill Blain via MorningPorridge.com,

“If that’s true, we are very close to the China Syndrome ”

Evergrande’s imminent default is rocking markets – but few believe the collapse of a Chinese property developer could trigger a global financial crisis. What if Evergrande is just a symptom of a deeper malaise within the Chinese economy and its political/business structures? Maybe there is more at stake than we realise? What if Emperor Xi decides he needs a distraction?

Amid this week's market turbulence, and the overnight headlines, Evergrande dominates thinking this morning. The early headlines say the risk is “easing”. Don’t be fooled. S&P are on the wires saying it’s on the brink of default and is unlikely to get govt support. It’s Asia’s largest junk-bond issuer. Anyone for the last few choc-ices then?

The market view on the coming Evergrande “event” is mixed. Some analysts are dismissing it as an internal “China event”, others reckon there may be some systemic risk but one Government can easily address. There is some speculation about “lessons” to be learnt… There are even China supporters who reckon its proof of robust China capitalism – the right to fail is a positive!

I’ve got a darker perspective.

The massive shifts we’ve seen in China’s political/business public persona over the past few years have been variously ascribed: a reaction to Trump’s protectionism, China taking its place as a leading nation, Xi flexing his military muscle, and now a clampdown on divisive wealthy businesses to promote common prosperity.

What if Evergrande is just a symptom of something much deeper?

That that last 30-years of runaway Chinese growth has resulted in a deepening internal crisis, one that we barely perceive in the west? What if the excesses that have spawned Evergrande and the illusion every Chinese can afford luxury flats and a western standard of living is about to implode? Crashing oriental minor chords!

The looming Chinese property debacle will be fascinating, but it many respects will be similar and yet very different to the multiple market unwinds we’ve seen in the west. How it plays out will have all kinds of implications for growth, speculation and how global investors perceive China in the future. Folk are variously describing it as China’s Lehman Brothers, or the next “Minsky Moment” when speculation ends with a sharp jab of reality to the kidneys.

I’m thinking back to a story I read a few years ago about the Shanghai Auto-fair pre-pandemic. Evergrande New Electric Vehicles had the largest stand and was showing off 11 different EVs. Not one of these were actually available to buy – they were all models of as-yet unproduced cars. The company was valued at billions and yet never sold a single vehicle. This morning, it’s just another worthless business Evergrande is trying to flog. (See this story on Bloomberg TV: China’s Zombie EV Makers.)

The market is asking itself a host of questions about Evergrande’s collapse: How bad will its tsunami of Chinese contagion deluge global markets? When it’s going to happen? What knock-on effects will cascade through markets?

Perhaps the most important question is: Who will be exposed “swimming naked” when the Evergrande tide goes out? Who will be left with the biggest losses? As the company is definitely bust, these losses rather depend on just how China’s authorities respond.

Step back and think about it a moment – try putting these in context:

  • Fundamentally all business is about identifying a consumer need and filling it.

  • Fundamentally, greedy businessmen tend to get carried away because the political-financial system enables them.

  • Fundamentally, it’s just another burst bubble and who cleans up the mess.

  • In Evergrande’s case a thousand flowers of capitalism with Chinese characteristics grew into an unsustainable business – fundamentally no different from debt-fuelled sub-prime mortgages, or CDOs cubed, in the West.

The big difference this time is its China! China has done things… differently. The path China pursued in its recovery and growth since 1980 has not been without… consequences.

Thus far we’ve praised China for its spectacular growth and the creation of valuable companies under the red banner of Chinese capitalism. It is going to be “interesting” to see how the subsequent mess is cleared out. Questions about Moral Hazard are going to be shockingly simple – Government has made it abundantly clear that any wrongdoing by company executives will be punished in the harshest possible way.

More importantly, Chinese politics and business works on a very different playing field to the west. Forget the rule of law or the T&C’s of Evergrande bonds. It easy to dismiss and characterise the way Chinese business works as institutionalised systemic corruption – but it’s a system Ancient Roman Emperors would recognise as a patron/client relationship. Emperor Xi’s clients and his princelings will continue to benefit from his patronage in return for their support at his court, and will be protected in a meltdown. The system Xi presides over will have little motivation to intervene to protect western investors who find themselves caught in the Evergrande fiasco.

Where Xi will have to take notice is outside the rich, wealthy princeling cadre which increasingly owns and runs China. There will be massive implications for wealth/inequality among the Chinese people from a property collapse. With a third of Chinese GDP dependent on the property sector, (and about 4 million jobs at Evergrande), the collapse of one of the biggest players, and the likelihood others will follow is much more than just a systemic risk.

Property is a key metric in the aspirations to wealth of the rising Chinese middle classes. The same smaller Chinese investors and savers will likely prove the largest losers from the property investment schemes they were sucked into. These real losses will rise if hidden bank exposures trigger a domestic banking crisis – which apparently isn’t likely (meaning it is..). There are reports of investor protests in key China cities – putting pressure on the govt to act to mitigate personal losses.

Xi’s clampdown on big tech is painted as the Party’s programme to engineer a more socially-equal economy. He has pinned the blame for rising inequality on “corrupt” business practices and has his cadre’s waving books on Xi thought, mouthing slogans about “common prosperity” and “frugality”. These are going to look increasingly hollow if the middle classes bear the coming Evergrande pain, and the Party Princelings continue to prosper.

The really big risk in China is not that Evergrande is going to default – it’s much bigger. If the Party is seen to fail in its promise to deliver wealth, jobs and prosperity for the masses – then that is very serious. China’s host of failed EV companies, an economy still reliant on exporting other nations tech, and a massively overvalued property sector (that the masses still equate with prosperity) all suggest a much less solid economy than the Party promotes.

If the illusion of a strong economy is unravelling – who knows what happens next, but in Ancient Rome the answer would be simple… Blame someone else, and invade..

This could get very “interesting…” and not in a good way.

Tyler Durden Wed, 09/22/2021 - 08:45

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White House Reporters Have Launched ‘Formal Objection’ About Biden Refusing To Answer Questions

White House Reporters Have Launched ‘Formal Objection’ About Biden Refusing To Answer Questions

Authored by Steve Watson via Summit News,

CBS News reported Tuesday that the press pool of White House reporters have launched a formal objection

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White House Reporters Have Launched 'Formal Objection' About Biden Refusing To Answer Questions

Authored by Steve Watson via Summit News,

CBS News reported Tuesday that the press pool of White House reporters have launched a formal objection over the fact that Joe Biden refuses to answer any questions, with reporters routinely being yelled down and physically pushed away by Biden’s handlers.

The revelation came after an embarrassing scene in the Oval Office with British Prime Minister Boris Johnson answering questions, but Biden not being allowed to by aides.

Watch:

Johnson took the three questions from British reporters

CBS reporter Ed O’Keefe said that “Johnson took 3 questions. White House aides shouted down U.S. attempts to ask questions. I asked Biden about southern border and we couldn’t decipher what he said.”

CBS radio correspondent Steve Portnoy later reported that “The entire editorial component of the US pool went immediately into Jen Psaki’s office to register a formal complaint that no American reporters were recognized for questions in the president’s Oval Office.”

Portnoy, also president of the White House Correspondents Association, added that the complaint also extended to the fact “that wranglers loudly shouted over the president as he seemed to give an answer to Ed O’Keefe’s question about the situation at the Southern Border. Biden’s answer could not be heard over the shouting.”

“Psaki was unaware that the incident has occurred and suggested that she was not  in a position to offer an immediate solution,” Portnoy continued, adding “Your pooler requested a press conference. Psaki suggested the president takes questions several times a week.”

In addition, National Review notes that after Biden’s UN speech yesterday, French reporter Kethevane Gorjestani “was asked by a very startled Australian reporter whether WH wranglers were always so strict about ushering the pool out without questions.”

The pathetic display is a continuation of the way Biden’s handlers have been acting since even before he took office, shooing away reporters, giving Biden strict instructions on who he can take questions from, and even muting his mic when he goes off script.

A week ago, Republican Senator James Risch demanded to know who is in charge of controlling when the President is allowed to be heard, noting during a Senate hearing that “This is a puppeteer act, if you would, and we need to know who’s in charge and who is making the decisions.”

“Somebody in the White House has authority to press the button and stop the president, cut off the president’s speaking ability and sound. Who is that person?” Risch asked.

Tweeting out the video, leftists insisted the claims were ‘bizarre,’ ‘ridiculous’ and ‘absurd’:

*  *  *

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Tyler Durden Wed, 09/22/2021 - 10:15

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