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Futures Coiled Ahead Of J-Hole As China Slumps, Bitcoin Slides

Futures Coiled Ahead Of J-Hole As China Slumps, Bitcoin Slides

S&P futures continue to trade as if paralyzed in a tight 20-point range on dismal volumes just below 4,500 for the 3rd day in a row, and overnight they are fractionally in…

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Futures Coiled Ahead Of J-Hole As China Slumps, Bitcoin Slides

S&P futures continue to trade as if paralyzed in a tight 20-point range on dismal volumes just below 4,500 for the 3rd day in a row, and overnight they are fractionally in the red although off session lows, with the Nasdaq 100 down 0.2% and S&P 500 -0.1% amid a retreat in tech shares and commodities as markets remained on edge ahead of Friday's Jackson Hole virtual gathering where Chairman Jay Powell is expected to speak at 10am and give clues on the upcoming taper. The dollar rose, yields were unchanged at 1.34%, oil dipped and bitcoin slumped.

Wall Street’s main indexes notched their latest record high on Wednesday but Asia’s session had been far more bumpy: Asia saw its first post-COVID outbreak interest rise in South Korea overnight, while Chinese markets tumbled after the country’s most indebted property developer Evergrande warned of a 39% slump in profits, Japan suspended Moderna’s COVID vaccine, while the mood of Germany’s consumers was darkening again. Cryptocurrency-exposed stocks fall, tracking a decline in Bitcoin after its recent rally. Bit Digital (BTBT) dropped 3.8% and Riot Blockchain (RIOT) was down 2.1%, while MicroStrategy (MSTR) slipped 3%.Here are some of the other notable U.S. movers today:

  • Amneal Pharmaceuticals (AMRX) rises 9.6% in premarket trading after a Parkinson’s drug trial met its its main goal, supporting plans for a new drug application. Piper Sandler reiterates an overweight rating, price target $9.
  • Joyy Inc. (YY) rallies 8.6% in the U.S. after Reuters reported itstwo top shareholders, Chairman David Li and Xiaomi founder Lei Jun, aim to take the Chinese social media company private in a deal that may value it at up to $8b.
  • Salesforce (CRM) gains 2.5% with analysts raising their price targets on the software giant, saying its quarterly results were strong across the board and that the acquisition of Slack should enhance its growth in future, even if it weighs on margins.
  • Selectquote (SLQT) slumps 24% after the insurance agency’s earnings missed estimates, prompting rating downgrades and price target cuts from RBC and KBW.
  • Snowflake (SNOW) rises 2.3% after the company reported better-than-expected earnings and a strong forecast for the third quarter. Analysts responded to the software firm’s results by raising their share price targets.

US-listed Chinese stocks resumed their slide in premarket trading Thursday after a four-day rally, as weak earnings out of Asia weighs on already fragile investor sentiment. Large-cap Chinese tech stocks are all lower this morning with Alibaba -1%, Pinduoduo -0.8%, JD.com -0.3%, NetEase -1.1%, Baidu -1.2% and Didi -0.4%. Electric-vehicle makers are also declining as Nio falls 0.6%, XPeng drops 2.9% and Li Auto loses 1.5%. China education names were also under pressure, including New Oriental -1.5%, Tal Education -1.9% and Gaotu Techedu -2.3%. Among the other China stocks traded in the U.S. that are sliding in premarket: Bilibili -1.8%, KE Holdings -2.1%, Lufax -1.8%, Tencent Music -1.8%, Futu -2.1%, iQiyi -2.3% and 360 DigiTech -2.4%.

“The most interesting thing we got was the euro sovereign bond market coming alive yesterday,” Saxo Bank’s head of FX strategy John Hardy said, pointing to Wednesday’s sharp pop up in yields that had also pushed up the euro. “It feels like the market is very complacent though (about the Jackson Hole symposium) and the bar for a surprise is pretty much non-existent."

While we have covered the topic to death, investors and policymakers are particularly focused on what Fed Chair Jeremy Powell signals at Jackson Hole on Friday. “Ideally, the Fed would like to observe as long as possible, (and)...make sure that the economy is well on track towards growth,” Raghuram Rajan, former RBI governor and finance professor at the University of Chicago Booth School of Business, told the Reuters Global Markets Forum on Wednesday. “Of course, the problem is the Delta variant, plus whatever variants are lurking in the background.”

Views are split on whether Chairman Jerome Powell’s speech to the Jackson Hole meeting Friday will provide a clearer guide on tapering emergency Fed support. While the ongoing economic rebound and elevated inflation add to the case for starting policy normalization, the fast-spreading delta virus strain threatens a slower pace of recovery than some had expected.

“If the market starts to price in a more hawkish Fed hiking cycle, this would be consistent with upside for real bond yields over the coming months,” said Milla Savova, a strategist at Bank of America Corp. “Higher real bond yields would be a particular headwind for growth sectors such as tech.”

The European STOXX 600 index was down 0.4%, with mining, travel and leisure and retail stocks among the biggest losers. The return of risk aversion steadied euro zone government bond yields ahead of European Central Bank meeting minutes later in the day. FTSE 100 is down 0.4%, and the DAX is down ~0.6%. Here are some of the biggest European movers today:

  • Vivendi shares jump as much as 4.7% following Barclays upgrade to overweight from equal-weight, and after its Universal Music Group sets out financial targets ahead of listing.
  • Elmos Semiconductor shares surge as much as 8% to an almost one-month high after the German chip maker boosted its buyback offer price to EU39/share from EU36.
  • Fielmann shares climb as much as 4.5%, the most since June, after 2Q results that were “upbeat” about FY21 guidance, Bryan Garnier says in a note.
  • CRH shares rise as much as 2.4% after results that show strong and consistent operating leverage across the business as benefits of integrated model come through, according to Goodbody (buy) analyst David O’Brien.
  • Bouygues shares gain as much as 2.2% to their highest in almost 18 months after results. The infrastructure firm’s beat and group guidance raise is “reassuring,” Goldman Sachs says.
  • Elis shares drop as much as 4.4% after being downgraded to neutral from buy at Goldman Sachs, which cites the “relatively limited upside” to its price target compared with broader leisure, lodging and gaming coverage.
  • Eiffage gains the most in a month on 1H results that Citi says were ahead of expectations on increased margins in its concession business and higher contracting revenue.

“The easiest piece to write in global economics right now is the COVID tortoises and hares,” said Societe Generale’s Kit Juckes. “The zero COVID countries had a cracking start but now it is the others that are leading,” he said, pointing to how restaurant and airline bookings in Europe had been steadily improving whereas places like Australia were tough.

Earlier in the session, MSCI’s index of Asia-Pacific shares outside Japan dropped 0.65%, halting a three-day advance, with consumer discretionary and healthcare the biggest drags among industry groups as traders awaited further signals on China’s regulatory crackdown and the Federal Reserve’s plans to start scaling back stimulus. Chinese blue chips had fallen 2% and Hong Kong ended down 1%, as a tech rally ran out of steam.

The Hang Seng Tech Index, where many of the big Chinese tech firms are listed, fell 1.9%. Evergrande’s profit warning sent its shares down 7% and the shares of its electric vehicle unit tumbling nearly 20%. Chinese technology shares dropped as earnings from a number of firms missed analyst targets, while investors also offloaded shares of liquor makers including Kweichow Moutai. South Korean stocks slid after the Bank of Korea unexpectedly raised interest rates. China’s clampdown on industries from fintech to education to property has already started to hurt the nation’s economy, and Beijing has signaled there’s more regulation for businesses in years to come. 

The global inflationary pulse was in the headlines as the South Korean central bank lifted its base rate off a record low, the first major economy in Asia to do so. Governor Lee Ju-yeol maintained his hawkish tone and suggested the bank could further tighten policy as data showed Asia’s fourth-largest economy was overheating.

“The market might question the Fed’s timing if it were to decide to taper while macro data is in retreat, but tapering is necessary to quell cost-push inflation,” SMBC Nikko strategist Masashi Akutsu wrote in a note. “Once there is clarity on when tapering might start, it should not take markets long to finish pricing it in.”

Meanwhile, the 10-year Treasury yield rose 0.5bps to 1.344%, outperforming bunds and gilts by around 0.5bp each, with most yields remaining broadly within a basis point of Wednesday’s close. Calendar roll activity in futures continues to dominate, while cash markets were muted during Asia session. Focus on GDP data and 7-year auction, which follows solid 2- and 5-year sales so far this week. The week's auction cycle concludes with $62b 7-year sale at 1pm ET; WI 7-year at ~1.13% is 8bp cheaper than July’s stop-out, which tailed the WI by 1bp. Japanese government bonds swung to gains after a 20-year bond sale attracted strong demand; the yen stayed in a narrow range.

In FX, the dollar gained 0.1%, with CHF, NZD and AUD the biggest G-10 decliners. The euro was little changed ahead of the ECB’s publication of the account of the monetary policy meeting of the Governing Council held June 21-22. The Aussie and kiwi were among the worst G-10 performers and both currencies fell for the first time in four days amid concern worsening coronavirus infections will prevent the two nations’ central banks from withdrawing stimulus.

In commodities, oil prices fell after three days of gains, with Brent crude down 0.9% at $71.56 per barrel but holding steady above $71/bbl, and U.S. crude dipped 1.2% to $67.5 a barrel. Most metals are falling, barring iron ore. Gold is down 0.2% to $1,787/Oz.

Bitcoin and the broader crypto space slid around 4% with selling emerging out of Asia, and dragging bitcoin from $49000 to $47000.

To the day ahead now, and central bank highlights include the minutes from the ECB’s July meeting, along with remarks from the ECB’s Rehn, Villeroy and Schnabel. Data releases from the US include the second estimate of Q2’s GDP, the weekly initial jobless claims, and the Kansas City Fed’s manufacturing activity for August. In Europe, there’s the Euro Area’s M3 money supply for July, French business confidence for August, and the German GfK consumer confidence measure for September. Finally, earnings reports today include Dollar General and HP.

Market Snapshot

  • S&P 500 futures little changed at 4,489.50
  • STOXX Europe 600 down 0.4% to 469.95
  • MXAP down 0.5% to 197.10
  • MXAPJ down 0.6% to 647.34
  • Nikkei little changed at 27,742.29
  • Topix little changed at 1,935.35
  • Hang Seng Index down 1.1% to 25,415.69
  • Shanghai Composite down 1.1% to 3,501.66
  • Sensex little changed at 55,993.50
  • Australia S&P/ASX 200 down 0.5% to 7,491.23
  • Kospi down 0.6% to 3,128.53
  • German 10Y yield rose 1.2 bps to -0.409%
  • Euro little changed at $1.1761
  • Brent futures down 1.0% to $71.53/bbl
  • Gold spot down 0.4% to $1,784.63
  • U.S. dollar index up 0.13% to 92.94

Top Overnight News from Bloomberg

  • President Xi Jinping said China will strive to hit key economic and social development targets set for this year, even as authorities maintain an aggressive approach to containing Covid-19
  • Chinese technology shares fell sharply, snapping a three-day rally as earnings from a number of firms failed to meet investor targets
  • China’s bond futures slid the most in two weeks amid concerns over wealth management rules, even after the central bank added cash to money markets to maintain interbank liquidity levels
  • Japan’s Yoshihide Suga moved closer to being re- elected ruling party leader and remaining prime minister after a powerful faction backed him, even as a record wave of Covid-19 infections pushed his public support rate to new lows

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded cautiously amid a deluge of earnings releases and as markets await the Jackson Hole Symposium, while US equity futures trickled lower overnight following another consecutive day of record highs on Wall St where financials led but tech lagged amid the rising yield environment. ASX 200 (-0.5%) was negative with the index dragged lower by underperformance in gold miners and defensive sectors, with price action also influenced by an overload of earnings releases and another daily record of COVID-19 infections in New South Wales where the regional lockdown will be extended to at least September 10th. Nikkei 225 (+0.1) wiped out opening gains with sentiment hampered by COVID-19 concerns which recently prompted a widening of the state of emergency and the KOSPI (-0.6%) also retraced early advances after the BoK became the first major Asian central bank to hike rates since the pandemic began. Hang Seng (-1.1%) and Shanghai Comp. (-1.1%) declined with stocks such as AAC Technologies and Xiaomi underperforming in Hong Kong despite their improved earnings releases and with Evergrande flagging a 29%-39% decline in profits. In addition, regulatory concerns lingered after China’s MIIT removed 67 apps from stores on Wednesday due to failures to conclude required rectifications around irregular collection of personal information. Finally, 10yr JGBs were lower as yields in the Asia-Pac region tracked their counterparts in where the curve bear steepened which was attributed to positioning for a hawkish Fed and roll activity, while the regional also digested the BoK rate hike and mixed results at the 20yr JGB auction.

Top Asian News

  • Asian Stocks Dip on Unease Over China Regulation, Fed Taper Risk
  • China Bonds Still Under Pressure Despite PBOC Cash Injection
  • Chinese Web Army’s ‘Cyber-Cultural Revolution’ Silences Critics
  • Japan’s Suga Firms Up Key Re-Election Support Despite Low Polls

European bourses trade predominantly lower (Stoxx 600 -0.6%) but off worse levels in what has been a choppy morning but quiet in terms of news flow. Losses in Europe accelerated at the cash open. US equity futures are also subdued but to a lesser extent than their peers across the pond – with the NQ (-0.2%) narrowly lagging vs ES (Unch) potentially on yield dynamics, ahead of several Fed speakers scattered throughout today and tomorrow in the run-up to Chair Powell’s address (full preview available in the Newsquawk Research Suite). Back to Europe, the SMI (+0.1%) narrowly outperforms its peers amid a robust performance in the defensive Healthcare sector, with gains spearheaded by pharma-giant Roche. Sectors overall do not portray a particular theme. Media opened as the outperformer and has retained that spot – largely on the back of Vivendi’s performance after a broker upgrade. Vivendi accounts for a substantial 13.4% of the Media sector. IT and Basic resources opened as the laggards, although the former has since trimmed losses and the latter remains subdued. In terms of individual movers, Deutsche Bank’s (-1.8%) DWS arm (-12%) slumped after the US SEC opened a probe into the asset management arm, amid claims it overstated how much it used sustainable investing criteria to manage its assets. Other movers remain somewhat uninteresting with CRH (+1.8%), Bouygues (+1.5%) and Hays (+1.9%) all firmer post-earnings. One to keep on the radar for automakers – China's Securities Daily reportedly noted that the EV market is overheating and shows risks. Elsewhere, Tesla’s (-0.5% pre-market) Berlin Gigafactory will be subject to discussions on potential domestic objections today.

Top European News

  • The Best and Worst Places to Be as Delta Wrecks Reopening Plans
  • U.K. Carmakers Beset by Shortages in Worst July Since 1956
  • Billionaire Nixon’s Family Office Plans to Boost Crypto Bets
  • Delivery Hero Dips; RBC Says Reiterated Guidance as Expected

In FX, the Dollar remains firm relative to most majors, though off best levels following Wednesday’s rebound that appears to have been more ‘dead cat’ than decisive in terms of a real turning point as the clock continues to tick down Fed Chair Powell tomorrow. In the run up, IJC data will likely be far more influential than the 2nd Q2 GDP release, barring radical revisions, while commentary from Kaplan and Bulard could provide further insight about tapering intentions and the 7 year note auction concludes what has been a mixed bag of issuance from a demand perspective. Hence, Treasuries are still cautious and supportive for the Greenback to an extent as the DXY hovers just under 93.000 within a 92.968-807 range vs yesterday’s wider 93.135-92.801 extremes.

  • CHF/AUD/NZD/GBP/CAD - Not much to choose between biggest loser and those bearing up better to be honest, but the Franc is lagging behind and below 0.9150 against the Buck, while also retreating toward 1.0800 vs the Euro having caressed the round number below not long ago. Elsewhere, it’s a tight tussle down under amidst all the Aussie and NZ pandemic problems, but Aud/Usd is holding just above 0.7250 and Nzd/Usd around 0.6950, with the latter encouraged, if not boosted by stronger than expected Q2 Capex. The Pound has faded beyond 1.3750 in the ongoing absence of anything UK specific to offer independent impetus, and the Eur/Gbp cross seems stymied inside technical levels in the form of 50 and 100 DMAs at 0.8547 and 0.8589 respectively, while the Loonie is still under 1.2600 and loosening links with crude prices as focus switches Canadian average earnings, to a degree.
  • JPY/EUR - The Yen is striving to contain losses through 110.00 ahead of Tokyo CPI that might offer a distraction to Japan’s deteriorating COVID-19 situation and the UST-JGB yield spread vigil that is becoming more bullish for Usd/Jpy, but could find support via the 50 DMA at 110.15.. Conversely, the Euro extended just over 1.1770 to probe the 21 DMA that stands at 1.1772 today before waning in advance of ECB minutes (see 10.00BST post on the Headline Feed for a preview), then comments from GC members Villeroy and Schnabel.

In commodities, WTI and Brent October futures remain subdued, but choppy, with the complex seemingly tracking risk appetite in the absence of fresh catalysts. There is little new to report on the COVID front aside from increasing noise regarding the necessity of booster jabs – with US President Biden’s administration reportedly planning boosters at six months instead of eight months. Aside from the Fed, the focus will fall on the OPEC+ meeting slated for the 1st September, with the JTC meeting beforehand. Participants will be on the lookout for sources alongside hints as to whether the group will go ahead with the 400k BPD increase in output in the upcoming month. OPEC+ members have been quiet, whilst the US called for members to release more output in a bid to lower gasoline prices for consumers. In the interim, energy markets will likely take their cue from the overall market mood alongside Dollar influence. WTI Oct, at the time of writing, trades meanders around USD 67.50/bbl (vs high USD 68.15/bbl) while its Brent counterpart resides around USD 71.50/bbl (vs high USD 72.13/bbl). Precious metals are also modestly softer as the Buck remains choppy and yields higher. Spot gold sees several nearby DMAs, with the 21 at USD 1,785/oz, the 50 at USD 1,790/oz, and the 200 and 100 at SUD 1,809.50/oz and USD 1,810.50/oz. Meanwhile, LME copper subdued around the middle of a relatively tight range amid the cautious tone across markets. Dalian iron ore contacts traded higher but gave up most of their early gains, whilst ANZ bank forecasts iron ore demand to slump 87mln tons due to China curbs.

US Event Calendar

  • 8:30am: 2Q GDP Annualized QoQ, est. 6.7%, prior 6.5%
    • 2Q PCE Core QoQ, est. 6.1%, prior 6.1%
    • 2Q GDP Price Index, est. 6.0%, prior 6.0%
  • 8:30am: 2Q Personal Consumption, est. 12.2%, prior 11.8%
  • 8:30am: Aug. Initial Jobless Claims, est. 350,000, prior 348,000
    • Aug. Continuing Claims, est. 2.77m, prior 2.82m
  • 11am: Aug. Kansas City Fed Manf. Activity, est. 25, prior 30

DB's Jim Reid concludes the overnight wrap

As investors looked forward to Fed Chair Powell’s speech tomorrow at the Jackson Hole symposium, risk assets put in another strong performance yesterday that saw global equity indices hit all-time highs once again, alongside a further advance in commodity prices. However, there was also a big move higher in sovereign bond yields, particularly in Europe, as investors considered the potential pace of tapering over the coming months, and other haven assets including gold (-0.66%) and the Japanese Yen (-0.34%) both struggled as well.

Looking at those moves in depth, the S&P 500 (+0.22%) advanced for a 5th consecutive session, and at one point in trading actually breached the 4,500 mark for the first time, before settling just beneath that at what was still a record high. Cyclical industries powered the advance, with banks (+1.80%) outperforming in particular thanks to the move higher in bond yields, and small-cap stocks were another beneficiary of the risk-on move as the Russell 200 rose +0.37%. Tech stocks were comparatively weaker as higher rates weighed slightly on growth industries, but that still didn’t stop the NASDAQ (+0.15%) from hitting another all-time high of its own.

In Europe, it was a far more subdued story for equities, with the STOXX 600 up just +0.01%, but for sovereign bonds it was a very different picture, as yields on 10yr bunds (+5.6bps), OATs (+6.2bps) and BTPs (+9.3bps) all saw sizeable moves higher. Indeed, by the close the 10yr bund yield had seen its biggest one-day move since early March. The dramatic shift higher was partly the result of a Reuters interview with ECB Chief Economist Philip Lane, which leant hawkishly in a few respects. The major headline was his openness on making an operational decision on the pace of PEPP purchases in September, which could potentially see the pace of purchases reduced at that meeting. In the interview, he said that the aim of purchases was “to maintain favourable financing conditions”, but pointed out that when it came to a potential September decision “in the grand scheme of things, this is a local adjustment”, and noted that even in Q1 at the slower pace of purchases, they were still high relative to historic norms. The comments come ahead of tomorrow’s heavily anticipated Jackson Hole speech from Fed Chair Powell, as Lane wanted to also note that the ECB stood prepared to respond to any market disruption that Fed tapering could cause. In addition to his remarks about PEPP purchases, Lane played down the impact of the slowdown in China and described the impact of the Delta variant on the overall economy as “quite limited so far.” US Treasury yields similarly moved higher on the day, with 10yr yields up a smaller +4.6bps to 1.339% - their highest closing level in nearly two weeks.

Overnight in Asia, markets in the region are continuing to struggle as concerns over China’s ongoing regulatory crackdown came back to the fore, and the Hang Seng (-1.48%), Shanghai Comp (-0.50%), Kospi (-0.77%) and the Nikkei (-0.03%) have all moved lower. In other news, the Bank of Korea raised its interest rate by 25bps to 0.75%, saying that they would “gradually adjust” the degree of support for the economy, as they also raised their inflation outlook for this year to 2.1%. Elsewhere, futures on the S&P 500 are down -0.18% while yields on 10y USTs are down -0.7bps to 1.332%.

On the political scene, there’s exactly one month to go until the German federal election today, which is now looking incredibly tight based on current opinion polls. Yesterday saw another poll from Civey for Der Spiegel with the CDU/CSU and the SPD tied on 22% each, which fits into the trend of a neck-and-neck race between the two, whilst the Greens weren’t far behind on 18%. This particular poll had a margin of error of +/- 2.5%, so it doesn’t stretch the realms of plausibility that any one of these three parties could end up in top position after the election, and very narrow swings in public opinion could have a big impact on the position of each party afterwards. Also, with the polls now indicating that 3 parties will be needed to form a majority coalition after the election, this also raises the prospect that there could be lengthy negotiations on forming a new administration. And this could be stretched out further if any decide to ask for their members’ support on any coalition agreement, just as took place with the SPD entering another grand coalition after the 2017 election. Indeed, last time it wasn’t until March 2018 that a new administration was in place, almost six months after the election in late September 2017.

Turning to the pandemic, cases are continuing to plateau at the global level according to data from John Hopkins University, although we’re yet to begin a sustained decline so far. That said, this masks a big variation between different countries, with New Zealand reporting a further 68 cases that brings the total number of community cases in the current outbreak to 277. Meanwhile in Australia, they’re continuing to see a worsening situation, with New South Wales reporting more than 1,000 daily cases for the first time, which has seen the state lockdown extended until September 10. Separately in Scotland, a record number of cases were reported for a second day running, which will add to nervousness that even an advanced vaccination programme (79% of over-16s are fully vaccinated there) might not be as effective as once hoped for given the delta variant and the potential for waning efficacy over time. In other news, there were further developments on booster jabs as Johnson & Johnson said that a second dose of their vaccine was found to trigger a strong jump in the number of antibodies. Separately on the topic of vaccine mandates, Delta Air Lines didn’t impose a mandate, but instead announced that they’d impose a $200 monthly surcharge on employees who weren’t vaccinated, which will take effect from November 1. Finally on travel restrictions, the EU is expected to discuss today whether travel restrictions should be brought back on visitors from the US as Covid-19 cases continuing to rise there.

Looking at yesterday’s data, the Ifo business climate indicator from Germany in August fell to 99.4 (vs. 100.4 expected), which marked the second consecutive decline in the measure. The current assessment measure actually rose to a post-pandemic high of 101.4 (vs. 100.8 expected), but the expectations measure fell back to a 6-month low of 97.5 (vs. 100.0 expected). As a reminder, our German economists downgraded their German GDP forecast for 2021 to 3.1% yesterday (link here), with supply-chain disruptions and the delta variant having an impact on the short-term outlook. Over in the US meanwhile, the preliminary release for durable goods orders in July showed a -0.1% contraction (vs. -0.3% expected).

To the day ahead now, and central bank highlights include the minutes from the ECB’s July meeting, along with remarks from the ECB’s Rehn, Villeroy and Schnabel. Data releases from the US include the second estimate of Q2’s GDP, the weekly initial jobless claims, and the Kansas City Fed’s manufacturing activity for August. Separately in Europe, there’s the Euro Area’s M3 money supply for July, French business confidence for August, and the German GfK consumer confidence measure for September. Finally, earnings reports today include Dollar General and HP.

Tyler Durden Thu, 08/26/2021 - 07:46

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Bitcoin Education For Indonesia

The Indonesia Bitcoin Conference is a chance to educate Indonesians about a better savings technology.

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The Indonesia Bitcoin Conference is a chance to educate Indonesians about a better savings technology.

Bitcoin represents a new and open internet standard for hard money. Nowadays, with the increasing awareness about bitcoin’s superior properties, it is increasingly being adopted by global financial institutions as pristine collateral, a longer-term store of value, and unstoppable money. We believe that bitcoin was not formed in a vacuum. Like any other technology, bitcoin was invented to fix problems; in this case, the global economic problem.

Indonesia represents the fourth-largest population in the world, with 60% of the citizens owning smartphones. As a country that has experienced hyperinflations in the past, it is crucial for Indonesians to understand what bitcoin stands for. Most Indonesians at the moment see and treat bitcoin as a get-rich-quick scheme. Due to lack of information and comprehensive education in Bahasa Indonesia, many have fallen into scams that are associated with the words bitcoin, blockchain, ”crypto” and mining.

Indonesians wanting to invest have also struggled with mismanagement and corruption. Over the years, we’ve seen cases of fund managers and property developers (similar to the crypto space) who were unable to deliver on their promises and failed to return their customers’ money. This has happened both in the private sector and also in government. News of these cases can easily be found online, both in Indonesian and in English. Even some of Indonesia’s Covid-19 relief funds were embezzled. For these reasons, Indonesians desperately need savings that not only perform, but are also trustworthy.

For years, Indonesians have preferred savings in gold and property; now bitcoin, a better alternative, has dawned. Since Covid-19, all of the other markets have experienced stagnation. The latest government bond SR015 yields 5.1%. The economy was declared to be in a recession since Q3 2020, and is currently trying to climb out of the recession. In the midst of this, bitcoin continues to gain traction, with an approximate 90% gain YTD (October 2021) as an indicator of its dominating performance.

We believe the majority of Indonesians will leapfrog from gold and property markets straight into digital assets (bypassing bonds and securities). This would be similar to how most Indonesians bypassed the use of PCs and most adopted Android smartphones. The government data shows that the number of people in the digital assets space already reached 6.5 million people at the end of May 2021, way more than the 5.4 million people in the stock market. 20 years of user growth in the stock market was easily surpassed by 1 year of user growth in the digital assets space.

Number of smartphone users in Indonesia from 2017 to 2020 with forecasts until 2026. Source: Statista

Indonesia Bitcoin Conference: A Leap For Better Education

There are many challenges for bitcoin adoption as the best savings technology in the country. It is not easy to understand Bitcoin, and requires a multidisciplinary approach. The Indonesia Bitcoin Conference is a way for Indonesians to get proper information and education about Bitcoin. This conference features speakers from Indonesia and abroad such as Saifedean Ammous, Robert Breedlove and Danny Taniwan.

With topics such as the future of crypto exchanges, mining, retiring with bitcoin, Lightning Network, and bitcoin through the islamic lense, we hope to change the mindset of Indonesians about bitcoin.

The Indonesia Bitcoin Conference will happen on October 31, 2021, the same date as when Satoshi Nakamoto published his Bitcoin whitepaper as the beginning of the monetary revolution.

Visit the conference website for ticketing information: http://indonesiabitcoinconference.com

This is a guest post by Konsultan BTC . Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

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Futures Jump On Profit Optimism As Oil Tops $85; Bitcoin Nears $60,000

Futures Jump On Profit Optimism As Oil Tops $85; Bitcoin Nears $60,000

One day after the S&P posted its biggest one-day surge since March, index futures extended this week’s gains, helped by a stellar bank earnings, while the latest…

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Futures Jump On Profit Optimism As Oil Tops $85; Bitcoin Nears $60,000

One day after the S&P posted its biggest one-day surge since March, index futures extended this week’s gains, helped by a stellar bank earnings, while the latest labor market data and inflation eased stagflation fears for the time being. . The 10-year Treasury yield rose and the dollar was steady. Goldman Sachs reports on Friday. At 715 a.m. ET, Dow e-minis were up 147 points, or 0.42%, S&P 500 e-minis were up 16.5 points, or 0.37%, and Nasdaq 100 e-minis were up 42.75 points, or 0.28%.

Oil futures topped $85/bbl, jumping to their highest in three years amid an energy crunch that’s stoking inflationary pressures and prices for raw materials. A gauge of six industrial metals hit a record high on the London Metal Exchange.  Energy firms including Chevron and Exxon gained about half a percent each, tracking Brent crude prices that scaled the 3 year high.

Solid earnings in the reporting season are tempering fears that rising costs and supply-chain snarls will hit corporate balance sheets and growth. At the same time, the wider debate about whether a stagflation-like backdrop looms remains unresolved.

“We don’t sign up to the stagflation narrative that is doing the rounds,” said Hugh Gimber, global strategist at the perpetually optimistic J.P. Morgan Asset Management. “The economy is being supported by robust consumer balance sheets, rebounding business investment and a healthy labor market.”

“After a choppy start to the week, equity markets appear to be leaning towards a narrative that companies can continue to grow profits, despite the combined pressures of higher energy prices and supply chain disruptions,” said Michael Hewson, chief market analyst at CMC Markets in London.

Bitcoin and the crypto sector jumped after Bloomberg reported late on Thursday that the Securities and Exchange Commission is poised to allow the first U.S. Bitcoin futures exchange-traded fund to begin trading in a watershed moment for the cryptocurrency industry. Bitcoin traded off session highs having tested $60k during Asian hours, but will likely rise to new all time highs shortly.

Also overnight, Joe Biden signed a bill providing a short-term increase in the debt limit, averting the imminent threat of a financial calamity. But it only allows the Treasury Department to meets its financial obligations until roughly Dec. 3, so the can has been kicked for less than two months - brace for more bitter partisan battles in the coming weeks.

This week’s move into rate-sensitive FAAMG growth names looked set to continue, with their shares inching up. Moderna rose 3.0% after a U.S. FDA panel voted to recommend booster shots of its COVID-19 vaccine for Americans aged 65 and older and high-risk people. Western Digital slipped 2.5% as Goldman Sachs downgraded the storage hardware maker’s stock to “neutral” from “buy”. Here are some of the key premarket movers on Friday morning:

  • Virgin Galactic (SPCE US) shares slump as much as 23% in U.S. premarket trading as the firm is pushing the start of commercial flights further into next year after rescheduling a test flight, disappointing investors with the unexpected delay to its space tourism business plans
  • Cryptocurrency-exposed stocks rise in U.S. premarket trading after a report that the Securities and Exchange Commission is poised to allow the first U.S. Bitcoin futures exchange-traded fund to begin trading.  Bit Digital (BTBT US) +6.7%, Riot Blockchain (RIOT US) +4.6%, Marathon Digital (MARA US) +3.6%
  • Alcoa (AA US) shares jump 5.6% in thin volumes after co. reported profits that beat the average analyst estimate and said it will be paying a dividend to its shareholders
  • Moderna (MRNA US) extends Thursday’s gains; Piper Sandler recommendation on Moderna Inc. to overweight from neutral, a day after co.’s Covid-19 booster got FDA nod for use in older, high-risk people
  • Duck Creek Technologies (DCT US) shares fell 12% in Thursday postmarket trading after the software company projected 2022 revenue that fell short of the average analyst estimate
  • 23andMe Holdings (ME US) soared 14% in Thursday postmarket trading after EMJ Capital founder Eric Jackson called the genetics testing company “the next Roku” on CNBC
  • Corsair Gaming (CRSR US) shares fell 3.7% in post-market trading after it cut its net revenue forecast for the full year

Early on Friday, China's PBOC broke its silence on Evergrande, saying risks to the financial system are controllable and unlikely to spread. Authorities and local governments are resolving the situation, central bank official Zou Lan said. The bank has asked lenders to keep credit to the real estate sector stable and orderly.

In Europe, gains for banks, travel companies and carmakers outweighed losses for utilities and telecommunications industries, pushing the Stoxx Europe 600 Index up 0.3%. Telefonica fell 3.3%, the most in more than four months, after Barclays cut the Spanish company to underweight. Temenos and Pearson both slumped more than 10% after their business updates disappointed investors. Here are some of the biggest European movers today:

  • Devoteam shares rise as much as 25% after its controlling shareholder, Castillon, increased its stake in the IT consulting group to 85% and launched an offer for the remaining capital.
  • QinetiQ rises as much as 5.4% following a plunge in the defense tech company’s stock on Thursday. Investec upgraded its recommendation to buy and Berenberg said the shares now look oversold.
  • Hugo Boss climbs as much as 4.4% to the highest level since September 2019 after the German apparel maker reported 3Q results that exceeded expectations. Jefferies (hold) noted the FY guidance hike also was bigger than expected.
  • Mediclinic rises as much as 7.7% to highest since May 26 after 1H results, which Morgan Stanley says showed strong underlying operating performance with “solid metrics.”
  • Temenos sinks as much as 14% after the company delivered a “mixed bag” with its 3Q results, according to Baader (sell). Weakness in Europe raises questions about the firm’s outlook for a recovery in the region, the broker said.
  • Pearson declines as much as 12%, with analysts flagging weaker trading in its U.S. higher education courseware business in its in-line results.

Earlier in the session, Asian stocks headed for their best week in more than a month amid a list of positive factors including robust U.S. earnings, strong results at Taiwan Semiconductor Manufacturing Co. and easing home-loan restrictions in China.  The MSCI Asia Pacific Index gained as much as 1.3%, pushing its advance this week to more than 1.5%, the most since the period ended Sept. 3. Technology shares provided much of the boost after chip giant TSMC announced fourth-quarter guidance that beat analysts’ expectations and said it will build a fabrication facility for specialty chips in Japan.

Shares in China rose as people familiar with the matter said the nation loosened restrictions on home loans at some of its largest banks.  Conditions are good for tech and growth shares now long-term U.S. yields have fallen following inflation data this week, Shogo Maekawa, a strategist at JPMorgan Asset Management in Tokyo. “If data going forward are able to provide an impression that demand is strong too -- on top of a sense of relief from easing supply chain worries -- it’ll be a reason for share prices to take another leap higher.”  Asia’s benchmark equity gauge is still 10% below its record-high set in February, as analysts stay on the lookout for higher bond yields and the impact of supply-chain issues on profit margins. 

Japanese stocks rose, with the Topix halting a three-week losing streak, after Wall Street rallied on robust corporate earnings. The Topix rose 1.9% to close at 2,023.93, while the Nikkei 225 advanced 1.8% to 29,068.63. Keyence Corp. contributed the most to the Topix’s gain, increasing 3.7%. Out of 2,180 shares in the index, 1,986 rose and 155 fell, while 39 were unchanged. For the week, the Topix climbed 3.2% and the Nikkei added 3.6%. Semiconductor equipment and material makers rose after TSMC said it will build a fabrication facility for specialty chips in Japan and plans to begin production there in late 2024.  U.S. index futures held gains during Asia trading hours. The contracts climbed overnight after a report showed applications for state unemployment benefits fell last week to the lowest since March 2020.  “U.S. initial jobless claims fell sharply, and have returned to levels seen before the spread of the coronavirus,” said Nobuhiko Kuramochi, a market strategist at Mizuho Securities in Tokyo. “The fact that more people are returning to their jobs will help ease supply chain problems caused by the lack of workers.”

Australian stocks also advanced, posting a second week of gains. The S&P/ASX 200 index rose 0.7% to close at 7,362.00, with most sectors ending higher.  The benchmark added 0.6% since Monday, climbing for a second week. Miners capped their best week since July 16 with a 3% advance. Hub24 jumped on Friday after Evans & Partners upgraded the stock to positive from neutral. Pendal Group tumbled after it reported net outflows for the fourth quarter of A$2.3 billion. In New Zealand, the S&P/NZX 50 index fell 0.3% to 13,012.19

In rates, the U.S. 10-year Treasury yield rose over 3bps to 1.54%. Treasuries traded heavy across long-end of the curve into early U.S. session amid earning-driven gains for U.S. stock futures. Yields are higher by more than 3bp across long-end of the curve, 10- year by 2.8bp at about 1.54%, paring its first weekly decline since August; weekly move has been led by gilts and euro-zone bonds, also under pressure Friday, with U.K. 10-year yields higher by 3.3bp. Today's bear-steepening move pares the weekly bull-flattening trend. U.S. session features a packed economic data slate and speeches by Fed’s Bullard and Williams.  

In FX, the Bloomberg Dollar Spot Index was little changed even as the greenback weakened against most of its Group-of-10 peers; the euro hovered around $1.16 while European and U.S. yields rose, led by the long end. Norway’s krone led G-10 gains as oil jumped to $85 a barrel for the first time since late 2018 amid the global energy crunch; the currency rallied by as much as 0.6% to 8.4015 per dollar, the strongest level since June. New Zealand’s dollar advanced to a three-week high as bets on RBNZ’s tightening momentum build ahead of Monday’s inflation data; the currency is outperforming all G-10 peers this week. The yen dropped to a three-year low as rising equities in Asia damped demand for low-yielding haven assets. China’s offshore yuan advanced to its highest in four months while short-term borrowing costs eased after the central bank added enough medium-term funds into the financial system to maintain liquidity at existing levels.

In commodities, crude futures trade off best levels. WTI slips back below $82, Brent fades after testing $85. Spot gold slips back through Thursday’s lows near $1,786/oz. Base metals extend the week’s rally with LME nickel and zinc gaining over 2%.

Today's retail sales report, due at 08:30 a.m. ET, is expected to show retail sales fell in September amid continued shortages of motor vehicles and other goods. The data will come against the backdrop of climbing oil prices, labor shortages and supply chain disruptions, factors that have rattled investors and have led to recent choppiness in the market.

Looking at the day ahead now, and US data releases include September retail sales, the University of Michigan’s preliminary consumer sentiment index for October, and the Empire State manufacturing survey for October. Central bank speakers include the Fed’s Bullard and Williams, and earnings releases include Charles Schwab and Goldman Sachs.

Market Snapshot

  • S&P 500 futures up 0.3% to 4,443.75
  • STOXX Europe 600 up 0.4% to 467.66
  • German 10Y yield up 2.4 bps to -0.166%
  • Euro little changed at $1.1608
  • MXAP up 1.3% to 198.33
  • MXAPJ up 1.2% to 650.02
  • Nikkei up 1.8% to 29,068.63
  • Topix up 1.9% to 2,023.93
  • Hang Seng Index up 1.5% to 25,330.96
  • Shanghai Composite up 0.4% to 3,572.37
  • Sensex up 0.9% to 61,305.95
  • Australia S&P/ASX 200 up 0.7% to 7,361.98
  • Kospi up 0.9% to 3,015.06
  • Brent Futures up 1.0% to $84.83/bbl
  • Gold spot down 0.5% to $1,787.54
  • U.S. Dollar Index little changed at 93.92

Top Overnight News from Bloomberg

  • China’s central bank broke its silence on the crisis at China Evergrande Group, saying risks to the financial system stemming from the developer’s struggles are “controllable” and unlikely to spread
  • The ECB has a good track record when it comes to flexibly deploying its monetary instruments and will continue that approach even after the pandemic crisis, according to policy maker Pierre Wunsch
  • Italian Ministry of Economy and Finance says fourth issuance of BTP Futura to start on Nov. 8 until Nov. 12, according to a statement
  • The world’s largest digital currency rose about 3% to more than $59,000 on Friday -- taking this month’s rally to over 35% -- after Bloomberg News reported the U.S. Securities and Exchange Commission looks poised to allow the country’s first futures-based cryptocurrency ETF
  • Copper inventories available on the London Metal Exchange hit the lowest level since 1974, in a dramatic escalation of a squeeze on global supplies that’s sent spreads spiking and helped drive prices back above $10,000 a ton

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded higher amid tailwinds from the upbeat mood across global peers including the best day for the S&P 500 since March after strong US bank earnings, encouraging data and a decline in yields spurred risk appetite. The ASX 200 (+0.7%) was positive as the tech and mining sectors continued to spearhead the advances in the index in which the former took impetus from Wall St where the softer yield environment was conducive to the outperformance in tech, although mining giant Rio Tinto was among the laggards following weaker quarterly production results. The Nikkei 225 (+1.8%) was buoyed as exporters benefitted from the JPY-risk dynamic but with Fast Retailing failing to join in on the spoils despite an 88% jump in full-year net as its profit guidance underwhelmed with just 3% growth seen for the year ahead, while Taiwan's TAIEX (+2.2%) surged with the spotlight on TSMC earnings which reached a record high amid the chip crunch and with the Co. to also build a factory in Japan that could receive JPY 500bln of support from the Japanese government. The Hang Seng (+1.5%) and Shanghai Comp. (+0.4%) were initially indecisive amid the overhang from lingering developer default concerns although found some mild support from reports that China is to relax banks' mortgage limits through the rest of 2021. Focus was also on the PBoC which announced a CNY 500bln MLF operation, although this just matched the amount maturing this month and there are mixed views regarding prospects of a looming RRR cut with ANZ Bank's senior China strategist recently suggesting the potential for a 50bps cut in RRR or targeted MLF as early as today, although a recent poll showed analysts had pushed back their calls for a RRR cut from Q4 2021 to Q1 2022. Finally, 10yr JGBs marginally pulled back from this week’s advances after hitting resistance at the 151.50 level, with demand hampered amid the firm gains in Japanese stocks and the lack of BoJ purchases in the market today.

Top Asian News

  • Hong Kong Probes Going Concern Reporting of Evergrande
  • U.S. Futures Hold Gains as Oil Hits 3-Year High: Markets Wrap
  • Toyota Cuts November Outlook by 15% on Parts Shortage, Covid
  • Yango Group Wires Repayment Fund for Onshore Bond Due Oct. 22

Bourses in Europe have held onto the modest gains seen at the cash open (Euro Stoxx 50 +0.4%; Stoxx 600 +0.3%), but the region is off its best levels with the upside momentum somewhat faded heading into the US open, and amidst a lack of fresh newsflow. US equity futures have remained in positive territory, although the latest leg lower in bonds has further capped the tech-laden NQ (+0.2%), which underperforms vs the ES (+0.3%), YM (+0.3%) and RTY (+0.7%), with traders on the lookout for another set of earnings, headlined by Goldman Sachs at 12:25BST/07:25EDT. Back to Europe, bourses see broad-based gains, whilst sectors are mostly in the green with clear underperformance experienced in defensives, with Telecoms, Utilities, Healthcare and Staples at the foot of the bunch. On the flipside, Banks reap rewards from the uptick in yields, closely followed by Travel & Leisure, Autos & Parts and Retail. Renault (+4%) drives the gains in Autos after unveiling a prototype version of the Renault Master van that will go on sale next year. Travel & Leisure is bolstered by the ongoing reopening trade with potential tailwinds heading into the Christmas period. Retail meanwhile is boosted by Hugo Boss (+1.8%) topping forecasts and upgrading its guidance.

Top European News

  • Autumn Heat May Curb European Gas Demand, Prices Next Week
  • Bollore Looking for Buyers for Africa Logistics Ops: Le Monde
  • U.K. Offers Foreign Butchers Visas After 6,000 Pigs Culled
  • Europe’s Car-Sales Crash Points to Worse Year Than Poor 2020

In FX, the Greenback was already losing momentum after a relatively tame bounce on the back of Thursday’s upbeat US initial claims data, and the index failed to sustain its recovery to retest intraday highs or remain above 94.000 on a closing basis. However, the Buck did reclaim some significant and psychological levels against G10, EM currencies and Gold that was relishing the benign yield environment and the last DXY price was marginally better than the 21 DMA from an encouraging technical standpoint. Nevertheless, the Dollar remains weaker vs most majors and in need of further impetus that may come via retail sales, NY Fed manufacturing and/or preliminary Michigan Sentiment before the spotlight switches to today’s Fed speakers featuring arch hawk Bullard and the more neutral Williams.

  • GBP/NZD/NOK - Sterling has refuelled and recharged regardless of the ongoing UK-EU rift over NI Protocol, though perhaps in part due to the fact that concessions from Brussels are believed to have been greeted with welcome surprise by some UK Ministers. Cable has reclaimed 1.3700+ status, breached the 50 DMA (at 1.3716 today) and yesterday’s best to set a marginal new w-t-d peak around 1.3739, while Eur/Gbp is edging closer to 0.8450 having clearly overcome resistance at 1.1800 in the reciprocal cross. Similarly, the Kiwi continues to derive impetus from the softer Greenback and Aud/Nzd flows as Nzd/Usd extends beyond 0.7050 and the Antipodean cross inches nearer 1.0500 from 1.0600+ highs. Elsewhere, the Norwegian Crown is aiming to add 9.7500 to its list of achievements relative to the Euro with a boost from Brent topping Usd 85/brl at one stage and a wider trade surplus.
  • CAD - The Loonie is also profiting from oil as WTI crude rebounds through Usd 82 and pulling further away from 1.5 bn option expiry interest between 1.2415-00 in the process, with Usd/Cad towards the base of 1.2337-82 parameters.
  • EUR/AUD/CHF/SEK - All narrowly mixed and rangy vs the Greenback, or Euro in the case of the latter, as Eur/Usd continues to straddle 1.1600, Aud/Usd churn on the 0.7400 handle, the Franc meander from 0.9219 to 0.9246 and Eur/Sek skirt 10.0000 having dipped below the round number briefly on Thursday.

In commodities, WTI and Brent front month futures remain on a firmer footing, aided up the overall constructive risk appetite coupled with some bullish technical developments, as WTI Nov surpassed USD 82/bbl (vs 81.39/bbl low) and Brent Dec briefly topped USD 85/bbl (vs 84.16/bbl low). There has been little in terms of fresh fundamental catalysts to drive the price action, although Russia's Gazprom Neft CEO hit the wires earlier and suggested that reserve production capacity could meet the increase in oil demand, whilst a seasonal decline in oil consumption is possible and the oil market will stabilise in the nearest future. On the Iranian JCPOA front, Iran said it is finalising steps to completing its negotiating team but they are absolutely decided to go back to Vienna discussions and conclude the negotiations, WSJ's Norman. The crude complex seems to have (for now) overlooked reports that the White House is engaged in diplomacy" with OPEC+ members regarding output. UK nat gas prices were higher as European players entered the fray, but prices have since waned off best levels after Russian Deputy PM Novak suggested that gas production in Russia is running at maximum capacity. Elsewhere, spot gold has been trundling amid yield-play despite lower despite the Buck being on the softer side of today’s range. Spot gold failed to hold onto USD 1,800/oz status yesterday and has subsequently retreated below its 200 DMA (1,794/oz) and makes its way towards the 50 DMA (1,776/oz). LME copper prices are on a firmer footing with prices back above USD 10,000/t – supported by technicals and the overall risk tone, although participants are cognizant of potential Chinese state reserves releases. Conversely, Dalian iron ore futures fell for a third straight session, with Rio Tinto also cutting its 2021 iron ore shipment forecasts due to dampened Chinese demand.

US Event Calendar

  • 8:30am: Sept. Retail Sales Advance MoM, est. -0.2%, prior 0.7%
  • 8:30am: Sept. Retail Sales Ex Auto MoM, est. 0.5%, prior 1.8%
  • 8:30am: Sept. Retail Sales Control Group, est. 0.5%, prior 2.5%
  • 8:30am: Sept. Retail Sales Ex Auto and Gas, est. 0.3%, prior 2.0%
  • 8:30am: Oct. Empire Manufacturing, est. 25.0, prior 34.3
  • 8:30am: Sept. Import Price Index MoM, est. 0.6%, prior -0.3%; YoY, est. 9.4%, prior 9.0%
  • 8:30am: Sept. Export Price Index MoM, est. 0.7%, prior 0.4%; YoY, prior 16.8%
  • 10am: Aug. Business Inventories, est. 0.6%, prior 0.5%
  • 10am: Oct. U. of Mich. 1 Yr Inflation, est. 4.7%, prior 4.6%; 5-10 Yr Inflation, prior 3.0%
  • 10am: Oct. U. of Mich. Sentiment, est. 73.1, prior 72.8
  • 10am: Oct. U. of Mich. Current Conditions, est. 81.2, prior 80.1
  • 10am: Oct. U. of Mich. Expectations, est. 69.1, prior 68.1

DB's Jim Ried concludes the overnight wrap

A few people asked me what I thought of James Bond. I can’t say without spoilers so if anyone wants my two sentence review I will cut and paste it to all who care and reply! At my age I was just impressed I sat for over three hours (including trailers) without needing a comfort break. By the time you email I will have also listened to the new Adele single which dropped at midnight so happy to include that review as well for free.

While we’re on the subject of music, risk assets feel a bit like the most famous Chumbawamba song at the moment. They get knocked down and they get up again. Come to think about it that’s like James Bond too. Yesterday was a strong day with the S&P 500 (+1.71%) moving back to within 2.2% of its all-time closing high from last month. If they can survive all that has been thrown at them of late then one wonders where they’d have been without any of it.

The strong session came about thanks to decent corporate earnings releases, a mini-collapse in real yields, positive data on US jobless claims, as well as a further fall in global Covid-19 cases that leaves them on track for an 8th consecutive weekly decline. However, inflation remained very much on investors’ radars, with a range of key commodities taking another leg higher, even as US data on producer prices was weaker than expected.

Starting with the good news, the equity strength was across the board with the S&P 500 experiencing its best daily performance since March, whilst Europe’s STOXX 600 (+1.20%) also put in solid gains. It was an incredibly broad-based move higher, with every sector group in both indices rising on the day, with a remarkable 479 gainers in the S&P 500, which is the second-highest number we’ve seen over the last 18 months. Every one of the 24 S&P 500 industry groups rose, led by cyclicals such as semiconductors (+3.12%), transportation (+2.51%) and materials (+2.43%). A positive start to the Q3 earnings season buoyed sentiment, as a number of US banks (+1.45%) reported yesterday, all of whom beat analyst estimates. In fact, of the nine S&P 500 firms to report yesterday, eight outperformed analyst expectations. Weighing in on recent macro themes, Bank of America Chief, Brian Moynihan, noted that the current bout of inflation is “clearly not temporary”, but also that he expects consumer demand to remain robust and that supply chains will have to adjust. I’m sure we’ll hear more from executives as earnings season continues today.

Alongside those earnings releases, yesterday saw much better than expected data on the US labour market, which makes a change from last week’s underwhelming jobs report that showed the slowest growth in nonfarm payrolls so far this year. In terms of the details, the weekly initial jobless claims for the week through October 9, which is one of the most timely indicators we get, fell to a post-pandemic low of 293k (vs. 320k expected). That also saw the 4-week moving average hit a post-pandemic low of 334.25k, just as the continuing claims number for the week through October 2 hit a post-pandemic low of 2.593m (vs. 2.670m expected). We should get some more data on the state of the US recovery today, including September retail sales, alongside the University of Michigan’s consumer sentiment index for October.

That optimism has fed through into Asian markets overnight, with the Nikkei (+1.43%), the Hang Seng (+0.86%), the Shanghai Comp (+0.29%) and the KOSPI (+0.93%) all moving higher. That came as Bloomberg reported that China would loosen restrictions on home loans amidst the concerns about Evergrande. And we also got formal confirmation that President Biden had signed the debt-limit increase that the House had passed on Tuesday, which extends the ceiling until around December 3. Equity futures are pointing to further advances in the US and Europe later on, with those on the S&P 500 (+0.30%) and the STOXX 50 (+0.35%) both moving higher.

Even with the brighter news, inflation concerns are still very much with us however, and yesterday in fact saw Bloomberg’s Commodity Spot Index (+1.16%) advance to yet another record high, exceeding the previous peak from early last week. That was partly down to the continued rise in oil prices, with WTI (+1.08%) closing at $81.31/bbl, its highest level since 2014, just as Brent Crude (+0.99%) hit a post-2018 high of $84.00/bbl. Both have posted further gains this morning of +0.58% and +0.61% respectively. Those moves went alongside further rises in natural gas prices, which rose for a 3rd consecutive session, albeit they’re still beneath their peak from earlier in the month, as futures in Europe (+9.14%), the US (+1.74%) and the UK (+9.26%) all moved higher. And that rise in Chinese coal futures we’ve been mentioning also continued, with their rise today currently standing at +13.86%, which brings their gains over the week as a whole to +39.02% so far.

As well as energy, industrial metals were another segment where the recent rally showed no sign of abating yesterday. On the London metal exchange, a number of multi-year milestones were achieved, with aluminum prices (+1.60%) up to their highest levels since 2008, just as zinc prices (+3.73%) closed at their highest level since 2018. Separately, copper prices (+2.56%) hit a 4-month high, and other winners yesterday included iron ore futures in Singapore (+1.16%), as well as nickel (+1.99%) and lead (+2.43%) prices in London.

With all this momentum behind commodities, inflation expectations posted further advances yesterday. Indeed, the 10yr US Breakeven closed +1.0bps higher at 2.536%, which is just 3bps shy of its closing peak back in May that marked its highest level since 2013. And those moves came in spite of US producer price data that came in weaker than expected, with the monthly increase in September at +0.5% (vs. +0.6% expected). That was the smallest rise so far this year, though that still sent the year-on-year number up to +8.6% (vs. +8.7% expected). That rise in inflation expectations was echoed in Europe too, with the 10yr UK breakeven (+5.6bps) closing at its highest level since 2008, whilst its German counterpart also posted a modest +0.7bps rise.

In spite of the rise in inflation expectations, sovereign bonds posted gains across the board as the moves were outweighed by the impact of lower real rates. By the end of yesterday’s session, yields on 10yr Treasuries were down -2.6bps to 1.527%, which came as the 10yr real yield moved back beneath -1% for the first time in almost a month. Likewise in Europe, yields pushed lower throughout the session, with those on 10yr bunds (-6.3bps), OATs (-6.2bps) and BTPs (-7.1bps) all moving aggressively lower.

To the day ahead now, and US data releases include September retail sales, the University of Michigan’s preliminary consumer sentiment index for October, and the Empire State manufacturing survey for October. Central bank speakers include the Fed’s Bullard and Williams, and earnings releases include Charles Schwab and Goldman Sachs.

Tyler Durden Fri, 10/15/2021 - 07:50

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Weekly investment update – Stagflation chatter

Domestic energy supply shortages in Europe and dependence on volatile global markets are contributing to record gas prices across the continent. In the US, the latest inflation data is further testing the US Federal Reserve’s hypothesis that inflationary.

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Domestic energy supply shortages in Europe and dependence on volatile global markets are contributing to record gas prices across the continent. In the US, the latest inflation data is further testing the US Federal Reserve’s hypothesis that inflationary pressures are transitory in nature.  

COVID-19 – A brighter picture?

World daily new Covid-19 cases have continued to fall and are now at around 410 000 per day.

However, high levels of infection rates, while no longer translating to the same degree in deaths, continue to have an economic impact.

Evidence of this came in the US September payrolls report, based on data collected in mid-September when the Delta wave was near its peak. Job growth in leisure and hospitality businesses was particularly subdued.

Antiviral treatment – A potential game changer?

Late-stage clinical trials have shown that a leading US pharmaceutical company has developed an antiviral pill that could halve the risk of hospitalisation and death. The company has applied for emergency use authorisation from the US Food and Drug Administration. Treatment involves twice-daily pills, prescribed for five days to patients diagnosed with Covid-19.

Antiviral treatments have advantages over other treatments. They are simple, easy to administer, cheaper, and manufacturing is less complicated. In addition to vaccines, an antiviral treatment could transform Covid into a manageable disease, moving it from a ‘pandemic’ to an ‘endemic’ phase. There are also potential benefits for emerging economies whose vaccination rates are low.  

Winter is coming

There are early signs of a new wave of infections in eastern Europe with caseloads starting to rise in countries where vaccination rates are low. There is clearly the potential for a new outbreak as the approach of winter in the northern hemisphere coincides with a rising risk of breakthrough infections as vaccine efficacy across the population wanes over time.

In countries with high vaccination rates, the fact that vaccines remain highly efficient against hospitalisation combined with boosters for vulnerable people should help contain any pressure on health systems. A return to tough restrictions therefore appears unlikely now.

Stagflation chatter

Stagflation is a loose term that means different things to different people. A broad definition, however, would be a period of rising inflation and slowing growth because of higher energy prices.

Stagflation talk is getting louder (see exhibit 1) because natural gas prices have tripled in the last three months. The price of liquid natural gas (LNG) has soared from about USD 5 per metric million British thermal units (mmBtu) a year ago to more than USD 30 today, having briefly spiked above USD 50 last week.

Gas in the spotlight

In the past, oil prices were the dominant force in energy markets. However, natural gas, which until recently was mainly priced off oil contracts, has moved to the centre of the energy complex. A global squeeze in supplies has been driving prices higher (see exhibits 2 and 3). Europe is particularly dependent on the global market for gas.

Oil prices have been rising too: Brent crude oil reached its highest level in three years last week at USD 83 a barrel. So far, the Opec+ group has not been prepared to accelerate production. Under these circumstances, with demand for oil rebounding hard as economies reopen after the pandemic, prices are likely to remain high. Crude prices could also be affected by the shortage of gas as some sectors envisage replacing gas with oil where possible.

Gas demand differs from oil in that it is more seasonal with stronger demand in winter due to the central role gas plays in domestic heating.

Among the reasons for Europe’s current gas shortages are: 

  • Domestic European gas fields and storage facilities have been run down as the continent’s focus has shifted to renewable energy sources.
  • In the global gas market, Europe now competes with Asia, where demand for LNG has risen by 50% over the last 10 years. Cold weather in China, the world’s biggest importer of LNG, raises prices in the global market.
  • Russia supplies around 30% of Europe’s gas. The focus now is on whether Russia can meet Europe’s gas needs in the event of a cold winter. However, Russia-Europe export volumes may not return to pre-Covid levels until early-2022; firstly, Russian gas exports have increasingly shifted towards Asia; secondly, Russia’s domestic inventories are also low, leading to local stockpiling. Finally, certification of the Nord Stream 2 pipeline to Europe has been complicated by the delays in the formation of a new German government.
  • Gas is seen as a bridge fuel during the energy transition. It produces around half the CO2 of coal when burnt. However, methane emissions from gas during extraction and transportation have arguably discouraged new investments, again restricting domestic supplies in Europe. 

We are monitoring developments closely. As uncertainty persists around supplies, European high-yield credit markets are vulnerable, given their greater exposures to sectors that are sensitive to energy price changes.

US prices – Housing sector inflation picks up

US core inflation data was in line with market expectations in September, up by 0.2% month-on-month. That left the annual rate at 4%.

At first glance, this data supports the hypothesis that the surge in inflation in late spring/early summer would be ‘transitory’. Price pressures in used vehicles, hotels and transportation – all segments clearly connected to Covid-related supply chain stress and post-vaccine re-openings –  were robust earlier in the year, but netted out at almost zero in September, in part due to the resurgence of Covid in late summer.

Instead, the main contributor to US core inflation was housing rents. Housing is by far the largest component in the core index (CPI) and a segment where inflation often persists month-to-month: Strength (or weakness) in one month’s data tends to be followed by further strength (or weakness).

The rebound in rental inflation is mainly seen in cities in the Midwest and south of the US, which is consistent with the notion of people looking for more space in relatively cheaper markets.

If rent inflation does continue to rise into 2022, it will increase the challenge the Federal Reserve faces in balancing the employment and inflation sides of its mandate.

Even allowing for the smaller weight of rents in the PCE (personal consumption expenditures index), the measure of inflation the Fed targets, sustained housing rental inflation at 5% or more is unlikely to be consistent with core PCE inflation slowing to 2.3% by end-2022, as forecast by the Fed three weeks ago.

Yet it also looks unlikely that the US will return to pre-pandemic labour market conditions by the end of next year. That would require new payrolls to average around 700 000 a month for the next 15 months in a row.

With the Fed’s forward guidance on the timing of the first rate rise requiring both ‘maximum employment’ and 2% inflation, there is set to be intense debate between the hawks and the doves at the Fed over the definition of ‘maximum’ employment. Which side wins will determine when the first rate increase happens.

US bond yields steady  

Yields of the benchmark 10-year US Treasury note slipped back in the wake of the latest inflation data to around 1.54% after hitting a four-month high at the start of the week.

A USD 24 billion auction of long-dated 30-year government bonds met with strong demand. Indirect bidders, which include foreign buyers of US government debt, took up roughly 71% of the amount on offer, marking the highest percentage at a reopening of that maturity since July 2020.

This strong demand from overseas buyers may partly counter the effects of the Fed’s expected taper of its USD 120 billion a month in asset purchases in November.


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Writen by Andrew Craig. The post Weekly investment update – Stagflation chatter appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.

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