There was a bit of a glitch in the matrix overnight when shortly after 10pm ET, spoos suddenly hit an air pocket, sliding 0.2% lower on a spike in volume, although the move was nothing like the flash crash in gold one day earlier. However, a few hours later it's as if nothing had happened as futures drifted higher and were back near all time highs as traders awaited fresh progress towards the passing of a much-anticipated infrastructure bill on Tuesday morning despite media concerns that the delta variant is straining some hospitals across Florida and Texas. At 715 a.m. ET, Dow e-minis were down 17 points, or 0.06%, S&P 500 e-minis were unchanged, and Nasdaq 100 e-minis were up 21.5 points, or 0.14%. Treasury yields were also unchanged while the dollar drifted higher.

The Senate has set a vote on passage of the $1 trillion bipartisan infrastructure bill for 11 a.m. ET, after which it would immediately begin to debate $3.5 trillion in additional investments. With new coronavirus cases rising steadily in the United States, progress on the infrastructure package is expected to help gauge fiscal support for the next leg of recovery in the world's largest economy. The spread of the delta variant in corners of the world has raised concern the recovery from the pandemic will be derailed. New coronavirus cases in the U.S. surged to the highest weekly level since early February, while deaths increased the most since December. Nationwide, COVID-19 cases have averaged 100,000 for three days in a row, up 35% over the past week, according to Reuters.

Focus is also on inflation numbers due on Wednesday for hints about the path of Federal Reserve policy, after two Fed officials said on Monday that inflation was already at a level that could satisfy one leg of a key test for the beginning of rate hikes. “Investors are holding their breath before tomorrow’s U.S. inflation data,” said Swissquote analyst Ipek Ozkardeskaya.

Remarks from Atlanta Fed President Raphael Bostic on Monday added to the mix of commentary and economic indicators traders are parsing for clues on the Fed’s next move. With stocks at or near records on the back of extraordinary stimulus measures, Bostic said that another strong month or two of employment gains should prompt the central bank to taper its asset purchases, and that the Fed should move faster than in past episodes.

“Risks remain,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “While inflation data has so far not been a major market mover, Wednesday’s July consumer price index release has the potential to cause volatility, especially given expectations that inflation has passed the peak.”

In premarket moves, meme stock icon AMC Entertainment jumped 9.6% after the movie-theater chain reported better-than-expected 2Q revenue.  Producer of dental equipment SmileDirectClub slumped 16% after its earnings and forecast missed analyst estimates and the stock got downgraded at JPMorgan. Other notable premarket movers:

• Arcturus Therapeutics (ARCT) shares rally 37% in premarket trading after it updated on its Covid-19 vaccine candidate in its second-quarter results.
• Astra Space (ASTR) gains 8.8% after being awarded a contract from the U.S. Space Force.
• MetroMile (MILE) plunges 19% in premarket trading after the company said its business will continue to be affected by Covid-19 and as Cantor downgraded the stock to neutral over factors including “disappointing top-line metrics.”

On Monday, the S&P 500 and the Dow closed slightly lower weighed down by a fall in oil stocks - which were hammered by delta fears - and concerns over a sooner-than-expected taper tantrum. This was offset by soaring vaccine stocks - which surged on delta hopes - while rising Treasury yields lifted financial shares, keeping Wall Street's benchmark indexes near record highs.

European stocks continued their ramp higher, rising to a record on strong earnings, with the Stoxx Europe 600 Index gaining 0.2% to a fresh record as a rally for travel and tech stocks outweighed a soft patch in the banking and mining industries. DAX and CAC were little changed; FTSE 100 dipping into the red. Travel and tech are the strongest sectors so far; banks and retail names lag. Here are some of the biggest European movers today:

• Deliveroo shares jump as much as 12%, as analysts digest Delivery Hero’s move to take a 5.1% stake in the U.K. food delivery company.
• HelloFresh gains as much as 10% after results, which Deutsche Bank says confirm a “strong” beat following pre- release.
• Flutter Entertainment rises as much as 9.7% in London and 9.9% in Dublin after 1H results beat estimates and the company gave 2021 guidance that analysts said implies upgrades to consensus.
• Corbion drops as much as 10%, with analysts saying consensus estimates will likely fall for the ingredients maker owing to disappointing 1H margins.
• Auto1 falls as much as 4.6% following a stock offering by an undisclosed pre-IPO shareholder in the German online car-sales platform.
• M&G declines as much as 3.6% after first-half earnings. Assets under management were below expectations primarily due to a miss at Heritage, the run- off annuity business, Shore Capital says.

Earlier in the session, Asian equities held on to mild gains on Tuesday, bolstered by a rebound in Chinese technology stocks following a recent selloff. The MSCI Asia Pacific index rose as much as 0.5% after earlier falling by 0.2%. Tencent Holdings, Meituan and Alibaba Group were among the biggest contributors to the benchmark’s advance. By industry, consumer discretionary and communications services firms climbed, while decliners were led by chipmakers and materials companies. Kuaishou Technology, a video-sharing platform operator, climbed as much as 9.5% in Hong Kong on Tuesday before paring the gain to 3%. It still snapped a five-day slide as some brokers started to turn optimistic on the stock’s outlook. The Hang Seng China Enterprises Index, which includes Kuaishou, was the biggest gainer among Asia’s key equity gauges. “Investors should expect more volatility between now and Q1 2022, by which most of the regulatory changes would have been introduced,” Credit Suisse economists including David Wang wrote in a note. “However, China is by no means ‘un-investable,’ and avoiding it altogether would be unwise.” Asia equities have been whipsawed in recent months due to uncertainty surrounding China’s plans to regulate various industries, while Covid-19 cases continue to increase in the region. The MSCI’s Asian benchmark is down by about 9% from a record-high in February.

Japanese equities rose for a third straight session, as the market reopened following a three-day weekend. Drugmakers and service providers were the biggest boosts to the Topix, which advanced 0.4%. Fast Retailing was the largest contributor to a 0.2% gain in the Nikkei 225. The yen weakened against the dollar for a fifth day. The U.S. 10-year Treasury yield climbed above 1.3% overnight, while the S&P 500 dipped. Federal Reserve Bank of Atlanta President Raphael Bostic said the central bank should move to taper its asset purchases after another strong month or two of employment gains. While higher U.S. yields and the weaker yen are tailwinds for Japanese stocks, the upside may be limited by worries over the spread of coronavirus variants, said Ryuta Otsuka, a strategist at Toyo Securities Co. Investors may buy financials and cyclicals as well as companies that have announced good earnings.

In rates, the 10Y yield was little changed at 1.3287%, drifting higher as market participants brace for first of this week’s U.S. note auctions. Long end gilts outperformed, richening ~1.2bps. Most semi-core and peripheral spreads tighten slightly. Block trades in bund, BTP and OAT futures point toward another credit fly.

In FX, Bloomberg Dollar Spot Index drifts back into the green, bolstered after Fed officials Raphael Bostic and Eric Rosengren called for a faster reduction of bond purchases. U.S. inflation data due Wednesday are expected to provide further clues on any potential Fed move.
GBP and NOK top the G-10 leader-board; JPY and CHF lag although ranges are narrow and volatility subdued.

In commodities, crude futures grind higher. WTI rises over 2% before running into resistance near $68; Brent rises over 1%, holding near $70. Spot gold fades Asia’s modest gains to trade near $1,729/oz. Base metals trade well with LME lead outperforming

Looking at the day ahead, we will get our first look at consumer sentiment in Europe this month with the Euro Area and Germany August ZEW survey of expectations. While in the US, investors will get new readings from the NFIB Small Business Optimism index and preliminary Q2 Nonfarm productivity. From central banks, Cleveland Fed President Mester (non-voter / hawk) will be discussing risks to the inflation outlook in the US and Europe, and elsewhere the Central Bank of Brazil will release minutes from last month’s meeting. There will be a good amount of earnings releases today, with Softbank, Coinbase, Sysco, Foxconn, and Transdigm Group amongst them.

Market Snapshot

• S&P 500 futures little changed at 4,424.25
• STOXX Europe 600 up 0.2% to 471.65
• MXAP up 0.3% to 200.76
• MXAPJ up 0.3% to 665.68
• Nikkei up 0.2% to 27,888.15
• Topix up 0.4% to 1,936.28
• Hang Seng Index up 1.2% to 26,605.62
• Shanghai Composite up 1.0% to 3,529.93
• Sensex up 0.2% to 54,514.07
• Australia S&P/ASX 200 up 0.3% to 7,562.56
• Kospi down 0.5% to 3,243.19
• German 10Y yield up 0.4 bps to -0.456%
• Euro little changed at $1.1733
• Brent Futures up 1.6% to $70.15/bbl
• Brent Futures up 1.6% to $70.15/bbl
• Gold spot up 0.1% to $1,731.13
• U.S. Dollar Index little changed at 93.01

Top Overnight News from Bloomberg

• President Joe Biden’s big plans for the U.S. economy are on the verge of passing their first major legislative tests in the Senate, leaving their future to intra-party struggles between Democratic progressives and moderates
• Any further selloff in Treasuries could get an added boost from mortgage-related hedging flows, which may ramp up should benchmark yields climb past 1.43%
• Investor confidence in Germany’s recovery dropped to the lowest level since late last year after a rise in infection rates stoked concerns over a possible tightening of pandemic curbs
• The Swiss National Bank may say it, and valuation metrics may show it, but traders are unconvinced the franc has gotten too strong

A more detailed look at global markets courtesy of Newsquawk

APAC equities traded mixed in what was a choppy session as the region adopted the lead from Wall Street, whereby the DJIA and SPX posted mild losses whilst the NDX eked out a day of gains - with earnings dying down and the Fed’s Jackson Hole Symposium nearing. Overnight, US equity futures resumed flat and traded with no firm direction for the first half of the session, but later dipped as the risk tone in Asia-Pac soured - with no catalysts at the time. The Nikkei 225 (+0.2%) outperformed at the open on catch-up play after its long weekend, but the index shed its earlier gains of over 1% and conformed to the cautious tone. The ASX 200 (+0.3%) gradually gave up its opening gains, whilst the KOSPI (-0.5%) was subdued throughout the session after North Korea vowed to strengthen pre-emptive strike capabilities as the US and South Korea gear up for their annual military drills this week and the next. The Hang Seng (+1.3%) and Shanghai Comp (+1.0%) were once again volatile as China attempts to balance rising factory-gate prices and slowing growth momentum – with reports overnight via China’s Daily suggesting the PBoC may have to cut the RRR or interest rate to spur growth. Recently, SGH Macro Advisor sources from the Politburo meeting suggested the PBoC is expected to cut the RRR in a targeted way for some institutions, but not to adjust the policy rate. As a reminder, almost exactly a month ago, the PBoC announced a surprise 50bps RRR cut which released some CNY 1tln in long-term funds.

China's Daily noted that the PBoC may have to cut the RRR or interest rate to spur growth. Meanwhile, the People's Daily suggested that there is no need for the PBoC to inject additional short-term OMO funds. Recently, SGH Macro Advisor sources from the Politburo meeting suggested the PBoC is expected to cut the RRR in a targeted way for some institutions, but not to adjust the policy rate.

Top Asian News

• SoftBank Vision Fund Profit Falls as Coupang Shares Decline
• Tesla Local Shipments of China-Made Cars Drop 69% in July
• Ambani’s Reliance Said to Weigh Bid for T-Mobile Netherlands
• Tencent- Backed Krafton Tumbles After $3.8 Billion IPO

European equities (Eurostoxx 50 +0.2%) broadly trade on a marginally firmer footing whilst macro impulses for the region remain light during summer trade. A disappointing German ZEW report did little to shift the dial in Europe despite expectations falling for a third time in a row. The lead from Asia was characterised by choppy price action whilst US futures trade with little in the way of firm direction. Of note for China, China’s Daily suggested the PBoC may have to cut the RRR or interest rate to spur growth. From a US perspective, the Senate is set to vote on the infrastructure deal at 11:00EDT/16:00BST. The bill is expected to pass and head to the House, where lawmakers are set to decide on the internals of the bill. Note, House Speaker Pelosi remains committed to not holding a vote on the bill unless the Senate passes a reconciliation package. Elsewhere, Fed speakers continue to lean in favour of a taper announcement sooner rather than later with Rosengren the latest to back this view. In terms of house calls, Goldman Sachs has upgraded its Stoxx 600 12-month target to 520 from 480 and now sees the FTSE 100 at 7900 vs prev. view of 7600. GS notes that it sees good catch-up trade and value in Banks, Energy and Basic Resources names. Sectors in Europe are mostly firmer with outperformance in the Travel & Leisure sector amid earnings from Flutter Entertainment (+7.7%) who account for around 15.3% of the Stoxx 600 sector index. Limiting upside however, is InterContinental Hotels Group (-2.2%) post-results, whilst Air France (-1.2%) is also seen lower after the US CDC raised the travel advisory to France to its highest level. To the downside, Banking names lag peers, however, the magnitude of the underperformance is relatively modest with little in the way of corporate updates thus far behind the price action. Elsewhere, Bayer (-0.8%) are a touch softer after a court of appeals upheld the USD 86.7mln Roundup verdict relating to the Pilliod case.

Top European News

• BOE Has a Powerful Tool to Tighten Policy Without Raising Alarm
• Swiss Join Global Property Boom With Index Showing Bubble Risk
• Deliveroo Hires Amazon Supply-Chain Boss to Run Tech and Product
• HelloFresh Jumps; Deutsche Bank Says Performance ‘Very Good’

In FX, price formation is looking increasingly constructive for the index and Buck overall as more Fed officials recognise further progress towards max employment and deem that inflation has already satisfied the substantial criteria for tapering. Indeed, the DXY has now probed 93.000 after falling fractionally short on Monday and is eyeing the next peak beyond the round number, having breached 93.028 from July 23rd that came 2 days earlier at 93.194 vs 93.067 at best so far. All this even before another potential midweek boost via US CPI data and further commentary from the Fed later today as Mester and Evans deliver speeches on inflation risks and the economy respectively.

• CHF/JPY/NZD - The major casualties of ongoing Greenback strength, as the Franc and Yen concede ground or premium on relative yield and divergent SNB/BoJ-Fed policy dynamics. Usd/Chf is now above 0.9200 and Usd/Jpy testing 110.50, while Nzd/Usd has relinquished 0.7000+ status partly on a change in Aud/Nzd cross flows rather than NZ specifics. However, the Kiwi may glean some traction on technical factors around the 21 DMA at 0.6984 and the fact that its Antipodean counterpart is still feeling the adverse effects of the virus outbreak with NSW suffering another record rise in the number of cases.
• GBP/AUD/CAD/EUR - Sterling is still straddling 1.3850 having faded just ahead of 1.3900, but the Pound remains on an upward trajectory vs the Euro following its rally beyond the prior y-t-d apex, and with the single currency looking more prone in general on the back of a disappointing German ZEW survey. In fact, the latter could be the final straw in terms of Eur/Usd tripping stops and filling underlying bids circa 1.1725 that would open the door for a test of the current 2021 base at 1.1704 from March 31. Elsewhere, the Aussie is holding between 0.7344-16 parameters in wake of a marked deterioration in NAB business sentiment and decline in conditions, while the Loonie is deriving support from a bounce in oil prices within a 1.2589-55 band.
• SCANDI/EM - The Nok is also benefiting from Brent regaining a degree of momentum over the Usd 70/brl mark, but firmer than forecast Norwegian headline inflation may be providing additional impetus as it underscores expectations for a Norges Bank rate hike next month. Hence, Eur/Nok is back under 10.5000 vs a steadier Eur/Sek either side of 10.2200 following somewhat mixed Swedish ip and new manufacturing orders data. Meanwhile, the Zar has fallen with Gold again, but the Try has pared some downside with the help of a decent drop in Turkish unemployment.

In commodities, crude benchmarks have commenced the session firmly on the front-foot and have reclaimed the USD 68/bbl and USD 70/bbl marks in WTI and Brent respectively at best; vs lows of USD 66.58/bbl and USD 68.95/bbl respectively. Fresh drivers from a macro standpoint have been sparse thus far though the calendar ahead features the EIA STEO due 17:00BST/12:00EDT and will be the next point of focus prior to the weekly private inventory report, which is expected to post a headline draw of 1.1mln. The mornings crude performance has extended upon the modest gains seen overnight where the complex derived support from mixed COVID-19 travel updates where the EU said it will not be imposing US travel restrictions. However, the US’ CDC lifted the advisory to France and Israel to its highest level. Since these updates, COVID related newsflow has dried up with the only notable update being from Tokyo where cases were modestly below yesterday’s update. Most recently, the aforementioned upside was seemingly capped by the ZEW release which missed expectations across the board citing a potential fourth COVID wave or a slow down in Chinese growth as factors. Elsewhere, spot gold and silver are little changed on the session though the yellow-metal remains in proximity to the current low of USD 1728.7/oz. Separately, copper prices are bolstered but off best levels as we await further updates on the Chile situation after BHP and the Escondida mines union extended contract talks to avoid a strike; while workers at the Caserones mine in the region, unrelated to BHP, are to begin strike action today after talks broke down yesterday.

US Event Calendar

• 8:30am: 2Q Unit Labor Costs, est. 1.0%, prior 1.7%
• 8:30am: 2Q Nonfarm Productivity, est. 3.2%, prior 5.4%

DB's Jim Reid concludes the overnight wrap

Ahead of the big report, Equity markets were relatively stable yesterday with the S&P 500 (-0.09%) and STOXX 600 (+0.15%) either side of unchanged as investors grappled with higher Covid-19 cases counts due to the delta variant and an imminent pullback in monetary stimulus, while jobs data from the US continued to be strong. On the latter point, as I highlighted last Friday in my COTD (see here), there are much stronger employment indicators than the payrolls report at the moment. Ones that show the supply problems dominate and not demand.

We got another glimpse of this yesterday as the US JOLTs job opening data showed a record high 10.07mn available jobs in June (9.27mn expected), up from the previous month’s record of 9.48mn. Job opening exceeded hires by 3.4mn in June, which is a narrower gap than in May but still high. The quite rate grew to 2.7%, representing 3.9mn people who voluntarily left their job. This doesn’t happen if people are insecure about their employment prospects. The accommodations and food services industries as well as construction and manufacturing were among the sectors with the most pressure in the report.

This data was followed by Fed Governor Bostic (voter / hawk) and Barkin (voter / hawk) who were the first to react to last week’s payrolls data. Governor Bostic indicated that he was in favour of the Fed moving to taper bond purchases after another couple of months of strong employment gains. He said the Fed is “well on the road to substantial progress toward our goal,” with his comments mirroring Fed Chair Powell’s comments earlier this year that the Fed would need to see a “string” of strong employment gains. Bostic said he is “thinking in the October-to-December range” for the first taper, which would put the November meeting in play, but he also left open the idea of pulling that forward if employment gains “really explode” in the next report. Fellow voting hawk, Fed Governor Barkin said demand has yet to be impacted by the spreading delta variant and that pressures on wages for low-income jobs is “intense”. While he indicated that prices are hitting the Fed’s target, Barkin also said substantial gains were still to be made toward the employment mandate, seemingly taking September off the table.

As mentioned at the top, markets took much of this news in its stride with the S&P 500 falling back -0.09% from last Friday’s record high. Growth stocks outperformed slightly and led the NASDAQ to a +0.16% gain and yet another record close, led in particular by pharmaceutical biotech (+1.12%) rather than information technology (-0.35%). The worries about the delta variant was evident on the reopening trade on both sides of the Atlantic with airlines (-2.24%), hotels & leisure (-1.10%) and energy (-1.48%) among the worst performing industries in the US. Meanwhile in Europe, autos (-0.72%), energy (-0.40%) and travel & leisure (-0.11%) stocks also lagged the overall index, however the STOXX 600 outperformed its US counterpart and finished the day +0.15% higher at a fresh new record of its own.

The hawkish Fed comments caused US 10yr Treasury yields to follow up last Friday’s +7.3bp rise with another +2.7bps increase yesterday to finish at 1.324%, its highest close since mid-July. The increase was driven a further increase in real rates (+2.4bps), while inflation expectations were largely unchanged as the 10yr breakeven was steady at 2.36%. European bonds outperformed overall with yields falling back across the continent. 10yr bund yields were just lower than unchanged (-0.4bps) at -0.46%, while yields on French OATs (-0.7bps), Italians BTPs (-1.6bps) and UK gilts (-2.7bps) all fell more.

Commodities were weaker across the board yesterday, partly due to the US Dollar index rising +0.19% to its highest levels since early-April. The Bloomberg Commodity Spot index was -1.64%, its 6th daily decline in the last 7 sessions, to finish at its lowest level in 3 weeks. Oil prices continued to fall as rising covid-19 cases weighed on demand expectations, with WTI futures down -2.64% to $66.48 and Brent crude futures -2.35% lower at $69.04. August has been a hard month for oil prices, which were at $73.95 and $76.33 respectively as recently as July 30. Metals also had a tough start to the week with gold down -1.88% and silver down a greater -3.62% as rising real rates weighed, whilst industrial metals like copper (-1.35%) fell back on the same global growth concerns that pulled oil back.

Asian markets are trading fairly mixed this morning with the Nikkei (+0.13%) and Hang Seng (+0.29%) up while the Shanghai Comp (-0.14%) and Kospi (-0.63%) are down. Futures on the S&P 500 are down -0.16% and those on the Stoxx 50 -0.12%. 10yr US yields have dipped -1.5bps.

In other news, the US senate is likely to vote on the bipartisan infrastructure bill today at 11am ET (1500 GMT). Elsewhere, in its quarterly monetary report released yesterday, the PBoC said that inflation pressures in the economy are “controllable,” while highlighting risks to the growth outlook. The central bank said that the surge in producer inflation in the first half was likely temporary and vowed to make policy more effective and forward-looking, avoid flooding the economy with stimulus, and support it with appropriate growth in money supply.

On the pandemic, Indonesia yesterday announced plans to ease restrictions in several cities, including Jakarta, as the government is instituting rules to live with Covid-19 for the foreseeable future. Individuals who are inoculated can go to shopping centers and places of worship with capacity set at 25%, starting later this month. In the US, new Covid-19 cases rose to over 761k in the last week, which is the highest weekly rate since February. The recent spike in cases has led Dr Fauci to come out as “strongly in favor” of speeding booster shots to the most at risk. At the same time, Israel is considering lowering the minimum age of a booster shot to 40 or 50 from the current 60. It is becoming clearer that more and more countries will be offering a third shot prior to this winter.

Other data from yesterday showed that Euro Area August Sentix investor confidence came in lower than expected at 22.2 (29.0 expected) compared to 29.8 the month before. The drop reflects the renewed fears of rising case counts through the continent. The Bank of France sentiment index similarly fell month over month to 105 (107 expected) in July from 107.

To the day ahead now and we will get our first look at consumer sentiment in Europe this month with the Euro Area and Germany August ZEW survey of expectations. While in the US, investors will get new readings from the NFIB Small Business Optimism index and preliminary Q2 Nonfarm productivity. From central banks, Cleveland Fed President Mester (non-voter / hawk) will be discussing risks to the inflation outlook in the US and Europe, and elsewhere the Central Bank of Brazil will release minutes from last month’s meeting. There will be a good amount of earnings releases today, with Softbank, Coinbase, Sysco, Foxconn, and Transdigm Group amongst them.