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Futures Hit Fresh Record High Ahead Of PPI, Claims Data

Futures Hit Fresh Record High Ahead Of PPI, Claims Data

Another day, another all time high in US equity futures with spoos trading at the nice, round 4,444 on Thursday morning, while Dow futures also hit a record high on Thursday ahead of…

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Futures Hit Fresh Record High Ahead Of PPI, Claims Data

Another day, another all time high in US equity futures with spoos trading at the nice, round 4,444 on Thursday morning, while Dow futures also hit a record high on Thursday ahead of earnings reports from companies including Walt Disney and data expected to show a jobs market recovery was on track.

Yet while nothing can stop the relentless juggernaut in US stocks, global equity markets fluctuated on Thursday, with European shares taking a pause after an eight-day rally of record highs on a mixed batch of earnings as Asian shares failed to follow a strong close on Wall Street with fears about the spread of the Delta variant of the coronavirus weighing on sentiment even as tame U.S. inflation eased fears the Federal Reserve would rush to reduce its economic support. As of 715am S&P futures were up 4 points to 4,444, Dow futures traded up 43 points or 0.12% and Nasdaq futures were 4.75 higher or 0.03% to 15,024. Treasury 10Y yields rose as high as 1.36%, reversing the drop after yesterday's stellar 10Y auction as a 30Y auction looms; the dollar nudged higher while copper prices jumped after workers at a mine in Chile threatened to strike. Bitcoin dropped to $45,000.

In premarket trading, EBay slipped 1.7% after forecasting third-quarter revenue below analysts’ estimates, signaling that reopening economies and vaccine rollouts could be putting an end to the pandemic-led shopping boom. Shares of steelmaker Nucor Corp and equipment maker Caterpillar Inc inched higher in premarket trading, building on gains made on expectations of future infrastructure projects. Baidu shares fell 2.1% even after it beat expectations for quarterly revenue, buoyed by a rebound in advertising sales and higher demand for its artificial intelligence and cloud products. Here are some of the other notable movers today:

  • Clover Health Investments (CLOV) shares surge 12% in premarket trading, after its sales guidance for the year surpasses the highest analyst estimate.
  • Opendoor Technologies (OPEN) shares rise 18% with KeyBanc saying its 2Q results serve as a positive inflection point for the company.
  • Sonos (SONO) shares gain 12% in premarket following a third-quarter earnings beat and guidance raise that was driven by speaker sales, according to Raymond James.
  • Xeris Pharmaceuticals (XERS) shares rise 21% after the firm announced it has received U.S. FDA clearance for phase 1 clinical trials for its hypothyroidism treatment.

On Wednesday, the S&P 500 and the Dow Jones Industrial Average logged a new record closing high helped by a rally in economy-linked value stocks following the passage of a large infrastructure bill, while the BLS reported the largest drop in month-to-month inflation in 15 months, easing concerns about the potential for runaway inflation. U.S. policymakers are publicly discussing how and when they should begin to trim the massive asset purchases launched by the Fed last year to stabilize financial markets and support the economy through the coronavirus pandemic. The easing of fears about inflation reduces the pressure to taper those asset purchases soon rather than later in the year, after strong employment figures last week had given ammunition to those with a more hawkish tilt. As a result, U.S. Treasury yields fell on Wednesday across most maturities, though trading was choppy.

Meanwhile, the Labor Department’s Initial jobless claims report due at 0830 a.m. ET is likely to show the number of Americans filing new claims for unemployment benefits fell further in the week ended Aug. 7. Focus will also be on U.S. producer prices data after soft inflation figures for July on Wednesday assuaged fears of sooner-than-expected policy tightening by the Federal Reserve.

“The data yesterday was encouraging but any signs here that it was a blip could unwind all of yesterday’s good feeling and replace it with anxiety once more,” said Craig Erlam, senior market analyst at OANDA Europe.

Palantir, DoorDash, Disney and Airbnb are among companies reporting earnings; DoorDash was up 2.3% on a report that the company held talks to buy grocery delivery firm Instacart for a likely price of between $40 billion and $50 billion.

Expected data include unemployment claims and indexes of producer prices: "If today’s U.S. PPI numbers for July follow a similar pattern to yesterday’s CPI, then that could reinforce further the transitory narrative that the U.S. Federal Reserve has been pushing,” said Michael Hewson, chief market analyst at CMC Markets in London. “It’s also likely to be good news for stocks."

European equities ground higher after a slow start. The Euro Stoxx 50 rose 0.25%, trading just shy of best levels for the week. The Stoxx 600 Index rose 0.15% as gains in insurance and telecom firms offset declines in miners. France’s CAC Index climbed within about 1% of an all-time high, which would mark the first record in two decades. Insurance, telecoms and auto names outperform; miners are the standout laggard so far. FTSE 100 underperforms, trading slightly in the red. 

Corporate earnings results were the biggest driver behind individual stock moves. Insurer Aegon NV surged 7%, the top gain in the Stoxx 600 Index, after posting strong second-quarter results. Delivery Hero SE and German office supply maker Bechtle AG sank after disappointing analysts.

Still, while today's market action was been subdued, European equities have steadily made their way higher as investors put their faith in the economic reopening story. The blue-chip Euro Stoxx 50 Index is up for nine straight days and on track for the second-longest winning streak in its history.

Earlier in the session, Asian stocks fell for the first time in four days, hurt by losses in heavyweight chipmaking companies. The MSCI Asia Pacific Index fell as much as 0.5% dragged by a decline in Chinese bluchips. The Hong Kong benchmark fell 0.2% while Australian shares were largely flat and Japan's Nikkei rose 0.35%. The weaker performance by Asian benchmarks contrasts with the situation elsewhere in the world. On Wednesday the MSCI all-country index hit a record high. In comparison the Asian benchmark is down over 10% from its February peak.

"The money is just in the U.S. and European markets right now, and that's our preferred market too," said Daniel Lam, senior cross-asset strategist, Standard Chartered Wealth Management. Lam pointed to a strong U.S. earning season and Europe's high vaccination rates meaning the pace of reopening has been less harmed by the spread of the Delta variant of the new coronavirus, and "recent China regulation blues" in sectors such as education and technology.

"I think that the rotation from emerging markets to Western markets could continue in the near-term," said David Chao, Global Market Strategist, Asia Pacific (ex-Japan) at Invesco. "The APAC region’s zero-tolerance policy coupled with a relatively low vaccination rate has led to vicious lockdown-release cycle which could continue for a while."

Technology was Asia's worst-performing sector, with Samsung Electronics and SK Hynix among the biggest drags, as Morgan Stanley lowered its view on memory-chip makers. Gains in industrial and materials shares cushioned the benchmark index’s downside. “For the past few months, there’s been worry that memory prices will hit a peak and pull back,” said Nomura analyst C.W. Chung, noting that “chip prices can’t rise forever” given their supply and demand cycle. Rising virus cases across the region and China’s moves to regulate businesses continue to be a risk for equity investors in Asia. China released a five-year blueprint calling for greater regulation of vast parts of the economy, providing a sweeping framework for the broader crackdown on key industries that has left markets reeling. The benchmark CSI 300 Index fell 0.8% in a second day of losses.

China's State Council and the CCP's Central Committee released paperwork calling for significant increases in regulation in numerous sectors of the economy over the coming years. The news further demonstrates the ability of the CCP to strategically shape its economy in its own interests, but it also points to a limited role for the private sector over the medium-term.

Philippines’ equity benchmark was the worst performer in Asia on Thursday as the nation’s daily Covid-19 cases climbed to the highest in almost four months. Meanwhile, South Korea warned of more social distancing rules to contain the virus and in Japan, Tokyo reported 4,989 new virus cases, up from 4,200 Wednesday.

Japanese equities closed lower, erasing earlier gains, as profit-takers emerged following four days of gains. Tech stocks were the biggest drags on the Topix, which closed less than 0.1% lower after wiping out a gain of as much as 0.8%. Most sectors rose, including chemicals, machinery and banks. Chip equipment makers Tokyo Electron and Advantest were the biggest contributors to a 0.2% loss in the Nikkei 225. Japanese stocks opened higher after the S&P 500 climbed to a fresh record following a report showing that U.S. inflation moderated. The Nasdaq 100 declined as investors rotated to cyclical shares from growth. Meanwhile, the Japanese government is considering expanding the areas of the state of emergency and may extend the current order through September, the Sankei newspaper reported. “Investors may be taking profits ahead of the Obon holidays, adjusting positions,” said Shoichi Arisawa, an an analyst at Iwai Cosmo Securities Co. “While the debate over whether to extend and expand the state of emergency damps the market mood, some of the sectors are looking ahead to the post-pandemic world. The state of emergency might not be directly impacting Japanese markets at the moment.” The MSCI Asia Pacific Index was down 0.3% after China released a five-year blueprint calling for greater regulation of vast parts of the economy.

In India, gains in information technology stocks propelled shares to record closing highs on Thursday, ahead of data expected to show a slowdown in monthly inflation. The blue-chip NSE Nifty 50 index closed 0.50% higher at 16,364 and the benchmark S&P BSE Sensex ended up 0.6% at 54,843.98. Leading the gains among sectoral indexes, the Nifty IT services index rose 1.82%. “High liquidity has helped markets touch fresh highs. The comeback of small and mid-cap stocks after the clarification (from BSE) also helped,” said Vinod Nair, head of research at Geojit Financial Services. The Nifty mid-cap index and small-cap index gained 1% and 2.1%, respectively, after falling more than 2% each earlier this week. The weakness had come after a circular here on Monday from BSE Ltd over price curbs to curb volatility. But the exchange clarified here on Wednesday the rules would only be applicable on stocks that are priced above 10 rupees and have a market capitalization of less than 10 billion Indian rupees ($134.71 million). Among individual stocks, Indian budget carrier SpiceJet Ltd rose 5.1% after a report that the country was set to allow Boeing’s 737 Max jets to resume flights in the country within days. Helped by strong quarterly earnings, Drugmaker Indoco Remedies rose over 17%, luggage maker VIP Industries Ltd surged 20% and Punjab Chemicals and Crop Protection Ltd advanced 18%.

In rates, Treasuries rebounded from Wednesday's post CPI and 10Y Auction lows, with the yield on U.S. 10- year Treasuries rising 2bps to 1.35% after slipping by the same amount Wednesday following muted price action in Asia and early European sessions. Gilts lagged following a raft of U.K. data including GDP and industrial production figures. The market will focus on 30-year bond auction Thursday, following yesterday’s strong 10-year reception. Refunding U.S. auctions conclude with $27BN 30-year bond sale at 1pm ET, follows Wednesday’s stellar 10-year auction which traded over 3bp through the WI level.

In Fx, the dollar hovered below a four-month peak against major peers on Thursday, after retreating overnight as yields dropped. The Bloomberg Dollar Spot Index was flat following its 0.2% fall Wednesday after a release showed prices paid by U.S. consumers climbed in July at a more moderate pace. The Australian dollar declined against all its Group-of-10 peers as the nation’s capital is set to enter a lockdown to curb the coronavirus spread. Most other Group-of-10 currencies traded in narrow ranges, with the Nordic currencies leading.

"I expect the dollar to be range-bound on the recent strong unemployment and tempered CPI data," said Invesco's Chao.

In commodities, crude oil fluctuated after the International Energy Agency cut forecasts for global demand “sharply” and predicted a new surplus in 2022. Most Asian markets fell after China released a five-year plan calling for greater business regulation as Beijing steps up scrutiny of insurance technology platforms. WTI dipped 0.03% to $69.23 a barrel. Brent crude was flat at $71.43 per barrel. Gold also held on to overnight gains on Thursday, with the spot price down 0.1% having risen 1.3% in the previous session. Easing of fears about higher interest rates would typically help the non-interest bearing asset.

Looking at the day ahead, investors will be assessing July PPI data along with weekly initial jobless claims and continuing claims. Following a busy week, there are no Fed speakers scheduled for today, but there will be a monetary policy decision from the Bank of Mexico. In terms of earnings, Walt Disney, China Mobile, Deutsche Telekom, AirBnB, Doordash, and Baidu are all reporting as we approach the end of earnings season. Also investors are sure to look at OPEC’s monthly oil market report for signals on where pricing is going.

Market Snapshot

  • S&P 500 futures little changed at 4,440.75
  • MXAP down 0.3% to 200.51
  • MXAPJ down 0.4% to 661.42
  • Nikkei down 0.2% to 28,015.02
  • Topix little changed at 1,953.55
  • Hang Seng Index down 0.5% to 26,517.82
  • STOXX Europe 600 little changed at 474.54
  • Shanghai Composite down 0.2% to 3,524.74
  • Sensex up 0.5% to 54,824.32
  • Australia S&P/ASX 200 little changed at 7,588.19
  • Kospi down 0.4% to 3,208.38
  • Brent Futures little changed at $71.42/bbl
  • Gold spot up 0.1% to $1,754.09
  • U.S. Dollar Index little changed at 92.90
  • German 10Y yield fell 0.3 bps to -0.462%
  • Euro little changed at $1.1741

Top Overnight News from Bloomberg

  • Money-market traders are starting to get nervous that the debt- ceiling battle will go down to the wire, even though the U.S. government has created some breathing room for now
  • China is halting private equity funds from raising money to invest in residential property developments, turning off the spigot on one of the last stable funding resorts for the struggling sector
  • Rishi Sunak promised the U.K. won’t see a return to the austerity policies of last decade and that he is “united” with Prime Minister Boris Johnson over plans to rebuild the economy after the pandemic
  • The International Energy Agency cut forecasts for global oil demand “sharply” for the rest of this year as the resurgent pandemic hits major consumers, and predicted a new surplus in 2022
  • A member of a Tokyo Metropolitan Government coronavirus advisory panel of experts said it was now impossible to control the spread of Covid-19 in the capital

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac equities traded saw a mixed session with a downside bias and a cautious tone after a Wall Street closed mostly higher; cyclicals and value continued to show outperformance and tech failed to sustain a bid despite lower Treasury yields on the back of cooling CPI. The DJIA outperformed while the NDX lagged, and the VIX fell beneath 16 for the first time since early July. Back to APAC, the ASX 200 (+0.1%) gave up its earlier gains as Australia’s COVID woes deepen, with areas in Sydney tightening restrictions and Canberra tipped to enter a lockdown. The Nikkei 225 (-0.2%) was initially kept afloat by its manufacturing sector, although a firmer JPY and cautious risk tone capped upside. The KOSPI (-0.4%) remained on guard as North Korea did not respond to South Korea’s calls for a third straight day, in the run-up to annual military drills between Washington and Seoul. Elsewhere, the Hang Seng (-0.5%) and Shanghai Comp (-0.2%) traded downbeat amid reports of further sectorial crackdowns, this time the insurance and aesthetic medicines sectors, whilst peak growth and COVID concerns simmer in the background for China.

Top Asian News

  • Tokyo Virus Situation Is Out of Control, Panel Expert Says
  • Volatility Sneaks Back Into Emerging Markets Amid Fed Angst
  • Masks and Rules Return to Shanghai Banks Preparing for the Worst
  • Beijing Capital Said to Mull Sale of $1 Billion New Zealand Unit

European equities (Eurostoxx 50 +0.2%) trade mixed/flat amid a lack of fresh macro impulses for the region. The lead from Asia was predominantly downbeat with pressure observed in Chinese bourses amid further regulatory crackdowns, this time with the insurance and aesthetic medicines sectors in the sights of the government. Stateside, US futures trade in close proximity to the unchanged mark with very mild underperformance in the NQ (-0.1%) vs. ES (U/C) in a minor continuation of yesterday’s underperformance. Sectors in Europe are mixed with Insurance names top of the pile following earnings from Aviva (+4.4%) and Zurich Insurance (+3.7%) who both sit at the top of their respective indices. Telecom names are also firmer on the session amid gains in Deutsche Telekom (+2.9%) after the Co. raised guidance alongside Q2 earnings. To the downside, Basic Resources are the clear laggard (when looking at the Stoxx 600 BR Index), however, this is more a by-product of the Stoxx 600 Basic Resource index not adjusting for Rio Tinto trading ex-div rather than any systemic underperformance in the sector (nb. other miners trade with much shallower losses than the index). In terms of individual movers, Ageon (+7.3%) is the best performer in the Stoxx 600 after delivering strong Q2 results. Deliveroo (+4.7%) also trade firmer on the session as the Co. looks to claw back some of yesterday’s earnings-inspired losses. Competitor, Delivery Hero (-4.5%) trades softer on the session despite raising guidance alongside Q2 results as concerns linger over how long it will take the Co. to make a profit amid recent investments.

Top European News

  • Aviva to Hand Investors $5.6 Billion Following Asset Sales
  • U.K. Economy Sees Faster Growth in June as Lockdown Eases
  • U.K. City Center Offices Drawing Just 18% of Staff, Study Finds
  • Poland Defies U.S. and EU by Passing Contentious Media Law

In FX, the Dollar is mixed and tightly bound against major counterparts, with the DXY holding just off Wednesday's post-US inflation data low (92.800) and now looking towards pipeline prices to see what kind of pressures are building, but perhaps more pertinently at the latest snapshot of the labour market via jobless claims to find out whether there has been further progress following last month’s healthy BLS report. The index is hovering below 93.000 within a 92.962-845 range and inside w-t-d extremes (93.195-92.718) after more taper talk from Fed officials, but no scheduled speakers today leaving the stage clear for long bond issuance once the aforementioned data is out of the way.

  • AUD/CAD/NZD - It’s marginal, but the Aussie, Loonie and Kiwi are underperforming after taking advantage of the Greenback’s loss of momentum yesterday. Aud/Usd has drifted back down from 0.7377 or so overnight as COVID-19 restrictions are tightened further in Sydney and the capital Canberra prepares to join the list of big cities entering lockdown, according to local media reports. Meanwhile, Usd/Cad is back above 1.2500 against the backdrop of ongoing volatility in crude plus unusually large option expiries between 1.2495 and the big figure (1.6 bn) and the Kiwi has retreated through 0.7050 even though Q3 NZ inflation expectations revealed a jump in the 12 month outlook and firmer 2 year projection to underscore already odds-on pricing for RBNZ tightening next week.
  • EUR/JPY/CHF/GBP - The Euro is still breathing a huge sigh of relief following its recovery from the clutches of a new y-t-d low, albeit thanks to others in the main if not entirely. However, Eur/Usd remains top heavy around 1.1750 and faces a string of big option expiries beyond the half round number (from 1.1775-90, through 1.1795-00 to 1.1810-15 in 1.6 bn, 1.6 bn and 2 bn respectively). Elsewhere, the Yen has rebounded over 110.50 again, but could also be stymied by option expiry interest given 1.4 bn rolling off at 110.35-30, the Franc has pared losses from sub-0.9240 to hover nearer 0.9200 and the Pound is consolidating above 1.3850 with more direction derived from outside influences and external factors than very mixed UK data. From a technical perspective, Cable sits almost equidistant from 21 and 50 DMAs that come in at 1.3832 and 1.3894 today.
  • SCANDI/EM - Moderately positive risk sentiment and Brent maintaining its recovery momentum are more likely drivers behind the Sek and Nok revival to post fresh weekly peaks vs the Eur rather than unchanged Swedish money market CPIF forecasts over 1 and 5 year horizons. Meanwhile, the Try and Mxn will be hoping for some independent inspiration from the CBRT and Banxico as the former rebounds further from worst levels with the aid of better than anticipated Turkish ip data in the interim. Note, previews for both policy meetings are available in the Research Suite.

In commodities, crude benchmarks have been contained around the unchanged mark for the entirety of the European and APAC sessions, as such ranges are narrow and currently around USD 0.50/bbl for both WTI and Brent. As price action has been minimal, we do reside in close proximity to the highs of yesterday’s session, printed just after the European cash equity close, as the complex derived support from the White House’s initial commentary which implied no immediate/sudden pressure on OPEC+, following the earlier statements. This morning, the main event has been the IEA MOMR which looks for oil demand to rise by 5.3mln BPD in 2021 and by an additional 3.2mln BPD in 2022; however, they reduced their demand outlook for the remainder of 2021 due to the worsening COVID-19 situation. No price reaction on the release. Separately, at 11:50BST today the equivalent report from OPEC is scheduled for release. Moving to metals, spot gold and silver print modest divergence but ranges are minimal and fresh newsflow for the complex has been very slim; the schedule ahead has the US PPI release which will be scrutinised for any further inflation updates after yesterday’s CPI release. Elsewhere, copper prices are supported but near familiar levels as we continue to await BHP/Escondida updates after yesterday’s prelim. wage agreement; however, this still needs to be ratified by the unions members to remove the risk of strike action.

US Event Calendar

  • 8:30am: U.S. Initial Jobless Claims, Aug. 7, est. 375k, prior 385k; Continuing Claims, July 31, est. 2900k, prior 2930k
  • 8:30am: U.S. PPI Final Demand MoM, July, est. 0.6%, prior 1.0%; PPI Final Demand YoY, July, est. 7.2%, prior 7.3%
  • 8:30am: U.S. PPI Ex Food and Energy MoM, July, est. 0.5%, prior 1.0%; PPI Ex Food and Energy YoY, July, est. 5.6%, prior 5.6%

DB's Jim Reid concludes the overnight wrap

There was a bit of an everything-rally yesterday as equities hit another record high even as bonds rallied on slightly moderating (but still high) US inflation data, and a strong 10yr auction. The S&P rose +0.25%, and has now traded in a less than 0.34% range in each of the last 4 sessions. The confirmation of the US infrastructure package saw the construction & engineering (+3.08%), transportation (+1.85%) and materials (+1.42%) industries outperform yesterday. In Europe, the STOXX 600 (+0.42%) reached a new high for an eighth straight session with cyclicals largely driving the increase. It is the longest such run of gains since June.

The obvious highlight of the day was US inflation data from July which showed headline CPI rising +0.5%, in line with expectations and leaving year-over-year change steady at 5.4% (5.3% expected). Core inflation rose by +0.3% (+0.4% expected), which was the softest reading since March. The goods readings moderated substantially due to supply/demand imbalances easing, particularly in the much watched areas of autos. The reopening-sensitive categories (autos, insurance, lodging, airfare, restaurants) made up just 13% of the overall monthly increase, after being over 50% of the previous 3 inflation prints. So moderation here but while yesterday’s US CPI print was a fraction below expectations, the last 4 months has still been a remarkable period for inflation beats. As my CoTD from yesterday (link here) showed, in the last 4 months of prints, the cumulative monthly beat has been 1.1pp for both headline and core relative to consensus expectations on Bloomberg. That level of expectation beats dwarfs what we have seen over the last 24 years of data, especially for core.

This data was followed by a bevy of Fed speakers, with the normally hawkish Governor Bostic speaking for the second time this week. He mirrored Governor Mester’s speech from the day before, saying “we have seen inflation rise above 2% as the economy recovers from the pandemic downturn. But most of that rise is fueled by forces that should recede over time. So, I expect price inflation to average close to our target over the longer term.” He also again affirmed that the Fed is more focused on the job market, saying that “The committee will no longer preemptively raise interest rates in response to a ‘hot’ labor market because of fear that inflation will eventually be a result.” Fed Governor George (non-voter this year) agreed with Bostic’s view from earlier in the week that the Fed ought to start reducing monetary stimulus, saying that “substantial” progress has been made. Lastly, Governor Kaplan actually laid out a timeline for investors saying he “would be in favour of announcing a plan at the September meeting and beginning tapering in October.”

After the three previous CPI readings saw a greater than 5bps move in Treasuries on the day, yesterday’s reading saw a much tamer response. US 10yr yields fell -1.9bps, their first retreat in the last 6 sessions. The drop was due to real yields falling, which overcame a slight increase in inflation expectations (+1.4bps). A successful 10 year auction after US lunchtime helped continue the rally after a pre-CPI sell off.

Germany’s final inflation data was in-line yesterday morning, with July CPI coming in at +0.9% m/m and +3.8% y/y, which saw 10yr bund yields fall marginally (-0.7bps). Overall, other European sovereign bonds underperformed bunds yesterday with yields on OATs (+0.1bps) and BTPs (+1.8bps) slightly higher. Staying with fixed income, the start of August has seen credit issuance explode in the US, with 48 dollar transactions being brought to market between IG and HY in the first two days of this week. There were an additional 8 US high-grade deals priced yesterday, which takes their overall issuance to $41bn this week so far, well ahead of the $25-30bn expected. It seems corporates are taking advantage of the lower Treasury yields and are either refinancing more expensive debt or are pulling forward autumn bond sales.

Following the late Tuesday night vote to move forward on the planned $3.5 trillion “human infrastructure” package, which includes funding for healthcare, higher education, paid family leave, climate policy among other Democratic initiatives, President Biden sought to get ahead of some the criticism surrounding potential inflation. The President said “If your primary concern right now is the cost of living, you should support this plan …A vote against this plan is a vote against lowering the cost of health care, housing, child care, and elder care and prescription drugs for American families.” The passage of this bill will take a good amount of shepherding as two moderate Senate Democrats have already said they agreed to discuss the bill, but do not support the $3.5 trillion price tag. At the same time, Democratic House members have said the $3.5tn is as low as they would want to go to enact consequential change. This will get picked up again in September when all members return, but this bill along with the bipartisan infrastructure package make up nearly the entirety of Biden’s domestic policy platform.

Overnight, China’s State Council and the Communist Party’s Central Committee have jointly released a statement saying that authorities would “actively” work on legislation in areas including national security, technology and monopolies while adding that law enforcement will be strengthened in sectors ranging from food and drugs to big data and artificial intelligence. In addition to this, China’s banking and insurance watchdog has ordered companies and local agencies to curb improper marketing and pricing practices, and step up user privacy protection. The agency said that it is encouraging for companies to address these issues voluntarily and said those that failed to comply would face “severe punishment.” Chinese stocks are weaker on the back of this with the the CSI (-0.61%) and Shanghai Comp (-0.12%) both in the red, while the Hang Seng (-0.10%) and Kospi (-0.13%) have also seen modest falls. The Nikkei (+0.15%) is the exception. Outside of Asia, futures on the S&P 500 are unchanged while yields on 10y USTs are up +1.4bps to 1.346%.

On the pandemic, there was good news yesterday from the UK with fewer than 1% of UK school students and teachers testing positive for Covid-19 in June, which was significantly lower than last Autumn according to a study by the ONS. This is seen as an optimistic sign for those who want to convince parents and health ministers that it is safe to send kids back to school when term starts next month. Meanwhile, the US continues to have diverging policies around schools. Yesterday, California mandated that all teachers and school personnel be vaccinated or be subjected to weekly testing, while in Florida the Governor banned school districts from instituting a mask mandate. This comes as Moderna announced plans to double the size of its under-12 vaccine trial to nearly 13,275, after a request from the US regulators for additional safety data. Bloomberg has reported overnight that the US FDA might clear vaccines from Moderna and Pfizer/BioNTech for booster doses as soon as today for people with compromised immune systems. Meanwhile, even as the Olympics have ended, cases continue to rise in Japan and the government is considering increasing the radius of its state of emergency to additional areas outside of Tokyo and keeping it in force through September, rather than ending it this month.

To the day ahead now and we will get our first look at UK Q2 GDP and the June industrial and manufacturing production data as well as the Euro Area June industrial production. Over in the US, investors will be assessing July PPI data along with weekly initial jobless claims and continuing claims. Following a busy week, there are no Fed speakers scheduled for today, but there will be a monetary policy decision from the Bank of Mexico. In terms of earnings, Walt Disney, China Mobile, Deutsche Telekom, AirBnB, Doordash, and Baidu are all reporting as we approach the end of earnings season. Also investors are sure to look at OPEC’s monthly oil market report for signals on where pricing is going.

Tyler Durden Thu, 08/12/2021 - 07:57

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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.


Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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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