Connect with us

Bonds

Futures Hit New All Time High As Santa Rally Drags Everything Higher

Futures Hit New All Time High As Santa Rally Drags Everything Higher

The Santa rally, which made an expected appearance during yesterday thinly-traded session now that most desks have closed their books for the year pushing stocks to their…

Published

on

Futures Hit New All Time High As Santa Rally Drags Everything Higher

The Santa rally, which made an expected appearance during yesterday thinly-traded session now that most desks have closed their books for the year pushing stocks to their 69th all-time high for 2021, is back (as discussed in "Goldman: There Has Been No FOMO In Late 2021, This Changes In 5 Trading Sessions") amid a combination of low volume, delta-chasing, dealer gamma and a plain old short squeeze (as predicted correctly by Marko Kolanovic), and has pushed e-minis just shy of 4,800 this morning, and a little over 200 points away from the 2022 year-end targets by both JPM and Goldman. Stocks in Europe advanced along with US equity futures as traders evaluated the resilience of the global recovery to a record spike in coronavirus cases. 10-year Treasury yields and the dollar were little changed. Oil surged to a five-week peak, while iron ore futures extended a decline after data showed softening Chinese steel output. Bitcoin tumbled following fresh selling out of Asia, where the PBOC seems to have a death wish against the cryptocurrency.

As Bloomberg notes, global stocks are on course for a third year of double-digit returns, powered by trillions in liquidity from the Fed and other central banks. The climb has overcome coronavirus waves and a late-year shift by some key central banks toward tighter monetary policy to fight high inflation (it also explains why most of the gains were achieved early in the year). Concerns remain that those variables could spur heightened volatility.

“The remedies that we put in place to counter the Covid recessions, they were so substantial, we had massive stimulus,” Sandip Bhagat, chief investment officer of Whittier Trust, said on Bloomberg Television. “We’ll be left with a legacy of those policy responses well into the future” and stocks can continue advancing, he said.

Here are some of the biggest U.S. movers today:

  • Apple (AAPL US) shares are up 0.3%, with the stock now just about 1% shy of hitting a historic $3 trillion market valuation for the iPhone maker. The shares are on track for a fifth straight gain.
  • ADDvantage Technologies Group (AEY) shares jump 9% after the communications infrastructure company reported a 61% increase in revenue during the fourth quarter.
  • Arrival SA (ARVL) gains 2.4% after the electric-vehicle company announced that it has started trials of the Arrival Bus at a testing facility in the U.K.
  • Bit Digital (BTBT) falls 3%, down with other crypto stocks as Bitcoin tumbles back below the $50,000 level.
  • Clear Secure (YOU) rises 3% after Grasso Global CEO Steve Grasso said last night on CNBC’s “Fast Money” that shares “should be up another 30% from current levels.”
  • Flotek Industries (FTK) rallies 46% after the company said it received an unsolicited indication of interest for all or part of the environmental solutions company.
  • JinkoSolar Holding Co. (JKS), controlling shareholder of Jinko Solar, shares are up 3% after the China Securities Regulatory Commission allows Jinko Solar to list on the Star board in Shanghai.
  • Kiniksa Pharmaceuticals (KNSA) shares plunge 16% after the company said its phase 3 trial of mavrilimumab in COVID-19-related acute respiratory syndrome did not meet the primary efficacy endpoint.
  • LiveOne  (LVO) shares rises 21% after the company entered into a binding letter of intent for an exclusive option to purchase Trader2b’s business or its assets and operations.
  • Tesla (TSLA) shares rise 1.6% as Wedbush says the company is in a strong position heading into 2022. China demand is key for bull thesis on Tesla, analyst Daniel Ives writes.

Elsewhere, cryptocurrency-linked stocks fell in premarket trading as Bitcoin tumbled back below the $50,000 level as the now traditional selling pressure out of Asia emerged right on schedule (see "The Crypto Trading Cycle: Asian Weak Hands Selling To US Whales"). Bitcoin fell as much as 4.5% and trades at $49,167 as of 6:35 a.m. in New York. o    Other digital currencies are also lower this morning, with Ether falling 3.5%, while Litecoin slips 4% and Monero drops 3.8%.

Overnight, a flood of omicron infections took global Covid-19 cases to a daily all-time high on Monday. The surge has disrupted global reopening and could squeeze hospitals. At the same time, investors are taking comfort that while highly contagious, Omicron is a far less severe illness. Meanwhile, France announced it would force its citizens to work from home for most of next month to contain the spread of the highly transmissible omicron variant. Meanwhile, an outbreak in the western Chinese city of Xi’an continued to fester, with new cases hitting a record high days after its 13 million residents were locked down. The U.K. government won’t introduce stricter restrictions in England before the end of the year, despite the rapid spread of the omicron variant.

In Europe, the Stoxx Europe 600 index nudged closer to last month’s record high, with utilities leading the advance as all industry sectors gained while French travel and catering stocks dropped on the country's new work-from-home order. Pierre & Vacances, an operator of holiday villages and residences, drops 1.8% in Paris trading, while tour operator Voyageurs du Monde falls 1% after the French government announced new measures amid efforts to contain the spread of the omicron variant.

Earlier in the session, Asian stocks climbed, following a rise in U.S. peers to fresh record highs, as investors’ risk appetite improved.  The MSCI Asia Pacific Index rose as much as 0.8%, driven by an advance in hardware technology firms. Japan led gains around the region, while Hong Kong underperformed. Australia and New Zealand remained shut for holidays. The key Asian stock gauge is on course for a monthly advance of about 1.9%, which would be its best since August. Positive economic data and easing worries over the omicron coronavirus variant have helped of late, although the measure is still down 3.3% on the year amid the selloff in Chinese tech giants. “U.S. equities are so strong that investors here can’t help but pick up stocks and chase the rally amid fear of being left behind,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank in Tokyo. “But it’s not as if there are loads of new reasons to buy stocks now, so some caution is needed.” The S&P 500 Index posted its 69th record close for 2021 on optimism stocks can withstand risks from the coronavirus and tighter policy. TSMC and Tokyo Electron were among the top contributors to the Asian benchmark’s rise Tuesday after the Philadelphia Semiconductor Index rallied 2.7% to an all-time high.  “U.S. yields are strangely stable,” Sera added. “It may be that some are looking way ahead and thinking that not too many hikes will be required down the road” thanks to the swift rate increases expected from the New Year, she said. 

The latest escalation in Beijing’s wider regulatory clampdown on private industry casts more doubt over the prospects for overseas initial public offerings, which had proceeded virtually unchecked for two decades.

Meanwhile, the People’s Bank of China -- which on the weekend vowed more economic support -- boosted a short-term liquidity injection.  

India’s benchmark stock gauge advanced for a second day, tracking regional peers after the S&P 500 climbed to a record high. The S&P BSE Sensex rose 0.8% to 57,897.48 in Mumbai, while the NSE Nifty 50 Index increased 0.9%. All 19 sectoral sub-gauges compiled by BSE Ltd. gained, led by a measure of capital goods companies. Asian Paints Ltd. contributed the most to the Sensex’s gain, increasing as much as 2.9%. Out of 30 shares in the Sensex index, 28 rose and two fell. Most regional markets advanced as investors’ risk appetite improved. India’s economy expanded at a steady pace in November, a month that also saw the omicron virus variant raising fresh concerns about risks to the recovery, according to data tracked by Bloomberg News.

In FX, the yen steadied close to the 115 level against the dollar while Japanese stocks climbed. Turkey’s lira declined after the central bank introduced new measures to discourage lenders from holding foreign-exchange savings accounts, while two former governors of the monetary authority were subjected to criminal complaints over comments.

Bitcoin slid below $50,000, a level some analysts view as a key pivot for assessing the largest cryptocurrency’s outlook heading into 2022

In rates, bonds were little changed after low liquidity resulted in no trading of the benchmark 10-year issue yesterday. Treasury yields were slightly higher on the day amid gains for European stocks and U.S. futures, and $57BN 5-year note auction ahead at 1pm ET. Yields are higher by as much as 1bp across the curve after declining slightly during Asia session; U.K. bond market is closed.  Monday’s 2-year sale tailed slightly, and last month’s 5-year drew weak demand following a spate of extreme volatility in the sector that continued through mid-December as Fed policy evolved.

The yield on China’s 10-year sovereign bonds declined to the lowest level since June 2020, as interbank borrowing costs fell after the central bank boosted short-term liquidity. China is seen adding stimulus to stabilize growth next year, with various ministries vowing more proactive measures to reverse the slowdown caused by a worsening property slump, weak consumption and the coronavirus.

On today's calendar, expected data includes October FHFA house price index and S&P CoreLogic CS home prices at 9am, and December Richmond Fed manufacturing index at 10am; no Fed speakers slated this week. Poultry producer Cal-Maine Foods is scheduled to report earnings.

Market Snapshot

  • S&P 500 futures up 0.3% to 4,796.75
  • STOXX Europe 600 up 0.5%
  • MXAP up 0.8% to 193.35
  • MXAPJ up 0.5% to 627.48
  • Nikkei up 1.4% to 29,069.16
  • Topix up 1.4% to 2,005.02
  • Hang Seng Index up 0.2% to 23,280.56
  • Shanghai Composite up 0.4% to 3,630.11
  • Sensex up 0.8% to 57,904.60
  • Australia S&P/ASX 200 up 0.4% to 7,420.30
  • Kospi up 0.7% to 3,020.24
  • Brent futures up 0.8% to $79.19/bbl
  • Gold spot up 0.1% to $1,814.36
  • U.S. Dollar Index little changed at 96.05
  • German 10Y yield up 1bp to -0.23%
  • Euro little changed at $1.133

Top Overnight News from Bloomberg

  • Global Covid-19 cases hit a daily record on Monday, disrupting the holiday season a year after vaccines first started rolling out and two years after the emergence of the virus
  • Russia will start talks first with the U.S. on its demands for guarantees of an end to NATO’s eastward expansion before a proposed Jan. 12 meeting between the military alliance and Moscow, Foreign Minister Sergei Lavrov said
  • The vast majority of Libor benchmarks are about to be consigned to the history books, with final settings taking place at the end of this week

US Event Calendar

  • 9am: Oct. FHFA House Price Index MoM, est. 0.9%, prior 0.9%
  • 10am: Dec. Richmond Fed Index, est. 11, prior 11
Tyler Durden Tue, 12/28/2021 - 08:12

Read More

Continue Reading

Bonds

Futures Rise In Morbid Volumes With All Eyes On 50% Fib Retracement Level

Futures Rise In Morbid Volumes With All Eyes On 50% Fib Retracement Level

European stocks and US futures rallied on the last day of the week,…

Published

on

Futures Rise In Morbid Volumes With All Eyes On 50% Fib Retracement Level

European stocks and US futures rallied on the last day of the week, however traded well off session highs in extremely low-volume trading and tracked the sudden drop in oil, as investors pressed bets that easing inflation will allow the Fed to pivot to less aggressive rate hiking (if not ease outright). S&P 500 and Nasdaq 100 contracts rose about 0.3%, with both underlying indexes set to post their longest sequence of weekly gains since November. Treasury yields were steady at 2.87% and the US dollar rose but was set for the worst week since May. Crude oil fell, reducing its biggest weekly gain in about four months. Gold headed for a fourth weekly gain and Bitcoin was summarily smacked down below the $24,000 level yet again as crypto bears fight to preserve the upper hand.

For the second day in a row an attempt to void the bear market rally narrative by pushing spoos above the 50% fib retracement level is being defended by bears, with futures trading at 4222, or right on top of the critical level, which also doubles as the 100DMA. If broken through it could lead to substantial upside gains as even more bears throw in the towel.

In premarket trading, Alibaba led a premarket decline in US-listed China stocks after some of the nation’s largest state-owned companies announced plans to delist from American exchanges. Bank stocks traded higher, set to gain for a fourth straight day as investors continue to pile into stocks amid signs that inflation is cooling. In corporate news, Huobi Group founder Leon Li is in talks with a clutch of investors to sell his majority stake in the crypto-exchange at a valuation of as much as $3 billion. Here are some of the other notable premarket movers:

  • Rivian (RIVN US) shares fall 1.4% in premarket trading after the electric vehicle-maker forecast a bigger adjusted Ebitda loss for the full year than previously expected.
  • Expensify (EXFY US) shares fall 14% in premarket trading after the software company’s second-quarter revenue missed the average analyst estimate.
  • Toast (TOST US) shares soar 15% in premarket trading after the company boosted its revenue guidance for the full year and beat analyst estimates.
  • Chinese stocks in US slip in premarket trading after China Life Insurance (LFC US), PetroChina (PTR US) and Sinopec (SNP US) announced plans to delist American depository shares from the NYSE.
  • Ciena (CIEN US) gains 2.9% in premarket trading as Morgan Stanley upgrades its rating on to overweight with strong quarters seen ahead for the telecoms and networking equipment firm.
  • Co-Diagnostics (CODX US) shares plunge as much as 40% in US premarket trading, after the molecular diagnostics firm flagged lower volumes for its Covid-19 test.
  • Olo (OLO US) falls 31% in premarket trading, after the restaurant delivery platform cut revenue guidance.
  • Phunware (PHUN US) falls almost 7% in premarket trading after the enterprise cloud platform posted revenue and Ebitda that missed the average estimate.
  • Poshmark (POSH US) gave a weaker-than- expected quarterly revenue forecast as the online marketplace for second-hand goods sees sales growth being held back by macro pressures. The stock fell about 5% in postmarket trading on Thursday.
  • SmartRent’s (SMRT US) lowered full-year guidance represents a more attainable earnings outlook for the smart-home automation company, Cantor Fitzgerald said. Shares fell 16% in postmarket trading.

Traders pared back bets on Fed rate hikes after a report on Thursday showed US producer prices fell in July from a month earlier for the first time in over two years. That added to Wednesday’s data on slower increases in consumer prices to provide signs of cooling but still troubling inflation. Swaps referencing the Fed’s September meeting point to some uncertainty over whether a half-point or another 75 basis-point rate hike is on the cards.

Working hard to prevent stocks from rising even more, in the latest US central banker comments, San Francisco Fed President Mary Daly said inflation is too high, adding she anticipates more restrictive monetary policy in 2023. Her baseline is a half-point September hike but she’s open to another 75 basis-point move if necessary, Daly said in a Bloomberg Television interview.

“The macroeconomic environment may be starting to improve a little bit, with a peak in US CPI calling into question the need to hike rates aggressively,” economists at Rand Merchant Bank in Johannesburg said. “Inflation is still high and the Fed will still need to increase rates, but the situation is not as bad as many had feared.”

European stocks erased early gains as energy stocks fell with crude oil futures and investors weighed the impact of recent macroeconomic data on central bank policy. The Stoxx Europe 600 index fell 0.1% by 12:03 p.m. in London after gaining as much as 0.5% earlier. Health care giant GSK Plc was among outperformers, trimming a rout this week that was driven by worries about Zantac litigation, with some analysts suggesting the selloff may have been extreme. Elsewhere, travel and leisure was lifted by gains for Flutter Entertainment Plc following earnings, while consumer staples and miners declined. The region’s main stocks benchmark has risen about 10% since early July, with gains this week spurred by softer-than-expected US inflation data. Still, many investors are skeptical over the impact the report will have on monetary policy.

“We’re having another moment where the market is not listening to central banks,” said Tatjana Greil Castro, co-head of public markets at Muzinich & Co. “Marginally, investors are very reluctant to sell anything and want to buy,” she told Bloomberg Television.

Paradoxically, at the same time, data from Bank of America showed outflows from European equity funds continued for a 26th week at $4.8 billion. The recent bounce for the region’s benchmark is likely to fizzle out in the absence of a pickup in economic growth, BofA’s strategists said.

Here are the biggest European movers:

  • Flutter shares rise as much as much as 13% after the gambling firm reported 1H earnings that beat estimates. The strong update was led by the US and Australia, according to Goodbody.
  • GSK shares rise as much as 5% after its worst two-day rout on Zantac litigation worries. In response to the selloff on Zantac, GSK downplayed cancer risks from ranitidine and said it will vigorously defend all claims. Sanofi, also caught up in the Zantac-related selloff, rises as much as 3.2%, while Haleon edges up as much as 2%.
  • Telecom Italia gains as much as 9.1% following a Bloomberg News report that Italy’s far-right Brothers of Italy party is promoting a plan to take the phone company private and sell off its in a bid to cut its debt pile by more than half.
  • Nexi shares surge as much as 7.4% amid a Reuters report that the payment firm has received several unsolicited approaches from private equity firms, including Silver Lake, to take the company private.
  • Boozt shares rise as much as 18%, the most since October 2020, with DNB (buy) highlighting a strong beat on the bottom line for the Swedish ecommerce retailer.
  • Argenx shares rise as much as 3.7% after KBC reiterates its buy recommendation, saying the biotech is executing on schedule after yesterday’s European approval for Vyvgart, and with regulatory filing submitted in China.
  • Kingfisher shares drop as much as 4.2% after UBS cut its recommendation on the stock to sell from neutral, citing a softening outlook for the UK do-it-yourself (DIY) and do-it-for- me (DIFM) categories.
  • 888 Holdings shares drop as much as 16%, the most since February 2015, after the gambling company reported results and forecast 2H revenue will be in line with 1H.
  • Galenica shares fall as much as 2.5%, with Credit Suisse recommending staying put due to “demanding” valuation.

Asian stocks rose to a two-month high as Japan lifted the region higher in a catch-up rally, with traders digesting another downside surprise in US inflation. The MSCI Asia Pacific Index rose as much as 0.7%, poised for a third day of gains. Japan’s Topix Index added 2% after traders returned from a holiday, while markets in the rest of the region were mixed. Chinese shares fluctuated in a narrow range. Concerns on US inflation eased further after an unexpected month-on-month fall in July’s producer price index, which came a day after slower-than-expected US consumer prices. Stocks were initially strong overnight, before the rally faltered on concerns it may have gone to far. Gains in Asia were more modest on Friday, following hawkish commentary from a Fed speaker. 

Some optimism has emerged across Asia this week as traders bet on slower interest-rate increases by the Fed amid easing price pressures. The regional stock benchmark headed for a fourth weekly gain, the longest streak since January 2021. Still, the gauge is down more than 15% this year, trailing other equity benchmarks in the US and Europe. “Clearly in the last month and a half, people sort of moved from that inflationary fear to the Goldilocks scenario. And I think that gives a bit of time for reflection,” Joshua Crabb, head of Asia Pacific equities at Robeco, said in a Bloomberg TV interview. The current earnings season is critical because “we’re also gonna see how much demand destruction that inflation is gonna put forward.”

Australia's S&P/ASX 200 index fell 0.5% to close at 7,032.50, dragged by losses in mining and health shares. Still, the benchmark climbed 0.2% for the week in its fourth straight week of gains.  The materials sub-gauge contributed most to the gauge’s decline on Friday after iron ore fell, as a report showed stockpiles of the steel-making ingredient are still rising. In New Zealand, the S&P/NZX 50 index fell 0.3% to 11,730.52. The nation’s food prices surged 7.4% from a year earlier in July, the largest increase in four months, according to data released by Statistics New Zealand

Indian stocks clocked their longest stretch of weekly gains since the middle of January as a pickup in foreign buying pushed key indexes higher.  The S&P BSE Sensex rose 0.2% to 59,462.78 in Mumbai, taking its weekly gains to almost 2%. This was the fourth week of advance for the key index. The NSE Nifty 50 Index also climbed 0.2% on Friday. Of the 30 stocks in the Sensex, half fell and the rest climbed. Reliance Industries offered the biggest boost to the key gauge.  Thirteen of 19 sectoral sub-indexes compiled by BSE Ltd. rose, led by a gauge of oil and gas companies.  Foreign investors have bought a net $3.2 billion of Indian shares since the end of June through Aug. 10. That’s after dumping about $33 billion in the previous nine months as concerns over the Federal Reserve’s aggressive tightening boosted the dollar and spurred outflows from emerging market assets. “FPIs flows were positive this week. With results season coming towards a close, market focus will shift towards macro factors that includes inflation, central bank rate action, oil prices and recession concerns in key economies globally,” Shrikant Chouhan, head of equity research at Kotak Securities wrote in a note.

In FX, Bloomberg dollar spot index is in a holding pattern, up about 0.1%. NZD and AUD are the strongest performers in G-10 FX, SEK and GBP underperform. The Swedish krona led losses after weaker-than-expected inflation data, with the pound also lagging after stronger-than-expected data showed the UK economy shrank in the second quarter. The yen also underperformed. The Canadian dollar and Norwegian krone led gains, with NOK/SEK hitting the highest since April

In rates, Treasuries were slightly richer across the curve with gains led by long-end, although futures remain near bottom of Thursday’s range. Curve mildly flatter, but spreads broadly hold Thursday’s steepening move. Gilts underperform after raft of UK data including 2Q GDP which contracted less than expected. US yields richer by as much as 4bp across long-end of the curve with 5s30s spreads steeper by more than 2bp on the day; 10-year yields around 2.865%, richer by 2bp on the day and outperforming bunds, gilts by 3.5bp and 5.5bp in the sector. Gilts underperform bunds and Treasuries, trading about 3-4bps higher across the yield curve after UK 2Q GDP contracted less than expected, with traders raising BOE tightening bets. German 10-year yield briefly rose above 1%, now up about 2bps to 0.99%. Peripheral spreads widen to Germany. Treasuries 10-year yield down 1 bps to 2.87%.

In commodities, WTI crude is trading slightly lower at ~$94, within Thursday’s range, and gold is down close to $3 at ~$1,787

Looking to the day ahead now, and data releases include the UK’s GDP reading for Q2, Euro Area industrial production for June, and in the US there’s the University of Michigan’s preliminary consumer sentiment index for August.

Market Snapshot

  • S&P 500 futures up 0.6% to 4,234.25
  • STOXX Europe 600 up 0.4% to 442.02
  • MXAP up 0.6% to 163.27
  • MXAPJ up 0.2% to 531.44
  • Nikkei up 2.6% to 28,546.98
  • Topix up 2.0% to 1,973.18
  • Hang Seng Index up 0.5% to 20,175.62
  • Shanghai Composite down 0.1% to 3,276.89
  • Sensex up 0.3% to 59,482.94
  • Australia S&P/ASX 200 down 0.5% to 7,032.51
  • Kospi up 0.2% to 2,527.94
  • German 10Y yield little changed at 1.00%
  • Euro down 0.2% to $1.0295
  • Brent Futures up 0.3% to $99.90/bbl
  • Brent Futures up 0.3% to $99.87/bbl
  • Gold spot down 0.1% to $1,787.09
  • U.S. Dollar Index up 0.25% to 105.35

Top Overnight News from Bloomberg

  • Three of China’s largest state-owned companies announced plans to delist from US exchanges as the two countries struggle to come to an agreement allowing American regulators to inspect audits of Chinese businesses
  • The cooler inflation reading for July is welcome news and may mean it’s appropriate for the Federal Reserve to slow its interest-rate increase to 50 basis points at its September meeting, but the fight against fast price growth is far from over, San Francisco Fed President Mary Daly said.
  • China may be ready to curb some of the excess liquidity sloshing in the banking system as it turns its focus to mitigating risks in the financial industry.
  • In the fight against pandemic inflation, Latin America led the world into a new age of tight money. Eighteen months later, there’s not much sign that being first in will help the region to become first out
  • The UK economy shrank in the second quarter for the first time since the pandemic, driven by a decline in spending by households and on fighting the coronavirus

A more detailed look at global markets courtesy of Newsquawk

Asia-Pc stocks were mixed following a similar indecisive lead from Wall Street where stocks and treasuries faded the initial gains from the softer-than-expected PPI data, although Japan outperformed on return from holiday. ASX 200 was dragged lower by losses across nearly all sectors including the top-weighted financial industry despite the confirmation of a return to profit for IAG, while energy bucked the trend after a recent rebound in oil. Nikkei 225 notched firm gains as it played catch-up to global peers and took its first opportunity to react to the softer inflationary signals from the US, while Softbank was among the top performers as it expects to gain USD 34bln from reducing its stake in Alibaba. Hang Seng and Shanghai Comp were both subdued in early trade amid weakness in property stocks and ongoing COVID-related headwinds, although the Hong Kong benchmark gradually recovered with earnings releases also in the limelight.

Top Asian News

  • Japanese PM Kishida plans to hold a meeting on August 15th to address rising goods prices, wages and daily life, while he called for additional measures on dealing with rising food and energy prices, according to Reuters.
  • Jardine Matheson Slumps 9.6% as MSCI Cuts Co. Weight in Indexes
  • Baltic States Abandon East European Cooperation With China
  • Gold Set for Fourth Weekly Gain on Signs Fed to Ease Rate Hikes
  • Asian Gas Prices Rally on Rush by Japan to Secure Winter Supply

European bourses are firmer, but action has been relatively contained with newsflow slim, Euro Stoxx 50 +0.2%; however, benchmarks waned alongside US futures following China ADS updates. Currently, ES +0.4% but similarly off best levels amid Chinese stocks announcing intentions to delist their ADSs and reports that Germany is being looked at as a banking base. China Life (2628 HK), PetroChina (857 HK), Sinopec (386 HK) plan to delist ADSs from NYSE; last trading day for China Life expected to be on or after 1st September. Subsequently, China's Securities Regulator says it is normal within capital markets for companies to list and delist. Chinese brokers are reportedly looking at Germany as a banking base amid tensions with the US, via Bloomberg citing sources. SMIC (0981 HK) CEO says increasing geopolitical tensions, elevated inflation and a cyclical downturn in demand for chips has resulted in "some panic" within the industry, via FT. Huawei - H1 2022 (CNY): Revenue -5.9% Y/Y to 301.6bln. Net Profit 15.08bln (prev. 31.39bln Y/Y). Device Business Revenue -25.3% Y/Y. 2022 will probably be the most challenging year historically for our devices business Chinese and Hong Kong regulators are to announce adjustments to the trading calendar for the stock connect

Top European News

  • Union Leaders Kick Off Rallies Across UK in Living Cost Protest
  • Baltic States Abandon East European Cooperation With China
  • Swedish Core Inflation Surge Fuels Bets of Faster Rate Hikes
  • JPMorgan Strategists Say US 2Q Earnings Fall 3% Excluding Energy
  • Ukraine Latest: Putin’s Economy in Focus; More Grain on the Move

FX

  • DXY attempts to recover from its post-CPI lows as it eyes yesterday’s 105.46 high.
  • EUR, JPY, and GBP are under pressure from the firmer Dollar; EUR/USD eyes some notable OpEx for the NY cut.
  • The non-US Dollars are resilient this morning on the back of the general risk tone across stocks and the rise in commodities.
  • Fleeting SEK upside was seen in wake of inflation data, with the metrics being in-line/below expectations.

Fixed Income

  • Core benchmarks are little changed overall on the session and particularly when compared to price action seen earlier in the week.
  • Further pressure seen following the Gilt open in wake of UK GDP metrics.
  • USTs in-fitting with peers and the yield curve, currently, does not exhibit any overt bias

Commodities

  • WTI and Brent hold an upside bias in Europe amid the broader risk tone.
  • Spot gold is relatively uneventful as the firming Dollar keeps the yellow metal capped under USD 1,800/oz.
  • Base metals markets are relatively mixed with the market breadth shallow, although LME copper extends on gains above USD 8k/t.

US Event Calendar

  • 08:30: July Import Price Index YoY, est. 9.4%, prior 10.7%; MoM, est. -0.9%, prior 0.2%
    • July Export Price Index YoY, prior 18.2%; MoM, est. -1.0%, prior 0.7%
  • 10:00: Aug. U. of Mich. Sentiment, est. 52.5, prior 51.5
    • Aug. U. of Mich. Current Conditions, est. 57.8, prior 58.1
    • Aug. U. of Mich. Expectations, est. 48.5, prior 47.3
    • Aug. U. of Mich. 1 Yr Inflation, est. 5.1%, prior 5.2%; 5-10 Yr Inflation, est. 2.8%, prior 2.9%

DB's Jim Reid concludes the overnight wrap

This will be the last EMR from me for a couple of weeks as I'm off on holiday. We're going to Cornwall rather than our usual France trip this summer as transporting a child in a wheelchair around a beach was seen as mildly easier than doing the same up and down a mountain. Hopefully this time next year we'll be back in the invigorating mountain air. If you're reading this having originated from Cornwall please don't take offence! However I've never liked beach holidays and I think I'm too old to change my mind. The kids on the other hand can't contain their excitement. So expect me to spend most of my time in an uncomfortable wetsuit trying desperately to ensure that they don't get washed away. Give me the stress of payrolls or CPI any day over that. I'll be gazing longingly from the sea at the golf course next door.

Life's been quite a beach for markets of late but the last 24 hours have been a bit strange, as a second successive weaker-than-expected US inflation reading (PPI) actually left longer dated yields notably higher than where they were before the better than expected CPI on Wednesday, and at one point they were +23bps above where they were immediately after the first of these two dovish prints. The S&P 500 also reversed earlier gains of more than +1% to finish lower at -0.07%. Maybe we shouldn't read too much into summer illiquidity but the moves have been a bit all over the place of late.

While the combination of below-expectations inflation and worsening labour data (see below) initially drove a dovish-Fed interpretation, the price action reverted throughout the day, and we closed with still around even odds between a 50bp or 75bp hike at the September FOMC meeting (61.8bps implied).

When it came to Treasuries, despite the selloff, there was a decent amount of curve steepening, with the 2yr yield climbing +0.4bps whilst the 10yr yield rose by +10.6bps to 2.89%, the highest since July 20th. This helped the 2s10s curve to see its biggest daily steepening move in over 3 months and closing at -33bps, but still having closed inverted 29 for days running. 30yr Treasuries (+14.2bps) hit the highest since July 8 after receiving a lukewarm reception at auction. Maybe the longer end yield rises actually reflect a view that the Fed will be less likely to need to choke the recovery off now inflation is cooling. So maybe yields would have been lower this week with stronger inflation prints? Or is that just the silly season getting to me? To add to the ups and downs, this morning in Asia, 10yr UST yields (-2.73 bps) are edging lower, trading at 2.86% with the 2yr yield down -1.86 bps at 3.20% thus flattening the curve a tad as we go to press.

Over in equities, the S&P 500 (-0.07%) was marginally lower last night after increasing more than +1% in the New York morning. Small caps were a big outperformer, with the Russell 2000 index up by +0.31% to reach its highest level since April as the near-term growth outlook still looks OK, whereas the NASDAQ bore the brunt of the gradual duration selloff throughout the day, falling -0.58%. Overnight, contracts on the S&P 500 (+0.14%) and NASDAQ 100 (+0.22%) are moving slightly higher again.

In terms of the details of that inflation print, US producer prices fell by -0.5% in July, which was some way beneath expectations for a +0.2% rise, and marks the biggest monthly decline since April 2020 when the economy was experiencing Covid lockdowns. As with the CPI release the previous day, the PPI was dragged down by a sharp fall in energy prices, which fell by -9.0% on the month, and that helped the annual headline measure fall from +11.3% in June down to +9.8% in July. Even if you just looked at core PPI however, the reading was still softer than expected, with the monthly gain excluding food and energy at +0.2% (vs. +0.4% expected), which sent the annual gain down to +7.6%.

The prospect that the Fed would be more cautious in hiking rates was given a slight bit of extra support thanks to additional signs that the labour market was softening. The weekly initial jobless claims for the week through August 6 came in at 262k (vs. 265k expected), which is their highest level since November, and the smoother 4-week moving average also rose to a post-November high of 252k. Continuing claims climbed to 1428k, above expectations. Recall, our US economics team has showed that once the 4-week average of continuing claims increases 11% over recent lows near-term recession alarms start sounding. We’re at 1399k on the 4-week moving average on claims, still a reasonable distance from this 11% increase of 1465k. Overall, although the weekly claims data is slowly getting worse, it's still happening in a sea of huge job openings and generally big job growth. Perhaps the labour market is behaving slightly different from usual in that you can have both big job openings but claims edging up because of a sudden skills mismatch post Covid. If so it makes traditional clues to the future direction of the economy more difficult to decipher. For us the US jobs market is still healthy for now. I suspect it won't be in 12 months time but that's a story for another day.

For Europe, the newsflow continued to be much more downbeat than in the US of late, as concerns mounted across the continent about the energy situation this winter. Natural gas futures rose a further +1.34% yesterday to €208 per megawatt-hour, putting them at their highest levels since early March just after Russia’s invasion of Ukraine began. Power prices also soared to fresh records, with German prices for next year up +5.24% to €449 per megawatt-hour, whilst French prices were up +6.62% to €615 per megawatt-hour. Governments are coming under increasing pressure to do something about this, and German Chancellor Scholz said yesterday that there would be further relief measures for consumers.

Growing concerns about an imminent recession meant that European equities also had a lacklustre day, with the STOXX 600 only up +0.06%. Sovereign bonds also lost ground, with yields on 10yr bunds (+8.2bps), OATs (+8.3bps) and BTPs (+3.8bps) all moving higher on the day, although gilts were the biggest underperformer on this side of the Atlantic with yields up by +10.8bps.

Asian equity markets are relatively quiet this morning with the exception of the Nikkei (+2.37%) which is surging and catching-up up after a holiday on Thursday, whilst the Hang Seng (+0.09%), the Shanghai Composite (+0.16%), the CSI (+0.08%) and the Kospi (+0.02%) are all edging up.

Elsewhere, the San Francisco Fed President Mary Daly in her overnight remarks indicated that a 50 bps interest rate hike in September “makes sense” following two back-to-back 75-basis-point hikes in June and July given recent economic data including on inflation. However, she added that she is open for a bigger rate hike if the data showed it was needed.

To the day ahead now, and data releases include the UK’s GDP reading for Q2, Euro Area industrial production for June, and in the US there’s the University of Michigan’s preliminary consumer sentiment index for August.

Tyler Durden Fri, 08/12/2022 - 08:08

Read More

Continue Reading

Government

Modern American Policy: Stupid Or Sinister?

Modern American Policy: Stupid Or Sinister?

Authored by Matthew Piepenburg via GoldSwitzerland.com,

American policy has been acting in ways…

Published

on

Modern American Policy: Stupid Or Sinister?

Authored by Matthew Piepenburg via GoldSwitzerland.com,

American policy has been acting in ways which suggest either a desperate ignorance or a sinister restructuring of the national narrative.

Surveying the Senseless

The USA is now staring down the barrel of four-decade high inflation, an inverted yield curve and the highest debt levels in its history as Wall Street recently enjoyed the strongest relief rally since 2020 on the bad news of yet another Fed rate hike (75bp) into a percolating liquidity crisis.

Huh?

In a Fed-led dystopia marked by years of printed rather than earned liquidity, bad news is now good news to markets who nervously seek pretexts for central bank stimulus rather than actual earnings or GDP.

In such distorted landscapes, positive jobs data creates sell offs and crippling rate hikes induce rising stocks.

For almost 2 years, while we and other candid market observers were warning of crippling inflation, our central bankers were describing it as “transitory” with a dishonesty similar to the current recession is not a recession meme.

Huh?

Meanwhile in DC, we see growing signs of a political culture less about public service and more about self-service.

Wealth disparity in the home of the brave has passed the highest levels ever recorded and points directly to the slow and empirical death of the American middle class.

The suburbs around DC are growing richer with lobbyist and polo-playing defense contractors buying concessions and second homes from politicians who openly sell votes for reelection in a democracy that more resembles an auction house than a house of representation.

A former tobacco tsar at the FDA, for example, recently took an executive role at Phillip Morris while an executive at Raytheon (America’s second largest defense contractor) just took a key post at the Department of Defense.

Alas, the foxes not only guard the hen house, they run it.

The Land of the Free?

If fascism is defined as “the perfect merger of the state and corporate powers” (See Mussolini circa 1936), then the USA may still be the land of the brave, but it no longer resembles the land of the free.

JP Morgan, led by a $35M/year Jamie Dimon, just paid a $96M “fine” for a $20B profit garnered from openly manipulating the gold market.

Huh?

At the same time, once great (and now police-defunded) cities like Chicago, NYC, and San Francisco are seeing tumbleweeds blowing past office vacancy rates as high as 40% following an historically disastrous COVID lockdown policy which did far more psychological, criminal and financial damage ($7T and counting) to America than a flu with less than a 1% Case Fatality Rate.

Huh?

Turning to foreign policies, having failed to deliver “freedom and democracy” to Vietnam, Iraq, Libya, Syria, and Afghanistan at the cost of America’s best sons and daughters, one wonders why the US has spent another $60B to bring “freedom” to the Ukraine when millions of US children live in poverty.

All Americans hate to see civilians suffer in needless wars. But many who blindly wave Ukrainian flags in moments of ad-water, instant-virtue signaling from a government-led media can’t place Ukraine on a map nor bother to examine the complex history of its Russian tensions which date back to the 1750s.

Furthermore, sending an IQ, history and geography challenged Kamila Harris to pre-war Ukraine with a NATO narrative only accelerated the February drums of war (and the financially disastrous sanctions that followed) in the same way that Pelosi’s recent trip to Taiwan seems to be more about flaming rather than cooling the war hawks.

Does the US, with over 800 military bases in 70 countries actively seek war, or does it seek peace? Thousands are dying in the East for what many professional US statesmen believe was an easily avoidable war.

Has the military industrial complex, against which Eisenhower (no stranger to war) warned in January of 1961, hi-jacked American politics?

Meanwhile, as American monetary and fiscal policy reached new levels of open insanity in the seemingly deliberate fear-campaign led by “experts” like Fauci in the dramatically-described “war against COVID,” the latest boogieman out of DC is an equally unaffordable war against an equally-hyped climate change.

If passed, “The Inflation Adjustment Act of 2022,” now sitting on Biden’s desk (or pillow), seeks further dollars that America does not earn yet which the White House assures won’t be inflationary.

Huh?

Do the foregoing samples of questionable policy failures evidence open stupidity, or is there something more systemic at play?

The Fed: “Advancing the Few at the Expense of the Many”

My take on the Fed is only that: My take. It is based upon the premise (and bias) that the Fed is driven, as Andrew Jackson warned, to serve the few and not the many.

This presumption comes not only from personal observations, but a careful study of the Fed’s illegitimate practices and origins, far too complex to unpack here but detailed in Gold Matters.

The Ongoing Inflation Lie

As I’ve been writing and saying for months, the Fed’s current inflation narrative as well as “solution” is as openly bogus as a 42nd Street Rolex.

There is little about the current inflation narrative that compares to the 1970’s, and hence little about Powell’s current policies which remotely compare to the so-called Volcker era of 1980, which ended, by the way, in a recession.

Nevertheless, I am fascinated by the extensive time, brain-power and pundit attention given to explaining current inflation.

Fancy concepts from “demand-pull” to “supply shocks,” or “extraneous shocks” and “accelerants” to even “black swans” are used to explain a 9.1% CPI inflation scale (which, if DC truly wishes to be “Volcker-like,” is closer to 18% using the metrics of his era…).

The Simple Inflation Truth

Inflation, which was already steadily rising pre-Putin and percolating pre-COVID, is nothing more than the direct consequence of USD debasement driven by: 1) years of openly addictive mouse-click money (>10X since 2008) from the Eccles Building and, 2) fatal fiscal spending from the White House, be it red or blue.

In just the last 24 months, the Fed created 50% more mouse-click money than all the money that ever existed in the 256 years of its national existence.

Such numbers are a tad “inflationary,” no? Alas, costs are rising because our grotesquely inflated/de-valued dollar is tanking.

Between 1776 and the un-immaculate conception of the Fed in 1913, a USD was once a USD.

Since 1913, however, a USD is really (worth) nothing more than a Nickle.

Why?

Broken Faith vs. Store of Value

Because when a central bank creates trillions of those dollars out of thin air with no link to an underlying real asset or an equivalent exchange for a good or service (as Germans like Alfred Lansburgh, Austrians like von Mises and Americans like Andrew Dickson White argued), that dollar is nothing more than a symbol of broken faith rather than a store of genuine value.

Like a glass of wine filled with a swimming pool of water, the dollar is diluted; it’s flavor, color and value ruined. Since 1971, and when measured against a single milligram of gold, the USD, like all other fiat currencies, has lost greater than 95% of its value.

The Fed: Blaming vs. Accountability

Rather than confess the toxic reality (and complicity) of the fatal and inflationary expansion of the broad money supply, the DC elites first tried to call it “transitory,” and when that failed, they tried to call it “Putin’s inflation.”

Really?

There’s no doubt that the sanctions against Putin sent gas prices and the CPI higher—especially in Europe. And there’s also no doubt that the trillions of fiscal and monetary dollars used to “fight” COVID were CPI tailwinds.

But a tailwind does not mean a cause.

Take the “war on COVID” and the $7T+ in combined fiscal and monetary dollars used to combat it.

I’m not here to end the COVID debate with medicine or science, of which I’m clearly no expert. But many of us (including Rand Paul or Christine Anderson) would agree that neither was Fauci, the CDC, the WHO or the NIH.

Almost everyone (vaxed or un-vaxed, masked or un-masked) has already caught the virus; it’s fairly clear that locking the country down for well over a year did nothing but cost money and freedoms while destroying businesses who deserved to choose for themselves whether to stay open or shut.

There will be others who disagree, but in my legally, historically and financially educated mind, not since the oxy-moronic Patriot Act have I seen a greater crime (or psy op) against a nation’s own citizens and their once inalienable rights and civil liberties as that which was embodied by the 2020 lockdowns.

As Ben Franklin warned, a nation which surrenders its freedoms in the name of security deserves neither.

Critical Thinking Locked Down

As a kid who won athletic scholarships to some of the finest schools (from Choate to Harvard) in America, I learned the trade of critical thinking, which any of us can acquire, with or without a shiny diploma.

What particularly sickened me, however, was that the very schools (prep to grad level) who taught me the history, laws and methods of thinking critically, independently and openly, were the same knee-bending schools who collectively insulted those same principals by shutting their doors to the un-vaxed and censoring alternative views from professors and students who thought differently.

Were these lockdowns proof of humanitarian concern or were they test-drives for increasingly centralized control over national and international markets, currencies and populations?

From the very beginning of the pandemic, expert virologists, physicians and even vaccine creators (as evidenced by the meetings at the AIER in Great Barrington) with equal if not far superior credentials than Dr. Fauci, were openly censored, gas-lighted and criminalized by the media as flat-earth “conspiracy theorists”—the now favorite term of art for anyone who disagrees with DC’s often comically official narrative on anything from WMD to the current definition of a recession.

Thus, when considering the current inflation narrative and its causes, was the US merely stupid in imposing financially crippling lockdowns or were there sinister forces engineering fear as a means of pushing the masses into dependency while the Fed printed more dollars for the repo and bond markets (a hidden “bailout’) than for Main Street?

Saudi Did It?

Others may want to blame the Saudis and the high oil prices for the inflation we see today.

It’s worth reminding, however, that today’s oil price is roughly the same as it was in April of 2020.

The Solution Narrative

As far as combatting inflation, that too creates a great deal of space for debate, error and comedy.

Many, including the Fed’s James Bullard, Lael Brainard or Neel Kashkari have been arguing for aggressive rate hikes to kill inflation.

But with inflation already at 9.1%, such “above-neutral” would require the Fed to follow the IMF’s recommendation that interest rates be at least 1% above inflation rates. In an honest world, that would require a 10.1% interest rate policy, which would immediately bankrupt Uncle Sam.

Instead, Powell is boasting of an “aggressive” 2.25-50% Fed Fund Rates to fight 9.1% inflation, the policy equivalent of storming the beaches of Normandy with squirt-guns.

Meanwhile, the Cleveland Fed, as per my recent articles, is using dishonest math to publicly claim positive 1% real rates despite the fact that when measuring even a 3% yield on the 10Y UST against a 9.1% inflation rate, the USA is in fact living in a world of at least -6% rather than +1% real rates.

Like the CPI scale itself, the Fed is openly lying about negative real rates.

Sadly, such clever math is now the new DC normal. The Fed won’t say what the rest of us know, namely: The only tool to fight Fed-made inflation is a Fed-made recession, which they will deny in plain sight.

The Recession Narrative

The latest lie from on high, of course, is the valiant attempt by Powell, Biden and Yellen to downplay 2 consecutive quarters of negative GDP as a non-recessionary “transition” despite such data effectively confirming the very definition of a recession.

Instead, DC would now have us believe that positive labor and unemployment data is non-recessionary.

In particular, the BLS is boasting 528,000 newly created jobs in July (and 2M year-to-date), which places US unemployment at an admirable 3.5%, the lowest level seen in 50 years.

Unfortunately, a little bit of honest math indicates that those “new jobs” don’t represent new folks finding work, but sadly, just folks already-employed who are taking on second or third jobs to survive rising inflation costs.

The July labor force participation rate actually went down, which means there are less not more people in the work force.

In April of 2019, I did a more extensive report on the DC math used to artificially puff US labor data (U3 and U6) which is far worse than officially reported.

But who needs real math or honest data when DC’s comforting words feel so much better?

Such consistent trends of sanctioned dishonesty, however, force us to question the intelligence and desperation of our so-called “leadership.”

From Fake Math to Real Wars

I’ve written and spoken extensively about the avoid-ability of the war in Ukraine as well as the foreseeable stupidity of the Western sanctions against Putin, all of which have empirically backfired at every level– from the slow collapse of the petrodollar (and hence USD) to the slow rise of a stronger, Eastern-lead trading block among the BRICS.

The petrodollar is no laughing matter. Since de-coupling from the gold standard, the US relies on the forced global purchase of oil in US Dollars to prevent this already debased currency from losing even more demand, and hence value and power.

Only two global leaders have since tried to stand up to the petrodollar power in the past. Saddam Hussein wanted to buy oil in euros and Khaddaffi wanted to buy oil in gold; and just look what happened to them…

Unfortunately for the US, both China and Russia have nuclear weapons. Hence, the US playbook of fighting wars or indirectly eliminating leaders to keep its financial interests secure got a little bit messier this February when poking at Putin.

The Dollar Fairytale: Another Open Lie from On High

Despite openly objective evidence of an increasingly unloved USD, DC continues to boast of the relative strength of the USD on the DXY.

What DC won’t say, however, is that this “strength” is only measured against a tanking yen and euro, two debt-soaked currencies who don’t have enough reserve currency clout to afford a currency-boosting rate hike.

Against the Chinese Yuan, however, the US has less of which to boast…

In short, the USD is anything but strong.

As discussed above, its inherent purchasing power has been neutered by over a century of devaluation and is little more than the best horse in the Western glue factory.

Profitable War Drums

Given the failings and open lies above, from inflation realism and recessionary word-smithing to dying currencies and rising, unpayable debts, why on earth would the US now be saber rattling over the Ukraine or pinching the Chinese bear over Taiwan?

Is it to spread democracy and freedom by helping the underdog, whatever the sacrifice?

Well, one of our most famous underdogs, military generals and presidents, George Washington, warned over 2 centuries ago to precisely avoid such foreign entanglements. “Truly enlightened and independent patriots,” he argued, focused on prosperity within their borders not peripheral wars outside them.

Despite such warnings, the US has spent a lot of time fighting outside its borders rather building unity within them.

Why?

One sad but empirically proven argument is that war is historically good for tanking GDP and struggling stock markets.

In March of 2018, I penned an eerily prescient analysis of how US stocks love global war, and warned of escalations against Russia and China.

In particular, I addressed the historical data of the “war dividend,” which tracked US markets reacting favorably to de-stabilization outside its borders.

Thus, even if Generals Washington and Eisenhower warned against such conflicts, Wall Street and the defense contractors who lobby DC love a good war.

Why?

Because war feeds US markets. Conflicts overseas create massive capital flows into the relative safety of the US.

During the Iraq War, hundreds of billions in Middle Eastern assets rushed into US markets while NATO bombs landed in Iraq. Between 2003 and 2008, the Dow rose steadily upwards.

During the Vietnam War (which killed 58,000 Americans and 1.2 million Vietnamese), the Dow gained 53%. When the war ended, the markets promptly fell, and fell hard.

During the Great War of 1914-1918, the Dow nearly doubled. As for WW2, the Dow rose by 164% between Pearl Harbor in 1941 and VJ day in 1945.

Given such numbers, was the recent idea of sending a kindergarten-level intellect like Kamila Harris to negotiate peace (?) with Putin in early 2022 deliberately set up to fail?

Was Pelosi’s recent flight to Taiwan a commitment to ensure freedom? Or is there a more sinister, yet hidden, motive to push for war in a time of economic disaster at home?

Is America Heading in the Opposite Direction of Its Founding Fathers?

History confirms that every debt crisis leads to a financial crisis, a market crisis, a currency crisis, social unrest, a political crisis, and ultimately extreme authoritarian and centralized control from the far political left of right.

Given how increasingly centralized our openly broken yet centrally controlled markets, economies and politics have become, and given the acceleration and scope of the open lies, backfiring polices and unpayable costs and debts which have emerged in the post-COVID and post-sanction new normal, is it possible that the USA is headed toward a similarly authoritarian fate?

Is it possible that the by ignoring the clear warnings of figures like George Washington, Thomas Jefferson, Andrew Jackson, Benjamin Franklin and Dwight Eisenhower, that America is heading in the opposite direction of its founding principles?

Is it possible that the openly failing inflation, recessionary, domestic and foreign polices listed above are more than just a list of stupid mistakes, but indicators of a set-up for something more sinister?

Are our markets, economies, currencies and individual freedoms being sacrificed to the altar of order, control, safety and security?

Is DC creating an intentional class of American lords and serfs, in which the former hand out stimulus checks to prevent the later from reaching for pitch forks?

As we learned in the Europe of the 1930’s or the lockdowns of the 2020’s, fear (be it viral, militant or economic) is a potent tool of control—it turns revolutionary anger into malleable subservience.

Just a thought.

Tyler Durden Thu, 08/11/2022 - 23:00

Read More

Continue Reading

Bonds

Futures Storm Higher As Nasdaq Bull Markets Sparks FOMO Chase

Futures Storm Higher As Nasdaq Bull Markets Sparks FOMO Chase

US equity futures extended their post-CPI miss gains (for reasons laid out last…

Published

on

Futures Storm Higher As Nasdaq Bull Markets Sparks FOMO Chase

US equity futures extended their post-CPI miss gains (for reasons laid out last night by Goldman's trading desk which sees $13 billion in non-fundamental demand every day and a new round of FOMO by lagging hedge funds), rising 0.4% on Thursday morning...

.... while tech stock futures were also higher changed after the Nasdaq 100 advanced 20% from its June lows, entering a new bull market, with Wednesday’s softer-than-expected inflation print bolstering hopes of less aggressive Fed tightening. Contracts on the Nasdaq 100 were 0.4% higher by 7:15 a.m. in New York after the underlying gauge soared 2.8% on Wednesday to the highest level since May 4.

A dollar index slipped, adding to retreat a day earlier that was the biggest since the onset of the pandemic. Short-term Treasury yields held a drop on investors’ scaled-back expectations of how aggressively the Fed will have to tighten monetary policy; bitcoin rose to the mid $24,000s.

In premarket trading, Disney jumped after beating estimates and saying it’s raising the price of its flagship Disney+ streaming service by 38%. Analysts were optimistic about the performance of the company’s Parks business as travel rebounds. Meanwhile, shares in Bumble Inc. fell  ~7% after the dating app company lowered its full-year revenue guidance. Given the stock’s recent outperformance, analysts noted that expectations were high going into the firm’s 2Q report and attributed the tepid forecast to a shift in product timing, which increases execution risk in 4Q. Other notable movers include:

  • Morgan Stanley (MS US) cut its PC shipment estimates for the year after noting that demand for consumer personal computers is weakening and PC channel inventories are moving higher. The brokerage, however, maintained its recommendations on Dell and HPQ.
  • Matterport (MTTR US) advances ~15% in US premarket trading Thursday after the software company boosted its revenue guidance for the year. Second-half growth outlook is “better-than-feared,” Piper Sandler says.
  • Traeger (COOK US) analysts reduced their price targets on the stock, with Baird downgrading the grill maker to neutral after it cut its revenue guidance for the full-year. Brokers said that catalysts for the stock in the immediate future were in short supply.
  • First Solar (FSLR US) raised to overweight at KeyBanc as it refreshes its views on US renewables stocks, including PT raises for Enphase Energy and NextEra.
  • Marathon Digital (MARA US) and Riot Blockchain lead cryptocurrency-exposed stocks higher in premarket trading with Bitcoin climbing to a near two-month high after softer-than- expected inflation data fueled rallies across digital tokens.
  • Sonos (SONO US) drops 20% in premarket trading after the audio-products maker cut its full-year guidance for revenue and adjusted Ebitda, citing a challenging macroeconomic backdrop, with the strong dollar and inflation pressuring consumer sentiment. The company also said Chief Financial Officer Brittany Bagley is stepping down to pursue another opportunity.

Stocks surged after the July CPI reading showed US inflation decelerated in July by more than expected, printing at 8.5% in July, down from the 9.1% June print that was the largest in four decades, a development that could take some pressure off the Federal Reserve in deciding on more rate hikes. However, Fed officials were quick to stress more rate increases are coming to counter price pressures and signaled investors should rethink expectations of cuts next year to shore up economic growth. Still, the news was enough to help the duration-heavy and deflation-propelled Nasdaq index reclaim nearly $2.8 trillion from its June 16 low, with Apple, Amazon.com and Microsoft leading the rally. Tech stocks have been rebounding as bond yields pulled back amid expectations that Fed rate hikes may push the US economy into recession. Lower bond yields particularly support growth stocks like tech, which are valued on future profits.

"Despite the Fed’s unwavering rhetoric, this release has given investors hope that the pace of rate rises in the US will slow and that the fabled soft landing may be less elusive than feared," said Lewis Grant, head of global equities at Federated Hermes.

“From now onwards, the Fed should start worrying about growth risks much more than inflation," said Ashish Marwah, chief investment officer of ADS Investment Solutions Ltd. While he sees no case for a large rate hike moving forward, Marwah said a smaller increase at the next meeting would give the Fed “time to pause and evaluate what the underlying inflation trend is.”

European stocks trimmed earlier gains as losses in the healthcare sector outweighed optimism that signs of a peak in US inflation would spark a dovish tilt in Federal Reserve policy. The Stoxx 600 Index was less than 0.1% higher by 10:33 a.m. in London after surging yesterday to its highest in two months. Healthcare stocks including Sanofi, GSK Plc and Haleon Plc were major drags on the benchmark amid concern over litigation related to Zantac, a once-popular antacid that has drawn a flurry of US personal-injury lawsuits alleging it causes cancer. Energy as well as travel and leisure stocks were among the sectors moving higher. FTSE MIB outperforms, adding 0.4%, DAX lags, dropping 0.1%. Energy, insurance and banks are the strongest-performing sectors. Here are the biggest European movers:

  • Coca-Cola HBC shares advance as much as 6%, the most since March 29, after the company reported 1H sales and Ebit that beat estimates and reinstated its guidance for the year.
  • Kahoot! jumps as much as 22%, the most since August 2021, after the Norwegian game-based learning platform firm reported a rise in 2Q earnings.
  • Russia’s equity benchmark climbed as the price of natural gas in Europe rose and investors worldwide turned more optimistic after signs of cooling US inflation.
  • Stroeer surges as much as 17%, the most since November 2020, after the online advertising and billboards company reported 2Q results which Citi says were “strong.”
  • Zurich Insurance gains as much as 2.4% with analysts saying the Swiss insurer’s quarterly results were strong, as expected.
  • Network International jumps as much as 19%, the most since November 2020, after the payments firm’s 1H results met expectations and it announced a new buyback.
  • Sanofi, GSK and Haleon extend their declines amid mounting concerns about litigations around recalled heartburn drug Zantac.
  • Valneva falls as much as 3.9% after the French biotechnology company lowered its guidance following setbacks for its Covid-19 vaccine.

Earlier in the session, Asian stocks gained as cooler-than-expected US inflation data spurred bets that the Federal Reserve will temper the pace of its interest-rate increases. The MSCI Asia ex-Japan Index rose as much as 1.8%, the most in three weeks, lifted by technology shares amid falling Treasury yields. Tech-heavy markets including Taiwan and South Korea led gains in the region. Benchmarks in China also advanced, while Japan’s market was closed for a holiday on Thursday.  US inflation decelerated in July by more than expected, spurring a rally in shares overnight as investors bet on a potential pivot by the Fed on monetary tightening. The positive sentiment carried through to the Asian session, while traders continued to monitor Covid lockdowns in some Chinese cities. 

“Inflation has been expected to peak over the summer for some time, so it was reassuring for markets that there are clear signs that this looks to be happening,” said Oliver Blackbourn, multi-asset fund manager at Janus Henderson Investors. “Any dovishness is seen as positive by the stock market, particularly for the highest valued companies.” Still, ongoing US-China tensions have kept some investors on edge, with President Joe Biden being “cautious” about the future of tariffs on more than $300 billion in goods from the US rival.  Japan was closed for a holiday.

Indian stocks tracked regional peers higher after softer-than-expected US inflation print raised expectations that the Federal Reserve will raise interest rates at a slower pace. The S&P BSE Sensex climbed 0.9% to 59,332.60 to its highest level in four months in Mumbai. The NSE Nifty 50 Index added 0.7%. Of the 30 member stocks on the Sensex, 20 rose and 10 fell. Housing Development Finance Corp rose 2.4% to its highest level in four months and was among the biggest boosts to the gauge. Fourteen of 19 sectoral sub-indexes compiled by BSE Ltd. advanced, led by a measure of lenders.   “The lower than expected US CPI numbers have catalyzed a rally in global markets on the hope that the US Fed may go slow on rate hikes,” Deepak Jasani, head of retail research at HDFC Securities Ltd., wrote in a note.  The prospect of faster monetary tightening by the Fed had stoked fears of capital outflows from riskier emerging market assets like India.  In earnings, of the 44 Nifty companies that have announced quarterly results so far, an equal number have missed and exceeded analyst estimates. Apollo Hospitals is scheduled to announce results later in the day.

In FX, the dollar slipped while NOK and GBP are the weakest performers in G-10 FX, EUR and DKK outperform.

In rates, treasuries advanced despite better risk appetite with the yield curve extending Wednesday’s CPI-inspired bull-steepening, following gains led by front-end during London session; 2-year yields richer by ~3.5bp, off session low. 10- to 30-year yields (also off lows) are little changed, steepening 2s10s and 5s30s spreads by ~2bp and ~3bp on the day; US 10-year sector outperforms bunds by ~3bp, gilts by ~5bp. The Treasury auction cycle concludes with $21b 30-year bond sale at 1pm ET; Wednesday’s 10-year note auction stopped 0.6bp below the WI yield at the bidding deadline. WI 30-year yield around 3.03% is ~9bp richer than last month’s result, which stopped 1.8bp through. Bunds and gilts erase post-CPI gains, catching up to USTs reversal on Wednesday as hawkish comments from Fed policy makers stymied prospects of a pivot. Peripheral spreads tighten to Germany.

In commodities, WTI crude climbs 0.5% to around $92; gold down about $2 to below $1,790. Most base metals trade in the green; LME nickel rises 2.7%, outperforming peers. LME zinc lags, dropping 0.6%.

It’s a fairly quiet day ahead on the calendar now, but data releases include the US PPI reading for July, as well as the weekly initial jobless claims.

Market Snapshot

  • S&P 500 futures up 0.1% to 4,216.25
  • STOXX Europe 600 little changed at 440.16
  • MXAP up 1.1% to 162.09
  • MXAPJ up 1.7% to 529.79
  • Nikkei down 0.6% to 27,819.33
  • Topix down 0.2% to 1,933.65
  • Hang Seng Index up 2.4% to 20,082.43
  • Shanghai Composite up 1.6% to 3,281.67
  • Sensex up 0.9% to 59,317.34
  • Australia S&P/ASX 200 up 1.1% to 7,070.95
  • Kospi up 1.7% to 2,523.78
  • German 10Y yield little changed at 0.91%
  • Euro up 0.2% to $1.0323
  • Brent Futures little changed at $97.39/bbl
  • Gold spot down 0.3% to $1,786.27
  • U.S. Dollar Index down 0.15% to 105.03

Top Overnight News from Bloomberg

  • ‘Worst Likely Over’ for EM Asia Currencies as Fed Hike Bets Ease
  • Oil Steadies as Traders Count Down to OPEC, IEA Market Outlooks
  • Fed Leaders, Unswayed by Softer CPI, See Rate Hikes Into 2023
  • Kim Jong Un Was ‘Seriously Ill’ in North Korea Covid Surge
  • Market Surge After CPI Data Has Skeptics Issuing a Warning
  • Football Fanatic Builds $1 Billion Bet Against Game’s Mega Rich
  • Pelosi Says US Can’t Let China Establish ‘New Normal’ on Taiwan
  • Hedge Funds Face SEC Push to Share More on Their Strategies
  • JPMorgan Gold Traders Found Guilty After Long Spoofing Trial
  • Trump Deposition Day: Invoking the Fifth in Showdown With AG
  • Driller W&T Opens Internal Probe After Whistle-Blower Letter
  • Chicago Mayor Says City Revenue Unhurt by Corporate Exits
  • Trump 2016 Staff Can Talk About What They Saw on Campaign
  • Snowballing US Rent Crisis Spares No City or Income Bracket
  • CVS Is Said to Have Been Mystery Bidder for One Medical
  • ‘Crying CEO’ Says He Loves His Employees, Even Those He Laid Off
  • Bolton Was Target of Murder Plot in US Iranian Guard Case
  • Disney Tops Profit Views, Raises Ad-Free Streaming Price 38%
  • Ping An Sees HSBC Overstating the Challenges of a Spinoff
  • Blackstone to Buy Bulk Purchaser CoreTrust From HCA Subsidiary
  • Apple Ramps Up Its In-House Podcasting Efforts With Studio Deal
  • Cut-to-Bone Positioning Set the Stage for Stocks’ Big Bounce

More detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks took impetus from their global counterparts after softer-than-expected US CPI data spurred a dovish reaction across asset classes and unwound some of the hawkish Fed market pricing. ASX 200 reclaimed the 7,000 level with the tech and mining-related sectors leading the gains in the index, while financials are also positive as participants digest earnings results and updates from AMP and QBE Insurance. KOSPI strengthened despite the increase in COVID cases to a 4-month high and the recent devastating floods in Seoul, with strength in index heavyweight Samsung Electronics after it introduced its latest line-up of foldable smartphones and other key products. Hang Seng and Shanghai Comp were higher with Hong Kong lifted by tech and property stocks, although advances in the mainland were initially contained following a jump in COVID infections and with the Biden administration said to have currently set aside the option of scrapping some China tariffs or investigating adding more.

Top Asian News

  • China Pledges to Cut Mining Deaths After Spate of Accidents
  • LNG WRAP: Asia Price Rally Prompts Chinese Buyer to Sell Cargo
  • ‘Worst Likely Over’ for EM Asia Currencies as Fed Hike Bets Ease
  • Hang Seng Index Rises 2.4%; Alibaba Leads Advance
  • Ether at Two-Month Peak on Signs of Success in Key Software Test
  • Philippine Stocks Surge 3.2% as Central Bank Seen Less Hawkish

European bourses are little changed overall after a modestly firmer open failed to gain much traction with newsflow limited, Euro Stoxx 50 +0.1%. Stateside, performance is very similar though futures are faring incrementally better, ES +0.2% and the NQ +0.4% remains the relative outperformer. China vehicle sales (Jan-Jul): -2% YY (prev. +19.3%), via Industry Association. New energy vehicles sales (Jan-Jul): +120% YY.

Top European News

  • UK Real Estate Firms Warn of Price Falls as Borrowing Costs Rise
  • Russia Aircraft Destroyed, Ukraine Says: Photo
  • Ceconomy Drops; Fighting ‘Perfect Storm,’ Baader Helvea Says
  • Ether at Two- Month Peak on Signs of Success in Key Software Test
  • IEA Sees Russian Oil Output Down 20% When EU Ban Takes Effect
  • Deutsche Telekom Raises 2022 Outlook on US Customer Growth

FX

  • DXY is back on a softer footing following an overnight session of consolidation from yesterday’s CPI-induced losses.
  • G10s are firmer vs the USD to varying degrees, with the EUR, AUD, and NZD leading the gains.
  • GBP and CAD are the relative laggards while haven FX reside towards the middle of the G10 table.

Fixed Income

  • Core benchmarks under modest pressure but remain above the post-CPI trough with action quiet amid a limited schedule and Japanese holiday.
  • USTs essentially unchanged, initial incremental upward bias dissipated and we now look to PPI, Fed's Daly & 30yr supply.
  • Yield curve continues to re-steepen, though lies in yesterday's pronounced ranged while BTP-Bund remains steady at 210bp.

Commodities

  • WTI and Brent front-month futures are extending yesterday’s climb Brent Oct' extending gains above USD 98/bbl.
  • Spot gold trades flat around USD 1,789/oz after briefly topping USD 1,800/oz yesterday post-CPI.
  • LME copper has gained a firmer footing above USD 8,000/t amid the softer Dollar, with LME nickel the current outperformer.
  • IEA OMR: Raises 2022 estimate for oil demand growth by 380k BPD to 2.21mln BPD due to more gas-to-oil switching; demand growth is expected to slow to 40k BPD in Q4 2022; declines in Russian supply is more limited than previously forecast.
  • Czech pipeline operator Mero exports oil flows to the nation to resume "soon"; expects flows via Druzhba to restart "tomorrow or the day after", via Reuters.

US Event Calendar

  • 08:30: Aug. Initial Jobless Claims, est. 264,000, prior 260,000
    • July Continuing Claims, est. 1.42m, prior 1.42m
  • 08:30: July PPI Final Demand MoM, est. 0.2%, prior 1.1%; PPI Final Demand YoY, est. 10.4%, prior 11.3%
    • July PPI Ex Food, Energy, Trade MoM, est. 0.4%, prior 0.3%; YoY, est. 5.9%, prior 6.4%
    • July PPI Ex Food and Energy MoM, est. 0.4%, prior 0.4%; YoY, est. 7.7%, prior 8.2%

DB's Jim Reid concludes the overnight wrap

After much build-up and anticipation, I am now a married man. It was without a doubt the best day of my life being surrounded by family and friends, and thank you for the many kind words I received. Married life so far has been blissful, but I appreciate when you’re not at work and eating out on a daily basis then the usual pressures of life may not apply. Let’s hope this honeymoon spirit and the benefit of the doubt is still around in a few months’ time.

Markets were also in a buoyant mood while I was away, and that trend has continued over the last 24 hours thanks to a much lower-than-expected US CPI print. That helped to bolster hopes that the Fed wouldn’t need to tighten policy as aggressively as many had feared, though Fed officials threw some cold water on the optimism later in the session which tempered the rally in yields, at least. And whilst some of the CPI details weren’t as flattering as the headline stats (more on which below), this positive reaction was evident across multiple asset classes as investors received a downside inflation surprise of the sort we haven’t seen in a long time, with monthly headline CPI actually seeing -0.02% deflation on the month. That’s the first time that prices have fallen on a monthly basis since May 2020, and the reading also came in two-tenths beneath the +0.2% expected by the economists’ consensus on Bloomberg, which is the first time in more than five years that inflation has come in beneath the consensus by that big an amount.

That unexpected drop in prices was largely driven by a sharp monthly fall in energy prices (-4.6%), which experienced their largest decline since April 2020. Indeed, gasoline specifically was down by -7.7% over the month against the backdrop of a serious decline in oil prices since their recent peaks. In turn, that sent the year-on-year CPI reading down to +8.5%, having been at a four-decade high of +9.1% in June. Furthermore, sentiment was bolstered by the fact that core inflation also surprised to the downside, at +0.3% on the month (vs. +0.5% expected), which meant the year-on-year figure remained at +5.9%.

The market reaction to this was incredibly favourable, as the release led investors to reduce the chances that the Fed would hike by 75bps again at their next meeting in September. Indeed, the hike that futures are pricing in for September came down from +68.2bps to +62.5bps, exactly halfway between a +50bp and a +75bp hike, as live as a meeting as you’ll get. That’s still slightly above where it’d been prior to last week’s much stronger-than-expected jobs report that raised expectations of another 75bps move. In turn that sent Treasury yields lower, with the 2yr yield down more than -20bps following the print, but gave back some of that rally after subsequent Fedspeak (more below). 10yr yields also initially moved lower, falling more than -13bps from immediately before the print, only to end the day +2.0bps higher at 2.78%, so we had a decent amount of curve steepening on the day as well as the last batch of data pointed away from stagflationary fears.

But even as markets have been celebrating the prospect of a less aggressive Fed, it’s worth remembering that we’re still nowhere near out of the woods yet, and annual inflation of +8.5% is still way above what we’ve been used to experiencing over recent decades. In addition, some of the more granular details from the CPI release were much less positive than the immediate headlines. For instance, the Cleveland Fed’s trimmed-mean CPI measure that removes the biggest outliers in either direction was still running at +0.45% on a monthly basis, and on a year-on-year basis it actually ticked up slightly to +7.0%. So it’s clear there are still broad-based price pressures across the economy, in spite of the decline in energy last month. Elsewhere, the Atlanta Fed produce a “flexible” and “sticky” CPI, which separates the CPI components into ones that change prices regularly and ones that don’t. That showed the flexible CPI reading down by -1.0% on the month, but the sticky CPI reading was up by +0.4%, which means that sticky CPI is now running at +5.8% on an annual basis, or in other words its fastest pace since 1991. So there’s still a long way to go here, and remember that Chair Powell himself said in June that the Fed wanted “compelling evidence” that inflation was heading downwards consistent with returning to target, which is going to take a lot more than just one reading.

For markets however, the narrative that we might have seen “peak inflation” was nevertheless dominant, and equities had a buoyant reaction yesterday, with the S&P 500 surging +2.13% to close at a 3-month high for the first time since early January. The more cyclical sectors led the way whilst the megacap tech stocks were a particular beneficiary, with the FANG+ index gaining +3.67% on the day. The VIX index of volatility even closed beneath 20 points for the first time since early April. It was much the same story in Europe too, even if it was a bit more subdued, and the STOXX 600 (+0.89%) closed at its highest level in just over two months as well.

When it came to the Fed themselves, we did actually hear from a few speakers yesterday. Chicago Fed President Evans, who is an FOMC voter in 2023, said that inflation was still “unacceptably high” and said that he expected “we will be increasing rates the rest of this year and into next year to make sure inflation gets back to our 2% objective”. Furthermore, his forecast for core CPI is at 2.5%, which is some way beneath our own economists’ projections, and even then he saw the Fed funds rate range at 3.75%-4% by end-2023. Later in the session, President Kashkari took it a step further, saying he expected a 4.4% fed funds rate by the end of next year, and was resolute that the Fed would not waver in bringing inflation back to its 2% target. So both are projecting rates some way above the 3.11% that Fed funds futures are pricing in for December 2023, which just speaks to the divergence between the Fed’s stated intentions in their most recent dot plot and the cuts that markets are pricing in for the latter part of next year. Then overnight, we heard from San Francisco Fed President Daly, who warned in an FT interview that it was too early to “declare victory” over inflation.

Away from the Fed, we had a mixed bag of news on the European energy situation yesterday. On the one hand, we heard that Slovakia was now receiving Russian oil via the Druzhba pipeline, which had been suspended previously. At the same time though, European natural gas futures rose by +6.86% to €205 per megawatt-hour, which is their highest level since early March, and German power prices for 2023 rose a further +4.84% to €427 per megawatt-hour. European sovereign bonds were more affected by the US inflation news however, with yields on 10yr bunds (-3.2bps), OATs (-2.0bps) and BTPs (-6.0bps) all moving lower.

Overnight in Asia, equity markets are also surging this morning following a strong session on Wall Street overnight. Risk appetite has been evident across the region, with the Hang Seng (+1.74%), the CSI (+1.39%), the Shanghai Composite (+1.18%) and the Kospi (+1.32%) all moving higher, whilst markets in Japan are closed for a holiday. That optimism is also set to extend into the European and US sessions, with futures contracts on the S&P 500 (+0.30%), NASDAQ 100 (+0.43%) and DAX (+0.39%) all pointing towards further gains today as well. Separately, the People’s Bank of China said in its latest quarterly monetary policy report that consumer prices in China will probably remain in a reasonable range and will likely reach its 3% target for full-year inflation . At the same time, the central bank stressed that it will continue to maintain plenty of liquidity in the system so as to provide stronger support to the real economy.

It’s a fairly quiet day ahead on the calendar now, but data releases include the US PPI reading for July, as well as the weekly initial jobless claims.

Tyler Durden Thu, 08/11/2022 - 07:55

Read More

Continue Reading

Trending