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Futures Rally Fizzles After Micron’s Downbeat Outlook Saps Sentiment

Futures Rally Fizzles After Micron’s Downbeat Outlook Saps Sentiment

US stock futures reversed gains from earlier in the session and struggled…



Futures Rally Fizzles After Micron's Downbeat Outlook Saps Sentiment

US stock futures reversed gains from earlier in the session and struggled to hold the momentum that propelled the S&P 500 to its best daily gain in three weeks, as investors assessed whether the world’s biggest economy can skirt worst-case recession scenarios. Contracts on the Nasdaq 100 and the S&P 500 were both 0.3% lower at 7:30 am ET, erasing earlier gains of 0.3%. Both indexes had bounced on Wednesday following better-than-expected earnings from FedEx and Nike as well as a pickup in consumer confidence, but the mood was dampened by memory chipmaker Micron, whose gloomy outlook knocked its shares in US premarket trading and weighed on other chip firms. European semiconductor shares also fell, erasing earlier gains on the Stoxx 600 gauge, though it remains set to break a two-week losing spell. The dollar index was flat while the US 10-year yield dropped to about 3.64%.

Among notable movers in premarket trading, ORIC Pharmaceuticals surged as much as 70% after the company entered into a clinical development collaboration for a potential Phase 2 study of ORIC-533 in multiple myeloma with Pfizer. Micron Technology shares fall 3%, after the chipmaker’s second-quarter revenue forecast was weaker than expected at the midpoint, stoking analyst concerns that demand is faltering and that the downcycle the company is seeing hasn’t yet reached a bottom. Bank stocks were also lower and on track to snap a two-day winning streak. In corporate news, executives at BlackRock discussed buying Carlyle Group earlier this year after the private equity giant pushed out its chief executive, the Financial Times reported. Here are some other notable premarket movers:

  • US-listed Chinese stocks are higher across the board in Thursday’s premarket trading after a report that China is planning to shorten the quarantine period for inbound overseas travelers in January. Alibaba +2.6%, Baidu +2.1%, +3%, Bilibili +3.9%, Nio +2%, Li Auto +3.2%
  • IsoPlexis climbs 64% after Berkeley Lights agreed to acquire it in an all-stock transaction valued at $57.8 million. Berkeley Lights shares dropped 6.7%
  • Lexicon Pharmaceuticals shares decline 8.4% on low volumes after the company said results of a Phase 2 proof-of-concept study of LX9211 in postherpetic neuralgia didn’t reach statistical significance on the primary endpoint
  • Keep an eye on Getty Images stock as it was rated a new outperform at Wedbush, which notes the firm’s record of strong execution “and a compelling and consistent profit profile.”

US stocks just days away from finishing a year nursing the worst losses since the GFC as an unexpectedly hawkish Federal Reserve and stubbornly high inflation fueled the biggest slump for the S&P 500 since the global financial crisis. Although inflation has started to ease, market strategists are cautious about a recovery next year amid fears of a possible recession and its impact on corporate earnings. So far a Santa rally which some had expected would emerge in the final trading days has been difficult to pin down: December 2022 has been one of the ugliest last months of the year in recent history, and the S&P 500’s large decline this month contrasts with an average 1.5% December gain since 1950, providing sidelined global investors with plenty of “dry powder” to put to work, according to SEB.

"The resilience of the US economy thus continues to impress, and the probability is turned up a mini step for a soft landing,” Stockholm-based analysts at the firm told clients. On the other hand, war, inflation, and monetary policy tightening are pressuring companies’ large order books and profitability, they added.

"Recession is now the base case and US equities aren’t priced for it,” said Skylar Montgomery Koning, senior global macro strategist at TS Lombard. In an interview with Bloomberg TV, she added that stocks weren’t likely to bottom before the onset of the recession or a pivot from the Fed. On other hand, “you may get a slowdown in growth but just because inflation stays high, that means earnings could still stay high,” she said.

Bank of America's iconic strategist Michael Hartnett recommended bonds in the first half of 2023 and said he’s more optimistic about equities in the second half after interest rates have peaked and corporate profits bottomed. Against that backdrop, he expects 60/40 portfolios to generate positive returns in 2023.

European stocks also reversed earlier gains and at last check, the Stoxx 600 traded down 0.2%. Autos, tech and consumer products are the worst performing sectors, while energy stocks are the best-performing sector as oil holds on to gains made over the last three days, with traders weighing the effects of lower US inventories and a weaker dollar against concerns over Chinese demand. Here are the biggest European movers:

Earlier in the session, equities in the Asia Pacific region rose, headed for their first gain in six sessions, as investors returned to Chinese stocks on positive policy signals, Japanese shares snapped a three-day losing streak while Hong Kong gained almost 3%. The MSCI Asia Pacific Index climbed as much as 1.3%, with benchmarks in Hong Kong jumping more than 2.7%. Investors cheered as Chinese officials urged the implementation of policies that will support the economy. “After much of the profit-taking is out of the way, and with a subsiding of fear over the surge in Covid cases at the initial stage of reopening, the Hong Kong and China market may do a bit better,” said Redmond Wong, a strategist at Saxo Capital Markets.

Japanese equities rebounded after falling for five days as improving consumer confidence in the US and strong earnings by some companies boosted investor sentiment.  The Topix Index rose 0.8% to 1,908.17 as of market close Tokyo time, while the Nikkei advanced 0.5% to 26,507.87. Toyota Motor Corp. contributed the most to the Topix Index gain, increasing 1.8%. Out of 2,163 stocks in the index, 1,650 rose and 402 fell, while 111 were unchanged. “The rise in Japanese stocks mirrors the US stocks rise from good earnings performances by some companies and the fact that it reflected the upswing in consumer confidence,” said Takeru Ogihara, chief strategist at Asset Management One. “However, the Bank of Japan’s policy revisions have not been fully digested in yet.”

India stocks fell, as minutes of the central bank’s latest policy meeting indicated more rate hikes. Other regional gauges were broadly higher, supported by a greater-than-expected increase in US consumer confidence.  Asian stocks had pulled back in recent sessions as the BOJ surprised with its decision Tuesday that may lead to higher borrowing costs, just as major cities in China struggle to cope with the spread of the coronavirus. The MSCI Asian gauge is down 18% this year, in line with the S&P 500 Index.

In FX, the yen resumed its rise while the dollar slipped against a group of currency peers, headed for a third month of losses. The Bloomberg Dollar Spot Index dropped 0.2% as the greenback was steady or weaker against all of its Group-of-10 peers. Risk- sensitive Scandinavian currencies and the Australian dollar were the best performers.  Incremental shifts in capital flows and interest rate was key for the greenback, Jefferies analyst Brad Bechtel noted, adding “the Fed is close to done hiking, which means that real rates in the US are done rising and will moderate a bit, taking pressure off of the dollar.”

  • The euro advanced, yet stayed within recent ranges against the greenback. Bunds and Italian bonds were little changed
  • The pound fell against both the dollar and the euro. Data showed the UK economy shrank more than expected last quarter while UK household incomes fell for a fourth straight quarter.
  • The yen strengthened on the back of a broadly weaker dollar
  • Australian dollar climbed as details of a meeting between Chinese agencies held to discuss support measures to counter the effects of Covid outbreaks spurred risk-on sentiment
  • Chinese authorities ramped up their calls to prioritize growth next year and help the property sector recover from its worst slump on record, in further signs the economy will be top of mind in 2023

In rates, yields on Treasuries and euro zone bonds slipped but concerns remain that Japanese investors could now be persuaded to bring home some of the trillions of dollars they have stashed in foreign stocks and bonds. That could further lift global borrowing costs and drag on already cooling economic growth. Treasuries were slightly richer across the curve with gains led by belly, extending 5s30s steepening move back toward Wednesday session highs. US 10-year yields around 3.64% and richer by 2bp on the day, outperforming bunds and gilts by 3bp in the sector; belly-led gains steepens 5s30s spread by 1.5bp on the day to -4bp, reached -0.55bp Wednesday. Gilts, bunds trade cheaper on the day, lagging gains in Treasuries. US session focus includes GDP and a 5-year TIPS auction at 1pm New York. Japan’s 10-year yield fell after the BOJ conducted an additional debt-purchase operation to halt this week’s selloff.

In commodities, West Texas Intermediate crude futures held above $78 a barrel, extending their gain into a fourth day, benefiting from a decline in US inventories and the consumer confidence uptick. Growth-sensitive copper prices also rose for the fourth straight day. Oil prices were poised to end an extraordinarily volatile year modestly higher.  Spot gold has been unable to benefit from the Dollar’s downside and remains towards the lower-end of tight $1813-1820/oz parameters while silver has slipped slightly to below the $24/oz mark. Despite the move in crude, base metals have been unable to benefit from the COVID update, with LME Copper modestly softer on the session.

Looking at the day ahead now, and data releases from the US include the third estimate of Q3 GDP, the weekly initial jobless claims, and the Kansas City Fed’s manufacturing index for December. Otherwise, we’ll also get decisions from a couple of G20 central banks, with those in Indonesia and Turkey deciding on rates.

Market Snapshot

  • S&P 500 futures up 0.1% to 3,909.75
  • STOXX Europe 600 up 0.3% to 432.64
  • MXAP up 1.2% to 157.28
  • MXAPJ up 1.4% to 510.18
  • Nikkei up 0.5% to 26,507.87
  • Topix up 0.8% to 1,908.17
  • Hang Seng Index up 2.7% to 19,679.22
  • Shanghai Composite down 0.5% to 3,054.43
  • Sensex down 0.3% to 60,860.99
  • Australia S&P/ASX 200 up 0.5% to 7,152.50
  • Kospi up 1.2% to 2,356.73
  • German 10Y yield little changed at 2.31%
  • Euro up 0.3% to $1.0636
  • Brent Futures up 1.1% to $83.11/bbl
  • Gold spot up 0.1% to $1,815.96
  • U.S. Dollar Index down 0.19% to 103.97

Top Overnight News from Bloomberg

  • ECB Vice President Luis de Guindos said interest-rate hikes like the half-point move seen at this month’s meeting may become the standard as officials maintain their fight with soaring inflation
  • Mild weather is expected to remain over most of Europe during the holidays, dimming the chances of a white Christmas but easing pressure on the region’s power grids
  • China plans to cut quarantine requirements for overseas travelers in January, according to people familiar with the matter, as the country dismantles the last vestiges of its Covid Zero policy
  • China is likely experiencing 1 million Covid infections and 5,000 virus deaths every day as it grapples with what is expected to be the biggest outbreak the world has ever seen, according to a new analysis
  • Traffic in China’s biggest cities has dropped to the lowest since the Lunar New Year break in the early part of the year as the country’s abrupt end to Covid Zero sparks outbreaks nationwide
  • Japan’s government expects price gains including fresh food to be 1.7% in the fiscal year 2023, unchanged from its mid- year estimate, according to Cabinet Office forecasts released Thursday
  • Kazakh financial firms have been buying Russian government debt at a steep discount from investors unable to exit the market because of sanctions and other restrictions imposed after the invasion of Ukraine, according to people familiar with the matter
  • Turkey’s central bank is poised to move past its cycle of interest-rate cuts at the final meeting of a year when inflation reached near a quarter-century high

A more detailed look at global markets courtesy of Newsquawk

Asian stocks traded with gains across the board following the positive lead from Wall Street. ASX 200 saw gains across almost all of its sectors aside from Material names and gold miners. Nikkei 225 eked gains as Real Estate names led the charge, but with gains capped as the JPY held onto most of its recent strength. Hang Seng and Shanghai Comp were firmer with the former opening with gains north of 2% as property names cheered reports via state media that China is to push the construction of major projects and equipment upgrades. The mainland meanwhile coattailed on the broader modest risk appetite seen after the US performance.

Top Asian News

  • China reports zero new COVID deaths in the mainland on Dec 21st vs zero a day earlier, according to Reuters.
  • China to cut quarantine for overseas travellers as of January, via Bloomberg.
  • PBoC injected CNY 4bln via 7-day reverse repos with the rate maintained at 2.00%; injects CNY 153bln via 14-day reverse repos with the rate maintained at 2.15%; daily net injection CNY 155bln.
  • Japanese government raises FY23 GDP growth forecast to 1.5% (from 1.1% in July); maintains FY23 Overall CPI forecast at 1.7%; cuts FY22 GDP growth forecast to 1.7% (from 2.0% in July), according to Reuters.
  • Japanese PM Kishida said he wants Japanese industries to carry out investments of JPY 100tln as early as possible, according to Reuters.
  • Tokyo will raise COVID-19 medical alert to the highest level, according to NHK.

European bourses are under modest pressure, Euro Stoxx 50 -0.2%, in what has been a very contained session with benchmarks making limited ground either side of the unch. mark. Sectors, are similarly mixed/contained; though, Energy outperforms given benchmark pricing while Real Estate has once again succumbed to yield action. Stateside, futures are in-fitting with their European counterparts, ES -0.1%, with Micron -2.5% in the pre-market post-earnings. TikTok's latest proposal to the US government for a security deal includes an independent board to oversee its data security operations, according to Reuters sources.

Top European News

  • ECB's de Guindos says, "the steps we have taken so far are going to have an impact on inflation, but we still need to do more".
  • Zelenskiy Wins Applause, Aid in Half-Day Dash Through Washington
  • European Gas Falls Further Amid Mild Weather and Ample Supplies
  • Oil Steadies as Traders Weigh China Demand Against US Stockpiles
  • Europe’s Mild Christmas and New Year to Ease Power Grid Stress


  • Aussie underpinned by base metals, but off best levels as broader risk sentiment wanes, AUD/USD peaks above 0.6750 and AUD/NZD near 1.0700
  • DXY still straddling 104.000, but within slightly lower range to the benefit of Euro, Yen and Franc; EUR/USD retests 1.0650, USD/JPY probes 132.00 and USD/CHF pivots 0.9250.
  • Pound lags to circa. 1.2100 after sub-consensus UK Q3 GDP data.
  • PBoC set USD/CNY mid-point at 6.9713 vs exp. 6.9702 (prev. 6.9650)


  • WTI and Brent Feb’23 have managed to claw out incremental WTD peaks at USD 79.77/bbl and USD 83.66/bbl respectively, as the DXY continues to languish around and below 104.00, with the complex also benefitting from the limited macro updates re. COVID.
  • Governor of Canada has determined the significant adverse effects of the Sukunka coal mine cannot be mitigated, and therefore the coal mine project cannot proceed, via Reuters.
  • Brazil is to impose 14.88-14.93% countervailing duties on China's aluminium sheet products from March 31st 2023, according to the Chinese Commerce Ministry.
  • Spot gold has been unable to benefit from the Dollar’s downside and remains towards the lower-end of tight USD 1813-1820/oz parameters while silver has slipped slightly to below the USD 24/oz mark.
  • Despite the move in crude, base metals have been unable to benefit from the COVID update, with LME Copper modestly softer on the session.


  • Russian State Nuclear Energy Corporation says discussions with the IAEA brought together views on the establishment of a buffer zone around Zaporizhzhia, according to Sky News Arabia.

US Event Calendar

  • 08:30: Dec. Initial Jobless Claims, est. 222,000, prior 211,000
    • Continuing Claims, est. 1.68m, prior 1.67m
  • 08:30: 3Q GDP Annualized QoQ, est. 2.9%, prior 2.9%
    • Personal Consumption, est. 1.7%, prior 1.7%
    • GDP Price Index, est. 4.3%, prior 4.3%
    • PCE Core QoQ, est. 4.6%, prior 4.6%
  • 10:00: Nov. Leading Index, est. -0.5%, prior -0.8%
  • 11:00: Dec. Kansas City Fed Manf. Activity, est. -6, prior -6

DB's Jim Reid concludes the overnight wrap with his last Early Morning Reid note of 2022

This is the last EMR of 2022. Many thanks for all the interactions and support this year. As I mentioned yesterday in CoTD, we were very pleased with the Global II poll results last week and couldn’t have done it without your votes. So thanks. Many thanks also for the hundreds and hundreds of emails yesterday after my Xmas miracle story. It was very touching. If you missed it you can recap it here. No-one has asked for it but in the last EMR of the year I always list my favourite TV series/box sets of the last 12 months. If you want to see that skip to the end. I don’t have much free time with work and the kids but my wife and I try to carve out an hour each evening when I’m not travelling to watch a series. It’s a form of bonding that ensures we don’t run out of conversation too early in our marriage. It’s a tactic that has worked so far nearly 10 years on. So see if you agree or disagree with the choices at the end. As a final offering that you didn’t ask for, you may remember that on a flight to New York in early November the Wi-Fi didn’t work. Given I had nothing downloaded to do, I started writing a Xmas song for my family on my iPad. I surprised them with it last weekend and have posted the video online. If you want something to put you off all Christmases for the rest of your life please see the link on my Bloomberg header or search “It’s Xmas time at the Reids” online. It probably won’t make next year’s poll of best Xmas songs but could Mariah Carey do macro strategy? Well maybe she could.

So one last time for 2023 and we end on a relative high note in what has been a tumultuous 2022 as for the first time in over a week, yesterday saw a very strong performance for financial markets as investors focused on more positive news from various economic data and earnings releases. That led to a major cross-asset rally, with gains across equities, bonds, credit and commodities, which marks something of a change from what we’ve been used to seeing across the rest of 2022. Indeed, the S&P 500 (+1.49%) put in its strongest performance so far this month.

To be frank, there hasn’t been a great deal of newsflow for markets as things wind down for the Christmas holidays, but there was a strong round of US consumer confidence data from the Conference Board’s latest release. The main headline was that confidence rose to an 8-month high of 108.3 in December (vs. 101.0 expected), adding to hopes that the US economy might be able to achieve a softer landing than many (including us) fear. That included gains in both the present situation and the expectations component, with the latter hitting an 11-month high of 82.4. And there were even promising signals on the labour market, with the proportion of consumers saying that jobs were “plentiful” moving up, whilst the share saying they were “hard to get” fell back.

Against that backdrop, equities put in a very strong performance on both sides of the Atlantic, with sizeable gains for all the major indices. Those were very broad-based, with every individual industry group in the S&P 500 rising on the day, as did 469 of the companies in the index. The largest gains were seen among megacap tech stocks, with the FANG+ index advancing +2.21% after a run of 5 consecutive declines. The stronger economic data in the US led to cyclicals outperforming with Energy (+1.89%) and Industrials (+1.85%) seeing large gains. And over in Europe, the STOXX 600 (+1.23%) put in its best performance in over a month.

Whilst equities made gains, sovereign bonds also managed to stabilise following the recent moves higher in yields, with those on 10yr Treasuries falling -2.0bps yesterday to 3.662%. They are another -1.5bps lower this morning in Asia. And in keeping with the pattern of recent days, yield curves continued to steepen, with the 2s10s up +2.0bps to -55.7bps, which is its steepest level in over a month. Meanwhile in Europe, the relentless sell-off in sovereign bonds over the last week also paused for breath yesterday. Yields on 10yr bunds did increase for a 6th successive day, but only by a small amount, just as those on OATs (+0.4bps) were almost unchanged and BTPs (-3.9bps) fell back. This follows the third worst week for European bonds this century as we showed in yesterday's CoTD.

Elsewhere, some of the most important headlines yesterday came on the geopolitical front, as Ukrainian President Zelensky visited US President Biden in Washington, which marks his first trip outside of Ukraine since Russia’s invasion began in February. President Biden’s administration announced $1.85bn of additional military funding for Ukraine, including the first transfer of the Patriot Air Defence system. According to the US State Department, the US has spent $20bn of security assistance to Ukraine. President Zelensky also addressed Congress last night, pressing for further aid and additional sanctions on Russia. Meanwhile in Russia, there were no signs that the government was looking for an exit path from the conflict, with President Putin saying that there were “no limitations” on military spending for Ukraine.

Asian equity markets are higher with the Hang Seng (+2.76%) leading gains helped by a boost in Chinese technology and property stocks as the China Securities Regulatory Commission (CSRC) yesterday pledged more support for the real estate industry as well as for the broader economy. Meanwhile, the Nikkei (+0.54%), the KOSPI (+0.75%), the CSI (+0.62%) and the Shanghai Composite (+0.24%) are also higher. DM Stock futures are indicating a positive start with contracts on the S&P 500 (+0.30%), the NASDAQ 100 (+0.34%) and the DAX (+0.24%) trading slightly higher.

Early morning data showed that producer prices in South Korea rose +6.3% y/y in November, the slowest growth since April 2021 and fifth consecutive month decline. This follows a +7.3% increase in October.

Elsewhere the Japanese yen stabilised yesterday, and saw a modest -0.55% decline against the US Dollar. That follows its +3.93% gain on Tuesday, which was the largest single-day gain since 1998. This morning it's back up +0.4%. 10yr JGBs are -7bps lower at 0.4% as BoJ buying dominates.

In terms of economic data yesterday, US existing home sales fell to an annualised rate of 4.09m in November (vs. 4.20m expected). That’s their 10th consecutive monthly decline, and with the exception of May 2020 at the height of the pandemic, it’s also their lowest level since 2010. Otherwise, we got the latest CPI data for November in Canada, which came in at +6.8% (vs. +6.7% expected). Furthermore, if you exclude food and energy, inflation actually ticked up to +5.4%, having been at +5.3% the previous month. Finally in the UK, public sector borrowing (ex banks) came in at £22.0bn in November (vs. £14.8bn expected), the highest monthly number for November since records began in 1993.

To the day ahead now, and data releases from the US include the third estimate of Q3 GDP, the weekly initial jobless claims, and the Kansas City Fed’s manufacturing index for December. Otherwise, we’ll also get decisions from a couple of G20 central banks, with those in Indonesia and Turkey deciding on rates.

Happy holidays and here are my favorite TV series of the year… see you on the other side…..

  1. The Offer – A dramatised account of the making of the Godfather. I am not a devote of the films but the events around the making of it were fascinating, funny, scary and gripping. Please watch even if you’ve never seen the films just to see life in the early 1970s and the unbelievable obstacles to making one of the biggest movies of all time.
  2. Winning Time – The Rise of the Lakers Dynasty – Like with “The Offer” I’m not a basketball fan but this was again funny, fascinating and utterly mesmerising. Series one ends in 1980 and not being a basketball fan I’ve only a vague idea of what happens next so no spoilers as series 2 eventually takes the story on.
  3. Better Call Saul - The best prequel ever? Very sad to see the Saul/Jimmy story now complete.
  4. The White Lotus II – Maybe one of the better sequels. Much better than the first series that I could have taken or left.
  5. The Newsreader – A fascinating walk back in time to a 1980 Aussie newsroom and all the issues and prejudices the world had back then. Compelling stories and characters.
  6. SAS Rogue Heroes – The (mostly) true story of the setting up of the SAS. Very well done and astonishing stories and people.
  7. Stranger Things – Basically a kids story but one done very well both dramatically and visually. The Kate Bush soundtracked scene that helped her score her first number 1 for nearly 40 years was incredibly powerful.
  8. House of the Dragon – There was always a worry about how good or relevant a Game of Thrones prequel would be but I was pleasantly surprised.
  9. Borgen – After a decade away it was fascinating to see how the former (fictional) Statsminister of Denmark was progressing.
  10. Black Bird – A rarity in so far as this is a one-off complete story so no need to worry about cliff-hanger endings and a year’s wait for the next instalment. True story about a prisoner tapped up by the FBI to befriend a suspected serial killer to make him elicit a confession.
  11. Ozark – The final series didn’t quite hit the heights of previous ones but was still very good.
  12. The Crown – My wife and I raged against some of the deliberate inaccuracies but it was a fascinating journey back in time to stories of our younger days and always very well shot.
  13. Cobra Kai – Very lightweight but always masses of fun and with a very good heart.
  14. Karen Pirie – A Scottish detective who looks a bit like my wife! Not sure who is more dogged and determined.
  15. The Bear – Utter chaos as a tortured star chef inherits and takes over a rundown Chicago sandwich shop. Mayhem ensues.

Honourable mentions. For all Mankind, Reacher, Bosch: Legacy, Only Murderer in the Building, Sherwood.

Tyler Durden Thu, 12/22/2022 - 08:03

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Financial Stress Continues to Recede

Overview: Financial stress continues to recede. The Topix bank index is up for the second consecutive session and the Stoxx 600 bank index is recovering…



Overview: Financial stress continues to recede. The Topix bank index is up for the second consecutive session and the Stoxx 600 bank index is recovering for the third session. The AT1 ETF is trying to snap a four-day decline. The KBW US bank index rose for the third consecutive session yesterday. More broadly equity markets are rallying. The advance in the Asia Pacific was led by tech companies following Alibaba's re-organization announcement. The Hang Seng rose by over 2% and the index of mainland shares rose by 2.2%. Europe's Stoxx 600 is up nearly 1% and US index futures are up almost the same. Benchmark 10-year yields are mostly 1-3 bp softer in Europe and the US.

The dollar is mixed. The Swiss franc is leading the advancers (~+0.3%) while euro, sterling and the Canadian dollar are posting small gains. The Japanese yen is the weakest of the majors (~-0.6%). The antipodeans and Scandis are also softer. A larger than expected decline in Australia's monthly CPI underscores the likelihood that central bank joins the Bank of Canada in pausing monetary policy when it meets next week. Most emerging market currencies are also firmer today, and the JP Morgan Emerging Market Currency Index is higher for the third consecutive session. Gold is softer within yesterday's $1949-$1975 range. The unexpectedly large drop in US oil inventories (~6 mln barrels according to report of API's estimate, which if confirmed by the EIA later today would be the largest drawdown in four months) is helping May WTI extend its gains above $74 a barrel. Recall that it had fallen below $65 at the start of last week.

Asia Pacific

The US dollar is knocking on the upper end of its band against the Hong Kong dollar, raising the prospect of intervention by the Hong Kong Monetary Authority. It appears to be driven by the wide rate differential between Hong Kong and dollar rates (~3.20% vs. ~4.85%). Although the HKMA tracks the Fed's rate increases, the key is not official rates but bank rates, and the large banks have not fully passed the increase. Reports suggest some of the global banks operating locally have raised rates a fraction of what HKMA has delivered. The root of the problem is not a weakness but a strength. Hong Kong has seen an inflow of portfolio and speculative capital seeking opportunities to benefit from the mainland's re-opening.  Of course, from time-to-time some speculators short the Hong Kong dollar on ideas that the peg will break. It is an inexpensive wager. In fact, it is the carry trade. One is paid well to be long the US dollar. Pressure will remain until this consideration changes. Eventually, the one-country two-currencies will eventually end, but it does not mean it will today or tomorrow. As recently as last month, the HKMA demonstrated its commitment to the peg by intervening. Pressure on the peg has been experienced since last May and in this bout, the HKMA has spent around HKD280 defending it (~$35 bln).

The US and Japan struck a deal on critical minerals, but the key issue is whether it will be sufficient to satisfy the American congress that the executive agreement is sufficient to benefit from the tax- credits embodied in the Inflation Reduction Act. The Biden administration is negotiating a similar agreement with the EU. The problem is that some lawmakers, including Senator Manchin, have pushed back that it violates the legislature's intent on the restrictions of the tax credit. Manchin previously threatened legislation that would force the issue. The US Trade Representative Office can strike a deal for a specific sector without approval of Congress, but that specific sector deal (critical minerals) cannot then meet the threshold of a free-trade agreement to secure the tax incentives. 

The Japanese yen is the weakest of the major currencies today, dragged lower by the nearly 20 bp rise in US 10-year yields this week and the end of the fiscal year related flows. Some dollar buying may have been related to the expirations of a $615 mln option today at JPY131.75. The greenback tested the JPY130.40 support we identified yesterday and rebounded to briefly trade above JPY132.00 today, a five-day high.  However, the session high may be in place and support now is seen in the JPY131.30-50 band. Softer than expected Australian monthly CPI (6.8% vs. 7.4% in January and 7.2% median forecast in Bloomberg's survey) reinforced ideas that the central bank will pause its rate hike cycle next week. The Australian dollar settled near session highs above $0.6700 in North America yesterday and made a margin new high before being sold. It reached a low slightly ahead of $0.6660 in early European turnover. The immediate selling pressure looks exhausted and a bounce toward $0.6680-90 looks likely. On the downside, note that there are options for A$680 mln that expire today at $0.6650. In line with the developments in the Asia Pacific session today, the US dollar is firmer against the Chinese yuan. However, it held below the high seen on Monday (~CNY6.8935). The dollar's reference rate was set at CNY6.8771, a bit lower than the median projection in Bloomberg's forecast (~CNY6.8788). The sharp decline in the overnight repo to its lowest since early January reflect the liquidity provisions by the central bank into the quarter-end.


Reports suggest regulators are finding that one roughly 5 mln euro trade on Deutsche Bank's credit-default swaps last Friday, was the likely trigger of the debacle. The bank's market cap fell by1.6 bln euros and billions more off the bank share indices. Then there is the US Treasury market, where the measure of volatility (MOVE) has softened slightly from last week when it rose to the highest level since the Great Financial Crisis. While the wide intraday ranges of the US two-year note have been noted, less appreciated are the large swings in the German two-year yield. Before today, last session with less than a 10 bp range was March 8. In the dozen sessions since, the yield has an average daily range of around 27 bp. The rapid changes and opaque liquidity in some markets leading to dramatic moves challenges the price discovery process. The speed of movement seems to have accelerated, and reports that Silicon Valley Bank lost $40 bln of deposits in a single day.

Italy's Meloni government will tap into a 21 bln euro reserve in the budget to give a three-month extension of help to low-income families cope with higher energy bills but eliminate it for others. It is projected to cost almost 5 billion euros. The energy subsidies have cost about 90 mln euros. Most Italian families are likely to see higher energy bills, though gas will still have a lower VAT. Meloni also intends to adjust corporate taxes to better target them and cost less. Separately, the government is reportedly considering reducing or eliminating the VAT on basic food staples. Meanwhile, the EU is delaying a 19 bln euro distribution to Italy from the pandemic recovery fund. The aid is conditional on meeting certain goals. The EU is extending its assessment phase to review a progress on a couple projects, licensing of port activities, and district heating. These are tied to the disbursement for the end of last year. The EU acknowledged there has been "significant" progress. Italy has received about a third of the 192 bln euros earmarked for it. Despite the volatile swings in the yields, Italy's two-year premium over Germany is within a few basis points of the Q1 average (~46 bp). The same is true of the 10-year differential, which has averaged about 187 bp this year. 

After slipping lower in most of the Asia Pacific session, the euro caught a bid late that carried into the European session and lifted it to session highs near $1.0855. The session low was set slightly below $1.0820 and there are nearly 1.6 bln euros in option expirations today between two strikes ($1.0780 and $1.0800). Recall that on two separate occasions last week, the euro be repulsed from intraday moves above $1.09. A retest today seems unlikely, but the price actions suggest underlying demand. Sterling has also recovered from the slippage seen early in Asia that saw it test initial support near $1.2300. Yesterday, it took out last week's high by a few hundredths of a cent, did so again today rising to slightly above $1.2350. However, here too, the intraday momentum indicators look stretched, cautioning North American participants from looking for strong follow-through buying.


What remains striking is the divergence between the market and the Federal Reserve. On rates they are one way. Fed Chair Powell was unequivocal last week. A pause had been considered, but no one was talking about a rate cut this year. The market is pricing in a 4.72% average effective Fed funds rate in July. On the outlook for the economy this year, they are the other way. The median Fed forecast was for the economy to grow by 0.4% this year. The median forecast in Bloomberg's survey anticipated more than twice the growth and projects 1.0% growth this year. As of the end of last week, the Atlanta Fed sees the US expanding by 3.2% this quarter (it will be updated Friday). The median in Bloomberg's survey is half as much. 

The US goods deficit in February was a little more than expected and some of the imports appeared to have gone into wholesale inventories, which unexpectedly rose (0.2% vs. -0.1% median forecast in Bloomberg's survey). Retail inventories jumped 0.8%, well above the 0.2% expected and biggest increase since last August. Given the strength of February retail sales (0.5% for the measure that excludes autos, gasoline, food services and building materials, after a 2.3% rise in January), the increase in retail inventories was likely desired. FHFA houses prices unexpectedly rose in January (first time in three months, leaving them flat over the period). S&P CoreLogic Case-Shiller's measure continued to slump. It has not risen since last June. The Conference Board's measure of consumer confidence rose due to the expectations component. This contrasts with the University of Michigan's preliminary estimate that showed the first decline in four months. Moreover, when its final reading is announced at the end of the week, the risk seems to be on the downside, according to the Bloomberg survey. Meanwhile, surveys have shown that the service sector has been faring better than the manufacturing sector. However, the decline in the Richman Fed's business conditions, while its manufacturing survey improved, coupled with the sharp decline in the Dallas Fed's service activity index may be warning of weakness going into Q2.

The US dollar flirted with CAD1.38 at the end of last week is pushing through CAD1.36 today to reach its lowest level since before the banking stress was seen earlier this month. The five-day moving average has crossed below the 20-day moving average for the first time since mid-February. Canada's budget announced late yesterday boosts the deficit via new green initiatives and health spending, while raising taxes, including a new tax on dividend income for banks and insurance companies from Canadian companies. The market appears to be still digesting the implications. Today's range has thus far been too narrow to read much into it. The greenback has traded between roughly CAD1.3590 and CAD1.3615. On the other hand, the Mexican peso has continued to rebound from the risk-off drop that saw the US dollar surge above MXN19.23 (March 20). The dollar is weaker for fifth consecutive session and seventh of the last nine. It finished last week near MXN18.4450 and fell to about MXN18.1230 today, its lowest level since March 9. However, the intraday momentum indicators are stretched, and the greenback looks poised to recover back into the MXN18.20-25 area. Banxico meets tomorrow and is widely expected to hike its overnight target rate by a quarter-of-a-point to 11.25%.



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The ONS has published its final COVID infection survey – here’s why it’s been such a valuable resource

The ONS’ Coronavirus Infection Survey has ceased after three years. Two experts explain why it was a uniquely useful source of data.



March 24 marked the publication of the final bulletin of the Office for National Statistics’ (ONS) Coronavirus Infection Survey after nearly three years of tracking COVID infections in the UK. The first bulletin was published on May 14 2020 and we’ve seen new releases almost every week since.

The survey was based primarily on data from many thousands of people in randomly selected households across the UK who agreed to take regular COVID tests. The ONS used the results to estimate how many people were infected with the virus in any given week.

In the survey’s first six months, we had results from 1.2 million samples taken from 280,000 people. Although the number of people participating each month declined over time, the survey has continued to be a highly valuable tool as we navigate the pandemic.

In particular, because the ONS bulletins were based on surveying a large, random sample of all UK residents, it offered the least biased surveillance system of COVID infections in the UK. We are not aware of any similar study anywhere else in the world. And, while estimating the prevalence of infections was the survey’s main output, it gave us a lot of other useful information about the virus too.

Unbiased surveillance

An important advantage of the ONS survey was its ability to detect COVID infections among many people who had no symptoms, or were not yet displaying symptoms.

Certainly other data sets existed (and some continue to exist) to give a sense of how many people were testing positive. For example, earlier in the pandemic, case numbers were reported at daily national press conferences. Figures continue to be published on the Department of Health and Social Care website.

But these totals have usually only encompassed people who tested because they had reason to suspect they may have been infected (for example because of symptoms or their work). We know many people had such minor symptoms that they had no reason to suspect they had COVID. Further, people who took a home test may or may not have reported the result.

Similarly, case counts from hospital admissions or emergency room attendances only captured a very small percentage of positive cases, even if many of these same people had severe healthcare needs.

Symptom-tracking applications such as the ZOE app or online surveys have been useful but tend to over-represent people who are most technologically competent, engaged and symptom-aware.

Testing wastewater samples to track COVID spread in a community has proved difficult to reliably link to infection numbers.

Read more: The tide of the COVID pandemic is going out – but that doesn't mean big waves still can't catch us

What else the survey told us

Aside from swab samples to test for COVID infections, the ONS survey collected blood samples from some participants to measure antibodies. This was a very useful aspect of the infection survey, providing insights into immunity against the virus in the population and individuals.

Beginning in June 2021, the ONS survey also published reports on the “characteristics of people testing positive”. Arguably these analyses were even more valuable than the simple infection rate estimates.

For example, the ONS data gave practical insights into changing risk factors from November 21 2021 to May 7 2022. In November 2021, living in a house with someone under 16 was a risk factor for testing positive but by the end of that period it seemed to be protective. Travel abroad was not an important risk factor in December 2021 but by April 2022 it was a major risk. Wearing a mask in December 2021 was protective against testing positive but by April 2022 there was no significant association.

We shouldn’t find this changing picture of risk factors particularly surprising when concurrently we had different variants emerging (during that period most notably omicron) and evolving population resistance that came with vaccination programmes and waves of natural infection.

Also, in any pandemic the value of non-pharmaceutical interventions such wearing masks and social distancing declines as the infection becomes endemic. At that point the infection rate is driven more by the rate at which immunity is lost.

A woman wearing a face mask receives a vaccine.
The survey gave us insights into the protection offered by vaccines and non-pharmaceutical interventions. Paul Maguire/Shutterstock

The ONS characteristics analyses also offered evidence about the protective effects of vaccination and prior infection. The bulletin from May 25 2022 showed that vaccination provided protection against infection but probably for not much more than 90 days, whereas a prior infection generally conferred protection for longer.

After May 2022, the focused shifted to reinfections. The analyses confirmed that even in people who had already been infected, vaccination protects against reinfection, but again probably only for about 90 days.

It’s important to note the ONS survey only measured infections and not severe disease. We know from other work that vaccination is much better at protecting against severe disease and death than against infection.

Read more: How will the COVID pandemic end?

A hugely valuable resource

The main shortcoming of the ONS survey was that its reports were always published one to three weeks later than other data sets due to the time needed to collect and test the samples and then model the results.

That said, the value of this infection survey has been enormous. The ONS survey improved understanding and management of the epidemic in the UK on multiple levels. But it’s probably appropriate now to bring it to an end in the fourth year of the pandemic, especially as participation rates have been falling over the past year.

Our one disappointment is that so few of the important findings from the ONS survey have been published in peer-reviewed literature, and so the survey has had less of an impact internationally than it deserves.

Paul Hunter consults for the World Health Organization. He receives funding from National Institute for Health Research, the World Health Organization and the European Regional Development Fund.

Julii Brainard receives funding from the NIHR Health Protection and Research Unit in Emergency Preparedness.

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Candida auris: what you need to know about the deadly fungus spreading through US hospitals

A drug-resistant fungus is a threat to human health.




A fungal superbug called Candida auris is spreading rapidly through hospitals and nursing homes in the US. The first case was identified in 2016. Since then, it has spread to half the country’s 50 states. And, according to a new report, infections tripled between 2019 and 2021. This is hugely concerning because Candida auris is resistant to many drugs, making this fungal infection one of the hardest to treat.

Candida auris is a yeast-type fungus that is the first to have multiple international health alerts associated with it. It has been found in over 30 countries, including the UK, since it was first identified in Japan in 2009.

It is related to other types of yeast that can cause infections, like Candida albicans which causes thrush. However, Candida auris is very different to these other fungi and in some ways, highly unusual.

First, it can grow, or “colonise”, human skin. Unlike many other Candida species that like to grow in our guts as part of the microbiome, Candida auris does not grow in this environment and seems to prefer the skin. This means that people who are colonised with Candida auris can shed lots of yeast from their skin, and this contaminates bed clothes and surfaces with the fungus. This can lead to outbreaks.

It is unusual for a fungal infection to spread from person to person, but that seems to be how Candida auris infections spread. Outbreaks can happen with this fungus, especially in intensive care units (ICU) and nursing homes where people are at a higher risk for getting fungal infections generally.

The fungus can live on surfaces for several weeks, and getting rid of it can be difficult. Enhanced cleaning and hand washing is needed to try and limit the spread of the fungus and exposure to patients who get ill from it.

Most people who are colonised with Candida auris will not get ill from it, or even know it is there. It causes infections when it gets into surgical wounds or the blood from an intravenous line. Once it gets into the body, it can infect organs and the blood causing a very serious and potentially fatal disease.

The mortality rate for people infected (as opposed to colonised) with the fungus is between 30 and 60%. But a precise mortality rate can be hard to pin down as people who are infected are often critically ill with other conditions.

Diagnosing an infection can be difficult as there can be a wide range of symptoms including fever, chills, headaches and nausea. It is for this reason that we need to keep a close eye on Candida auris as it can easily be confused with other conditions.

In the last few years, new tests to help identify this fungus accurately have been developed.

Candida auris can get into the body via an infected IV line. Tyler Olson/Shutterstock

The first Candida auris infection was reported in the UK in 2013. However, there may have been other cases before this – there is evidence that some early cases were misidentified as unrelated yeasts.

The UK has so far managed to stop any major outbreaks, and most cases have been limited in their spread.

Most patients who have become ill from Candida auris in the UK had recently travelled to parts of the world where the fungus is more common or has been circulating for longer.

Spurred by COVID

Rising numbers of Candida auris infections are thought to be partially linked to the COVID pandemic. People who become very ill from COVID may need mechanical ventilation and long stays in the ICU, which are both risk factors for Candida auris colonisation and infection.

It will take some time to figure out exactly how the pandemic has affected rates and numbers of fungal infections around the world, but these are important questions to answer to help predict how Candida auris cases might fluctuate in the future.

As for most life-threatening fungal infections, treatment is difficult and limited. We have only a handful of antifungal drugs to fight these infections, so when a species is resistant to one or more of these drugs, the options for treatment are extremely limited. Some Candida auris infections are resistant to all three types of antifungal drug.

Healthcare professionals must remain vigilant to this drug-resistant fungus. Without close monitoring and enhanced awareness of this infection, we could see more outbreaks and serious disease associated with Candida auris in the future.

Rebecca A. Drummond receives funding from the Medical Research Council.

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