U.S. futures rose again, starting the Santa rally predicted over the weekend by Goldman, after the underlying index surged to a record on Friday with risk appetite returning ahead of this week’s barrage of central bank meetings including the Fed on Wednesday, followed by the Bank of England and ECB. Nasdaq 100 futures climbed 0.4% as major technology and internet stocks rose in premarket trading with Apple inching closer to a $3 trillion market valuation; S&P 500 futures rose 11 points or 0.2%; with Dow Jones futures also rising 0.2%.
Chinese developers’ bonds and shares experienced a wave of selling after the sudden plunge in Shimao Group's notes restarted concern over the health of the sector 10-year Treasury yields inched lower to 1.4684% and the dollar pushed higher. Bitcoin extended losses toward $48,000 as Binance bailed on plans for a Singapore exchange. Traders pared bets that the BOE will raise rates next year as concerns over fresh Covid restrictions outweighed inflation fears.
Risk sentiment got a boost from predictions China will start adding fiscal stimulus in early 2022, said Ipek Ozkardeskaya, a senior analyst at Swissquote. “The chances of a massive hawkish surprise are limited, and the actual expectation doesn’t interfere with equity investors’ craving for a Santa rally to close a record-breaking year with one last record,” she wrote. Indeed, as we have been expecting for much of the past 6 months, China’s top decision makers last week signaled policies may become more supportive of growth next year. Economists predict China will start adding fiscal stimulus in early 2022.
US stocks close Friday at a new record after in-line inflation data did not surprise to the upside for the first time in months and spurred bets that the Federal Reserve won’t have to accelerate plans to tighten monetary policy. That came amid a backdrop of uncertainty from the omicron coronavirus variant, a factor that traders are likely to also monitor closely as the week starts. Volatility should remain high as several central banks will decide on interest rates this week, Pierre Veyret, a technical analyst at ActivTrades, said in written comments. The “policies should set the trading tone, providing investors with more clues on next year’s investing environment.”
The Federal Reserve on Wednesday is expected to speed up stimulus withdrawal and perhaps open the door to earlier interest-rate hikes in 2022 if price pressures stay near a four-decade peak. After repeated jawboning, it would be a major surprise if the bank doesn't announce a faster tapering, and the bond market will have to adapt to the new approach.
“Global equities had a solid run last week and we’ll see if the goodwill lasts into what is a behemoth when it comes to event risk,” Chris Weston, head of research with Pepperstone Financial Pty Ltd., wrote in a note. Omicron and the Fed should dictate sentiment, he added.
Meanwhile, in the world of covid, at least 30 U.S. states have reported omicron cases, with Anthony Fauci of course stepping up calls for boosters to increase protection and making pharma CEOs even richer. That said, all cases for which there's available information were asymptomatic or mild, European health chiefs said. That did not stop Boris Johnson from warning that the U.K. faces a tidal wave of infections and set a year-end deadline for its booster program. South Africa's Cyril Ramaphosa tested positive.
Here are some of the biggest U.S. movers today:
- Arena Pharmaceuticals soars after Pfizer agrees to buy it for $100/Shr in Cash
- Apple shares rose 1%, leaving the stock close to hitting $3t market capitalization if the move holds.
- Airbnb, Lucid, Zscaler and Datadog shares all rise in U.S. premarket trading with the companies set to be added to the Nasdaq 100 index later this month.
- Peloton Interactive shares gain after the home-exercise firm put out an advert responding to a scene in the TV show “And Just Like That...” where a character dies using its product. The stock closed 5.4% lower on Friday, the day after the episode aired.
- TherapeuticsMD fell 25% in premarket trading after the FDA said it couldn’t approve revisions to some manufacturing testing limits for the Annovera birth-control ring requested by the company through a supplemental new drug application.
European stocks also advanced, led by technology and mining stocks. The Euro Stoxx 50 rose as much as 1%, DAX outperforming at the margin. In the U.K., traders are paring back bets on Bank of England rate hikes over the next year as concerns over fresh Covid restrictions outweigh inflation fears.
Asian stocks erased an early advance as deepening losses in shares of Chinese property developers and persistent concerns over the omicron coronavirus variant soured sentiment. The MSCI Asia Pacific Index was down 0.2% after having climbed as much as 0.8%. Equity benchmarks in India and South Korea led regional declines. While stocks in China and Hong Kong rallied in morning trade on signals policies may become more pro-growth next year, the Hang Seng Index erased a gain of as much as 1.6%. That was owing to a selloff in real estate names after a plunge in the bonds and shares of Shimao Group sparked renewed concern over the health of the sector.
Monday’s trading in Asia also highlighted investor caution as markets confront potential economic risks from omicron’s spread and a series of central bank meetings this week, including the Federal Reserve. The Fed on Wednesday is expected to speed up stimulus withdrawal and perhaps open the door to earlier interest-rate hikes in 2022 if price pressures stay near a four-decade peak. “We are in the last three weeks of the year -- no investor is going to place new bets and are more likely to be taking profits off the table,” said Justin Tang, head of Asian research at United First Partners. “Any negative news will be taken as a reason to press the sell button.” Meanwhile, China’s stocks climbed for the fourth day in five after the nation’s annual economic conference ended Friday with a vow to ensure “stability” and “front load” policies. Foreign investors on Monday added to record purchases of mainland shares last week. Focus now shifts to data due later in the week, including industrial production, retail sales and fixed-asset investment.
India’s benchmark stock index dropped, with a fall in Reliance Industries Ltd. weighing on the market. The S&P BSE Sensex slipped 0.9% to close at 58,283.42 in Mumbai, reversing gains of as much as 0.7%. The index had posted its best weekly performance since mid-October on Friday. The NSE Nifty 50 Index also fell 0.8% on Monday. Still, a measure of small-cap companies gained 0.2%. Reliance, the nation’s most valuable company, dropped 2%. Out of 30 shares in the Sensex, 23 fell and seven rose. All but one of the 19 sector sub-indexes compiled by BSE Ltd. declined, led by a gauge of energy companies. “Selling is more evident in benchmark indices as overseas investors are booking at least a part of their profits ahead of the U.S. Fed’s rate-setting meeting that is likely to speed up the policy normalization process,” Abhay Agarwal, founder of Mumbai-based Piper Serica Advisors Pvt., an investment management company with assets of 5 billion rupees under management, said by phone. The Fed.’s policy announcement is due Wednesday, where it is expected to speed up stimulus withdrawal and perhaps open the door to earlier interest-rate hikes in 2022. “Post-event, we expect to see a reallocation, though at a slower pace as FPIs will factor in the possible hike in interest rates, apart from the tapering of stimulus,” Agarwal said. Locally, the government will release its consumer inflation print for the month of November later on Monday. Inflation likely rose to 5.1% year-on-year in November from 4.5% in the previous month, according to a Bloomberg survey.
Fixed income drifts higher with bund and UST curves bull flattening. Treasury yields were lower as the U.S. trading day begins, with the 10Y sliding to 1.46% and short-term little changed, prolonging the curve-flattening trend. With no U.S. economic data slated and Fed speakers silent ahead of Wednesday’s policy meeting, supply is a focal point, and Fed is slated to buy long-end sectors with no coupon supply until next week’s 20-year reopening. 10- to 30-year yields lower by about 1bp-2bp, 10-year by 1.5b at ~1.468%; 2- to 5-year yields little changed, narrowing 2s10s and 5s30s by 1bp-2bp.Peripheral spreads tighten slightly with short-dated BTPs leading a cautious move higher. Gilts bull steepen, trading ~2.5bps richer across the short end as money markets continue to price out hikes in light of the latest Covid restrictions.
In FX, Bloomberg Dollar index drifts 0.3% higher, erasing Friday’s decline and rallying against all its peers with the focus on Wednesday’s Federal Reserve meeting amid speculation officials might accelerate the pace of policy normalization. Flows in the spot market are running at 70% of the recent average, a Europe-based trader told Bloomberg. Volatility term structures in the major currencies remain inverted as the market awaits forward guidance that could shape trading for the better part of 2022 U.S. inflation data in line with expectations on Friday “almost certainly won’t change the balance-of-risk assessment for the Fed, and the communications of late expressing concern over inflation risks remain valid,” says MUFG’s Derek Halpenny. “The week starts quietly in terms of data today but it remains likely that the dollar will remain supported into the FOMC on Wednesday with anticipation high of some hawkish rhetoric to accompany the decision to speed up QE tapering.”
GBP/USD fell 0.2% to 1.3244 after gaining 0.5% over the previous two sessions. The Bank of England is set to opt for caution over Covid rather than worries about inflation, pushing back its first rate increase since the pandemic into 2022, according to economists. U.K. Health Secretary Sajid Javid said there’s no certainty the government will be able to keep schools in England open, as it battles to contain the spread of the omicron Covid-19 variant. “This week is interesting for GBP as markets scrutinize labor-market report tomorrow ahead of BOE,” said Christopher Wong, senior foreign-exchange strategist at Malayan Banking Bhd. in Singapore. “There are concerns unemployment will spike if workers are made redundant or if people cannot find jobs, and this labor report will provide the first assessment.”
The Yen outperformed amid broad dollar strength; USD/JPY still up 0.2% at 113.69. AUD and NOK are the weakest in G-10. Turkish lira crashed again, plunging to a new record low in early London trade with USD/TRY initially rallying over 6% to highs of 14.7590, before fading some of the move after another intervention from the Turkish central bank.
In commodities, crude futures give back Asia’s gains; WTI is little changed near $71.78, Brent dips below $75.50. Spot gold holds a narrow range near $1,785/oz. Most base metals are in the green with LME aluminum outperforming. Bitcoin once again failed to rise above $50,000, extending losses toward $48,000 as Binance bailed on plans for a Singapore exchange
There are no major economic developments on today's calendar, but it's a busy week with about 20 central banks making monetary policy announcements, including the Fed, the BOE and ECB, and the divergence of their paths will be evident. Jerome Powell may turn more hawkish as he fights rising inflation, while the ECB joins China in leaning dovish and playing down soaring prices.
- S&P 500 futures up 0.4% to 4,728.00
- STOXX Europe 600 up 0.7% to 478.82
- MXAP down 0.2% to 193.62
- MXAPJ down 0.3% to 630.93
- Nikkei up 0.7% to 28,640.49
- Topix up 0.1% to 1,978.13
- Hang Seng Index down 0.2% to 23,954.58
- Shanghai Composite up 0.4% to 3,681.08
- Sensex down 0.9% to 58,278.65
- Australia S&P/ASX 200 up 0.4% to 7,379.26
- Kospi down 0.3% to 3,001.66
- Brent Futures up 0.8% to $75.74/bbl
- Gold spot up 0.1% to $1,784.20
- U.S. Dollar Index up 0.34% to 96.42
- German 10Y yield little changed at -0.36%
- Euro down 0.4% to $1.1265
Top Overnight News from Bloomberg
- Almost 20 central banks meet this week, including the world’s biggest. No surprise that volatility term structures in the major currencies remain inverted as the market awaits forward guidance that could shape trading for the better part of 2022
- The Bank of Japan offered to buy 2 trillion yen ($17.6 billion) of government bonds under repurchase agreements after repo rates jumped to a two-year high
- Turkey’s central bank intervened in the market by selling FX after the lira tumbled past 14 to the dollar for the first time, piling pressure on a central bank that’s forecast to keep cutting interest rates this week despite rising inflation. The decline came after S&P Global Ratings lowered the outlook on the nation’s sovereign credit rating to negative on Friday, citing risks from the “extreme currency volatility”
- The ECB’s biggest decision this week is to decide if it can still call the current inflation spike “transitory.” The answer will have a huge bearing on the euro-area economy, which is already dealing with resurgent coronavirus infections, new restrictions and lockdowns, and uncertainty about the omicron variant
- ECB Vice President Luis de Guindos is self-isolating after testing positive for Covid-19 on Saturday, the ECB said in a statement posted on its website. Guindos hasn’t been in close contact with ECB President Christine Lagarde over the past week, according to the statement. The Spaniard, who is double- vaccinated and has very mild symptoms, will work from home until further notice
- Two doses of the Pfizer Inc. and AstraZeneca Plc. vaccines induced lower levels of antibodies against the omicron variant, increasing the risk of Covid infection, according to researchers from the University of Oxford.
A more detailed breakdown of overnight news from Newsquawk
Asia-Pac equity markets took their cues from last Friday’s gains on Wall Street where the S&P 500 notched a fresh record close and its best weekly performance since February, with markets now bracing for a risk-packed week including a busy schedule of central bank meetings. The ASX 200 (+0.4%) traded higher with risk appetite supported by the reopening of Australia’s borders to international students and skilled workers from Wednesday, while the government will also partially underwrite up to AUD 7bln in new loans for small businesses impacted by lockdowns. The Nikkei 225 (+0.7%) benefitted from the mild outflows from the JPY, with the index unphased by mixed Tankan and Machinery Orders data in which the Tankan Large Manufacturers Index and Outlook missed expectations but sentiment among Large Non-Manufacturers and Small Manufacturers improved for the sixth consecutive quarter. The Hang Seng (-0.2%) and Shanghai Comp. (+0.4%) predominantly conformed to the upbeat mood amid economists' expectations for China to add fiscal stimulus from early next year following last week’s conclusion to the Central Economic Work Conference, which noted that China's economy faces shrinking demand, supply shock, and weakening expectations but added that economic operations are to be kept within a reasonable range. Alibaba shares were among the biggest gainers in Hong Kong as it extended its rebound from YTD lows. Finally, 10yr JGBs were rangebound with March futures contained by resistance at the key 152.00 level and amid the positive mood across riskier assets, although JGBs were off the lows seen late last week where there were source reports that the BoJ is likely to scale back its pandemic relief programs in March with a potential announcement as early as this week’s meeting.
Top Asian News
- Shriram Units Merge to Form Largest India Retail Financier
- Intel to Spend $7 Billion on Big Malaysia Chipmaking Expansion
- Shimao Group Appoints Xie Kun as Executive Director
- Daimler Reveals Chinese Partner BAIC Raised Stake to Almost 10%
Stocks in Europe have continued to gain since the cash open (Euro Stoxx 50 +1.0%; Stoxx 600 +0.5%) as the APAC sentiment reverberates through the region following a fleeting blip lower in early European trade. US equity futures are also firmer but to a lesser magnitude – with the RTY (+0.3%) narrowly outpacing the ES (+0.%), NQ (+0.4%) and YM (+0.2%). Focus this week will be on the slew of central bank updates which kicks off with the FOMC on Wednesday, followed by the BoE and ECB on Thursday - with Flash PMIs, Christmas liquidity and Quad Witching also part of this week’s concoction. Add to that the potential tail-risk from geopolitics and headline risk from COVID. Nonetheless, European cash markets at the moment seem unfazed by what’s ahead. Sectors are pro-cyclical with Basic Resources and Autos topping the charts, whilst the defensive Healthcare, Telecoms and Personal & Household goods reside at the bottom. A recent Citi note suggests that rising earnings should keep European stocks moving higher and offset expansive valuations and tightening monetary policy in the US. Citi targets some 9% upside for the Stoxx 600 next year, with a target of 520 (vs current c.477), whilst 12% upside is targeted in the FTSE 100 to 8,200 (vs current c. 7,303). Citi leans in favour of cyclicals vs defensives - with overweights in Banks, Insurance, Basic Resources, Industrials, Media, Luxury Goods and Chemicals. Citi is underweight Utilities, Telecoms, Food & Beverages, Personal Care, Travel, Autos and Financial Services. The bank has also added to its focus list: AstraZeneca (+0.1%), Aviva (+0.7%), Capgemini (+1.2%), Faurecia (+0.9%), Iberdrola (-0.3%), Lloyds (-0.7%), Prosus (+1.5%), Royal Mail (+1.6%), Sanofi (Unch), Tesco (+0.4%), UBS (+0.2%), Vodafone (Unch), Volvo (+1.1%). Separately, Goldman Sachs sees muted returns for global stocks next year amid negative real rates coupled with high equity risk premia and in the absence of a growth shock. GS suggests that risks are growing in the US on a relative basis and sees a maximum drawdown of between -5 to -10% over the next 12 months.
Top European News
- European Gas, Power Prices Surge on Nord Stream 2 Worries
- U.K. Says Can’t Rule Out Shutting Schools as Omicron Spreads
- UBS Global Wealth Management Discontinues USDTRY Coverage
- Vivendi Has ‘Never Been a Threat’ to Lagardere: Arnaud Lagardere
In FX, the Greenback has clawed back all and a bit more of its post-US inflation data losses, partly on reflection perhaps that the CPI prints were broadly in line, and actually a tad above consensus in terms of the m/m headline rate, so highly unlikely to derail the Fed from upping the pace of QE tapering this week and probably won’t deter the more hawkish FOMC members from pencilling in a steeper lift-off. Hence, having ended Friday’s session fractionally below a Fib retracement level (96.098), the index subsequently eclipsed the intraday peak (96.429) to turn what was a bearish technical close into a constructive start to the new week within a 96.080-450 range and a ‘close’ above 96.500 would be deemed positive, if not bullish.
CHF/EUR/AUD - Very little traction from latest signs of building inflation pressure in the Eurozone via German wholesale prices reaching a record high 16.6% y/y in November, but the Euro has held above 1.0400 against the Franc in wake of latest weekly Swiss sight deposits showing a rise in domestic bank balances. Meanwhile, the single currency has absorbed some stops triggered on a breach of 1.1265 vs the Buck and could derive underlying support from decent option expiry interest at 1.1250 (1.5 bn) at the base of a band extending to 1.1320 (2 bn) through 1.1270-1.1300 (1.1 bn), and Usd/Chf is hovering around 0.9250 at the upper end of a 0.9257-00 band ahead of producer/import prices on Tuesday. Elsewhere, the Aussie has not been able to benefit from good news in the form of Australia opening its borders to international students and skilled workers from Wednesday, Government plans to partially underwrite up to Aud 7 bn new loans for small businesses impacted by lockdowns, or buoyant risk appetite, as it straddles 0.7150 against its US counterpart.
JPY/NZD/CAD/GBP - Also conceding ground to their US peer, with the Yen back below 113.50 and hardly helped by mixed Japanese macro releases including December’s Tankan survey and October machinery orders, while the Kiwi is back under 0.6800 even though NZ PM Ardern said the COVID-19 alert level for Auckland is to be eased on December 30 and the next review is scheduled for January 17. The Loonie is slipping alongside WTI between 1.2753-06 parameters and Cable has tested Fib support into 1.3200 at 1.3200 amidst ongoing UK political furore over Conservative Party transgressions during lockdown last year and heightened Omicron restrictions to prevent a tidal wave of infections.
In commodities, WTI and Brent front-month futures have been drifting lower since the European morning after the former tested USD 73/bbl to the upside and the latter briefly topped USD 76/bbl. Newsflow for the complex has been light but there have been further positive omens regarding the Iranian nuclear talks - Iran’s top nuclear negotiator said good progress was made in nuclear talks and can quickly pave the way for serious negotiations, whilst Russia's Deputy Foreign Minister said they have reason to anticipate some progress. That being said, we are yet to hear from some of the western nations. Meanwhile, on the OPEC front, Iraq’s Oil Minister said he expects OPEC to maintain its current policy of gradual monthly increases of 400k BPD at the next meeting – slated for early January. On the COVID front, the UK opted not to further tighten restrictions over the weekend but instead boosted the booster programme, whilst reports surrounding the Omicron variant have all highlighted a mild illness. The geopolitical space may require some more attention as tensions remain high on the Ukraine/Russia and Taiwan/China front, with the US involved in both. Russian Deputy Foreign Minister, according to reports this morning, said if the US and NATO do not provide them with guarantees around security, it may lead to confrontation – and emphasised that the lack of progress on this would lead to a military response. Further, there were reports that Saudi Arabia and Iran held security talks. Ahead, the monthly OPEC oil market report is due to be released, but focus this week will likely remain on the slew of central bank meetings. Elsewhere, spot gold and silver are constrained to recent ranges ahead of a risk-packed week, with the former still in a purgatory zone below its 50 DMA (1,789/oz), 200 DMA (1,793/oz) and 100 DMA (1,795/oz). Meanwhile, LME copper is firmer on the mild market optimism but has receded south of the USD 9,500/t mark.
US Event Calendar
- Nothing major scheduled
DB's Jim Reid concludes the overnight wrap
We had our first Xmas lunch yesterday with my golf club hosting Santa (arriving on a golf buggy up the 18th fairway) and welcoming kids to the dinning room. I spent the whole lunch worrying their behaviour would get me black balled and banned from golf. Before we went my wife and I took lateral flow tests and Maisie asked if this was to stop Santa getting the virus? She then asked who would deliver all the presents if he had to self isolate. I must admit that I thought this was a very good question, especially as she’s starting to slowly question his existence. I said it was likely ok as Santa had just got his booster as he is over 50.
I remember when the third week of December was one long string of Xmas client lunches that you desperately tried the leave as early as you could politely do so even if that was 8pm. This week they’ll be no time for lunches and we’ll be glued to our screens with just the eight G20 central banks deciding on monetary policy. The Fed’s decision on Wednesday will be key of course, with anticipation that they might accelerate the tapering of their asset purchases, but there’s also the ECB and Bank of England meetings to watch out for as well. All of them are very much “live” meetings. Elsewhere the flash PMIs for December (Thursday) could give us an initial indication as to how increased restrictions have begun to affect economic activity. US retail sales and UK CPI (both Wednesday) might be other interesting data points.
Reviewing the main highlights in more details now. The Fed’s decision on Wednesday will be the focal point of the week. In terms of what to expect, our US economists write in their preview (link here) that they anticipate a doubling in the pace of tapering, which would bring the monthly drawdown of Treasury and MBS to $20bn and $10bn per month respectively. That would see the process of tapering conclude in March, giving them greater optionality for an earlier liftoff. Bear in mind that this meeting will also see the release of the latest dot plot, as well as the projections for inflation, growth and unemployment. On that, our economists see the median dot in 2022 likely showing two rate hikes, with risks of more, up from September when only half the dots saw any hikes by the end of 2022.
The ECB’s decision will then follow on Thursday. In our European economists’ preview (link here) they write that until the arrival of the Omicron variant, the ECB appeared on track to initiate a transition to a monetary policy stance based more on policy rates and rates guidance and less on liquidity provision. They were also set to create a policy framework with more optionality to better respond to inflation uncertainties. The Omicron variant reinforces the need for optionality, but until there’s greater clarity on what it means for the pandemic and the recovery, the ECB may stall the expected decisions in part or in whole until early 2022. As with the Fed, it’ll be interesting to see the December staff forecasts on inflation, which could influence the market view on lift-off timing.
The Bank of England’s decision will then take place on Thursday, and our UK economist expects the MPC will raise Bank Rate by +15bps to 0.25%. In the preview (link here) it argues that news of the Omicron variant has changed little on the medium-term economic outlook, with the labour market remaining as tight as it has been in recent memory, and inflation continuing to outpace staff forecasts. Nevertheless, the risks to this view are finely balanced, and risk management considerations may lead them to delay a rate hike, as they instead opt to find out more information on Omicron’s impact.
Finally on the central bank front, the Bank of Japan will be holding their final monetary policy meeting of the year on Friday. In our economist’s preview (link here), it says that although there had been an expectation that the bank would revise their special pandemic corporate financing support program at this meeting, the emergence of the Omicron variant has changed the situation. Given the next meeting is only a month later, the view is now that they’ll maintain a wait-and-see stance in this meeting and adjust the policy in January, although a revision remains possible this week if more positive evidence is found on the new variant.
Moving on to the data, the main highlight will be the flash PMIs for December from around the world on Thursday which will offer an initial indication as to whether there’s been any economic reaction yet to rise in restrictions and the emergence of the Omicron variant. There’ll also be an increasing amount of hard data out of the US for November, including retail sales (Wednesday), industrial production, housing starts and building permits (all Thursday). In China, Wednesday will see the release of their own retail sales and industrial production data for November, and in Germany on Friday there’s the Ifo’s business climate indicator for December. Finally on the inflation side, releases will include the US PPI data for November tomorrow, along with the UK and Canadian CPI readings for November on Wednesday.
Late on Friday the UK released a paper looking at vaccine effectiveness against the Omicron variant. The good news is it suggested those who’d been boosted at least a couple of weeks ago still had decent protection, with 3 doses of Pfizer offering 75.5% effectiveness against symptomatic disease, and those who’d had two doses of AstraZeneca followed by a Pfizer booster had 71.4% effectiveness. Those are both lower than the 90+% effectiveness against delta with a booster, but is still much better than some of the worst outcomes had feared. Furthermore, if the past variants are anything to go by, then the protection against severe disease and hospitalisation could be even higher. However, the bad news is it indicated those who’ve been double-jabbed for some months now have significantly waning protection against this new variant from a purely symptomatic basis without a booster, so this will only encourage governments to ramp up their booster campaigns. The UK last night accelerated their plans to get all over 18s offered a booster. It’s now by the end of the year which will be a Herculean task. This follows PM Johnson last night telling the nation that there’s a tidal wave of Omicron cases coming. The government expects it to become the dominant strain very soon in what will be an incredibly short space of time.
Overnight in Asia, markets are trading notably higher with the CSI (+1.31%), Hang Seng (+1.01%), Shanghai Composite (+1.00%), the Nikkei (+0.89%) and KOSPI (+0.28%) all strong after China's policymakers' hinted at more stimulus at the end of annual Central Economic Work Conference on Friday. Indeed our economists suggest that this is the decisive policy shift that markets have been waiting for and believe it’s a big deal. See their report on it here. This optimism is being reflected in the near 6% jump in Iron Ore trading overnight. DM futures are indicating a positive start to markets in the US and Europe with S&P 500 (+0.37%) and DAX (+0.44%) futures both in the green.
Looking back at last week now and the focus remained squarely on Omicron, where the lack of any concrete bad news lent a more optimistic tone.
This modestly improved risk sentiment sent equities and yields higher, and pushed volatility lower with the VIX ending the week -11.88 ppts lower at 18.79. The S&P 500 and Stoxx 600 gained +3.82% and +2.76% over the week (+0.95% and -0.30% Friday respectively). Cyclical sectors and tech stocks led the gains in the US. The small cap Russell 2000 advanced +2.43% (-0.38% Friday) while the Nasdaq climbed +3.61% (+0.73% Friday). The optimism also pushed yields higher and yield curves slightly steeper, with the 10yr treasury gaining +14.1bps this week after a poor close the previous week (-1.5bps Friday) and 10yr bunds climbing +5.1bps (+0.7bps Friday). The 2s10s treasury curve steepened +7.2bps (+1.6bps Friday). Ahead of the Fed’s meeting this week, the market is pricing the first full Fed rate hike by June.
In the world of central banking, the Bank of Canada kept policy on hold and reinforced expectations for their inflation target to be sustainably achieved in the middle of 2022, enabling policy rate hikes. Like most DM central banks, they are focused on persistently elevated inflation, which they ascribe to supply constraints that will take time to alleviate. The Reserve Bank of Australia also left its benchmark interest rate unchanged while cautioning that price pressures remain subdued, in contrast to the rest of the DM space.
In China, the PBoC cut the required reserve ratio by -50bps to support the economy, while FX reserve ratio was lifted +2.0% to lean against an appreciating renminbi. Property developers Evergrande and Kaisa defaulted on dollar debt. Chinese officials asserted the defaults would be dealt with “in a market-oriented way”.
Geopolitical rumblings out of Europe also garnered focus. Presidents Biden and Putin held a phone call to discuss tensions following the build-up of Russian forces on the Ukrainian border. The readouts following the call offered few details but signalled both sides would follow up. President Biden has cautioned severe economic sanctions would be levied should Russia invade Ukraine, including sanctions on Putin’s inner circle, energy companies, and banks. The US would also consider severing Russian access to the US-run international payments system, SWIFT.
On Friday, US CPI increased 0.8% and core US CPI increased 0.5% month-over-month in November, with the headline reading a tenth ahead of expectations. Commensurate year-over-year readings were 6.8% and 4.9%, the highest readings since 1982 and 1991, respectively. Measures of underlying and trend inflation continued to move higher, suggesting the Fed’s recent hawkish pivot will continue to be embraced by policymakers.
How Inflation Impacts Penny Stocks and the Stock Market
Use these tips for trading penny stocks with high inflation
The post How Inflation Impacts Penny Stocks and the Stock Market appeared first on Penny…
3 Ways That Inflation Impacts Investing in Penny Stocks
When it comes to trading penny stocks, investors need to know everything that is going on in the stock market. Inflation is a huge factor when it comes to penny stocks, especially in the past few months. When inflation rates are high, stocks become more expensive, and this can have a negative impact on the stock market.
In order to make money with penny stocks, investors need to be aware of how inflation impacts the stock market so they can make the necessary adjustments to their investment. Now, while inflation is always a factor, over the last year or so, this has been dramatized due to the effects of the pandemic. And more recently, we have begun to see some positivity regarding inflation.
So, while we are in no way out of the woods yet, we have seen that inflation is the main contributor to market movement in the past couple of months. As a result, stocks have become more expensive, but we are seeing some relief from the inflation rates.
This is good news for investors, and it is something to keep an eye on in the coming months as we continue to see the effects of the pandemic play out. Considering all of this, let’s take a closer look at how inflation could continue to impact penny stocks moving forward.
3 Ways That Inflation Could Impact Penny Stocks
- Higher Volatility Than Usual
- Cheaper Penny Stocks to Buy
- Long Term Value
Higher Volatility Than Usual
We all know that volatility with penny stocks and blue chips has been higher than usual in the past few months. And, when we look at the reasons behind it, inflation is one of the key drivers.
What is inflation? It’s simply a sustained increase in the price level of goods and services in an economy. And while a little bit of inflation is actually good for stocks (it boosts company profits), too much inflation can lead to problems.
Why does inflation cause more volatility in stocks? Well, when inflation is higher than expected, it can lead to concerns about future economic growth. This can cause investors to sell stocks and move into investments that are perceived as being safer. This selling can lead to increased volatility in the stock market. In addition, we have movement due to panic selling and buying, which can exacerbate the problem.
So what can investors do to protect themselves from inflation-induced volatility? First, it’s important to keep a close eye on inflation data. If inflation is rising faster than expected, it may be time to take a closer look at your portfolio and make sure that you’re not too exposed to stocks.
Second, don’t forget that stocks are not the only investment option out there. There are plenty of other options, such as bonds and real estate, that can provide diversification and help protect your portfolio from inflation-induced volatility.
Cheaper Penny Stocks to Buy
When it comes to finding penny stocks to buy, inflation can lead to losses in the stock market. This means that many penny stocks can be bought up for less money, but they may not be worth as much when it comes to future earnings. Inflation can also make stocks harder to sell, since their prices are lower than what they were purchased for.
This can be frustrating for investors who are trying to make a profit in the stock market. Now, in the short term, these low values mean that stocks may be a good investment. However, over the long term, it is critical to see what happens with this value and whether or not it can be maintained. So, while finding cheap penny stocks to buy is more than doable, always remember the length of your investment goal.
Long Term Value
With many penny stocks trading at low prices, inflation can cause the stocks to go up in value over the long term. Inflation is often thought of as something that devalues money, and in a sense, it does. But inflation can also have a positive effect on stocks and other investments.
For example, let’s say you buy a stock for $1 per share. Inflation rises, and the next year, the same stock is selling for $2 per share. The purchasing power of your dollar has decreased, but the value of your stocks has doubled. In this way, inflation can create long-term value in the stock market.
Of course, inflation is not the only factor that affects stocks. The overall performance of the stock market is also influenced by economic conditions, company earnings, and many other factors. However, over the long term, inflation can have a positive effect on penny stocks if you understand where that value is.
3 Penny Stocks to Watch This Coming Week
Which Penny Stocks Are You Watching Right Now?
If you’re looking for penny stocks to buy, there are hundreds to choose from. But how do you know which penny stocks are worth your investment? There are a few things to look for when considering penny stocks. The first thing to consider is what your trading strategy is and how to take advantage of penny stocks.
Are you looking for stocks that are undervalued and have the potential to make a quick profit? Or are you looking to hold onto stocks for the long haul? While it is not easy to trade penny stocks, it can be much simpler with the right information on hand. Considering that, which penny stocks are you watching right now?
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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,…
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.
- 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
- 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.
- 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
- 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.
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…
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.
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.
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.
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.
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.
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
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.
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.”
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.
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.
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.
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