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Risk Off: Futures, Oil And Yields Slide, Hong Kong In Bear Market; Dollar Surges

Risk Off: Futures, Oil And Yields Slide, Hong Kong In Bear Market; Dollar Surges

Another ugly day for risk assets with US equity-index futures dropping alongside global stocks, as faltering growth and China’s regulatory curbs compounded…



Risk Off: Futures, Oil And Yields Slide, Hong Kong In Bear Market; Dollar Surges

Another ugly day for risk assets with US equity-index futures dropping alongside global stocks, as faltering growth and China’s regulatory curbs compounded risks before the Federal Reserve’s Jackson Hole symposium next week. Fears about economy-linked sectors put the Dow and the S&P 500 on course for their worst week since mid-June. The dollar extended its rally to a fresh 10 month high, oil slumped and bitcoin surged after Coinbase announced it bought $500 million in crypto would reinvest some of its profits in digital currencies. At 745 a.m. ET, Dow e-minis were down 125 points, or 0.36%, S&P 500 e-minis were down 15 points, or 0.34%, and Nasdaq 100 e-minis were down 19 points, or 0.13%.

For the week, the Dow and the S&P 500 are down about 1.7% and 1.4% respectively, while the Nasdaq has fallen 1.9%, its worst since mid-May. FAAMG stocks slid between 0.2% and 0.7% despite a continued decline in bond yields. Deere rose 1% after it beat Wall Street estimates for third-quarter revenue and lifted its full-year earnings forecast on strong demand for farm and construction equipment. The biggest pain again was spread among the oil majors as Chevron and Exxon Mobil slipped another 0.8% each, tracking steep losses in crude prices. The S&P 500 energy sector is down about 7.6% this week, the most among all the 11 major S&P sectors.

Moderna fell after The Washington Post reported that health officials were investigating reports the company’s vaccine may be linked to higher risk of a heart condition than previously thought. Ross Stores Inc. slid 4.4% after its guidance disappointed Wall Street. Here are some of the other biggest U.S. movers today:

  • Blend Labs (BLND) falls 14% after the provider of cloud-based banking software reported second-quarter revenue that missed the lowest analyst estimate.
  • Deere & Co. (DE) gains 2% after raising its full-year fiscal outlook as surging crop prices boosted farmers’ demand for new equipment.
  • FibroGen (FGEN) rises 6% after Raymond James upgraded the stock to market perform as the EU approval of roxadustat removes any remaining regulatory risk.
  • Foot Locker (FL) shares rise 7% after the athletic footwear and apparel retailer reported second-quarter results that topped the highest analyst estimates.
  • GeoVax Labs (GOVX) rallies 76% after the biotech company presented data on its Covid vaccine candidate.
  • Mudrick Capital Acquisition Corporation II (MUDS) falls 2% after saying the the merger pact with Topps Intermediate Holdco and Tornante-MDP Joe Holding has been terminated by mutual agreement.
  • Naked Brand Group (NAKD) soars 13% as message volume on the intimate apparel company increases on Stocktwits.
  • Ross Stores (ROST) shares fall 4% after the off- price retailer’s guidance disappointed Wall Street.
  • Tesla (TSLA) shares are up 1.8% after the company on Thursday said it planned to build a humanoid robot, and expects to make a prototype sometime next year.

In a now daily event, there were fireworks out of China where the passage of a new privacy law sent tech names plunging to record lows and sent Hong Kong's Hang Seng index into a bear market.

Internet bellwether Alibaba’s shares hit a record low in Hong Kong this week and Tencent Holdings Ltd. warned the industry to prepare for more regulations including substantial changes to how companies use data for advertising. The Golden Dragon China ETF was set for its eighth straight weekly loss - its longest losing streak in a decade - on concerns over China’s widening crackdown on sectors ranging from technology to luxury goods makers. E-commerce giant Alibaba Holdings has lost about $76 billion of its market value in the past four days and is headed for its worst week ever.

Investors remained concerned about Covid: "The Delta variant remains the biggest worry for investors right now, and along with the question of waning vaccine efficacy has made the risks to the outlook much more pronounced relative to just a few months ago," Deutsche Bank analyst Henry Allen said in a note to clients. "However, nervousness about possible tapering by the Fed ahead of next week’s Jackson Hole speech by Chair (Jerome) Powell, along with a potential Chinese growth slowdown have further played on investors’ minds, and brought the narrative a long way from the reflation hopes many had back in Q1."

With virus cases surging around the world, there’s speculation that economic growth could lose momentum just as central banks pare back their support measures. U.K. retail sales fell unexpectedly last month and major employers are delaying plans to bring workers back into the office.

“The delta variant of Covid is significantly more serious than anyone is really even pricing into the market,” Hilary Kramer, chief investment officer at Kramer Capital Research, said on Bloomberg Television. “We know that tapering is coming. We know that the market is getting tired.”

The Fed also looms: minutes from the Federal Reserve’s last policy meeting showed officials largely expect to reduce the central bank’s emergency monthly purchases of $120 billion of Treasury bonds and mortgage-backed securities later this year, amid a recovery in the jobs market. Focus is now on the Fed’s annual research conference in Jackson Hole, Wyoming, next week for any read about the central bank’s next steps.

Investors are bracing for an eventual phase-out of Fed stimulus that has driven record stock prices, according to Swissquote analyst Ipek Ozkardeskaya. But the worsening of the pandemic and soft economic data could ease tapering expectations in the coming months, she said by email.  “The threat of a taper tantrum is real and will likely keep the Fed reasonably dovish when it comes to a concrete action,” Ozkardeskaya wrote.

Despite the market weakness, Mark Dowding, chief investment officer at BlueBay Asset Management, said abundant liquidity meant there was "plenty of cash that can buy the dip, so we doubt any correction in risk assets will run too far. Once we can look beyond the crest of the Delta wave, there may be calmer waters ahead and so this seems like a good time to be building and holding positions, with an eye towards the medium-term rather than playing for the vagaries of shorter-term price action."

The MSCI World Index was last down 0.3%, on course for its biggest weekly fall since February.

Europe’s Stoxx 600 Index slid 0.1%, with retailers and utilities being the only industry groups with meaningful gains. Marks & Spencer surged 11% after the British retailer improved its profit forecast. Europe is on track for the biggest weekly loss since February. European auto stocks extended declines, following a fall on Thursday, as Japan’s Toyota continued to drop after it announced it would cut September production by 40% owing to the global chip shortage. The Stoxx 600 Automobiles & Parts index fell as much as 1.4%, having closed 2.8% lower on Thursday. Volkswagen, BMW and Stellantis the biggest drags on the sub-index; all stocks in the red in the sub-group. Here are some of the biggest European movers today:

  • Marks & Spencer shares jump as much as 12% with analysts saying the U.K. retailer’s raised guidance is welcome and that the progress it is making on its strategic turnaround is positive.
  • Wm Morrison shares rise as much as 4.8%, surpassing the raised takeover bid pricefor the U.K. grocer from private equity firm CD&R. Analysts say it’s possible that rival bidder Fortress may come back with a higher offer.
  • Norway Royal Salmon shares jump as much as 15% after fisheries peer SalMar launched a rival offer for the company to the one made by NTS. Kepler said SalMar is a better fit for Norway Royal Salmon. SalMar shares rose as much as 3.4%.
  • Kingspan shares rose as much as 4.2%, hitting a record high, with analysts saying the Irish insulation supplier’s results look “solid” and it’s working well to offset higher raw material costs.
  • Dino Polska shares drop as much as 7.5% after the Polish supermarket operator’c, with analysts saying pressure on its margins is likely to drive some profit-taking.
  • Remy Cointreau shares fall as much as 3.3% and distilling peer Pernod Ricard slips as much as 2.7% amid signs of a potential regulatory crackdown on the liquor industry in China.

Asian stocks declined, heading for their worst week since February, as ongoing concerns over the delta virus and China’s regulatory clampdown hurt sentiment. The MSCI Asia Pacific Index fell as much as 1.3%, with Alibaba and Toyota leading a selloff in consumer shares. Hong Kong’s benchmark stock index entered a technical bear market, amid a deepening rout triggered by investor concerns over China’s regulatory crackdown across a swathe of industries, after dropping about 20% from a February peak.  Asia’s stock benchmark is down more than 4% this week as investors face a range of issues including the impact of the pandemic’s resurgence on growth, the outlook for tapering at the Federal Reserve and Beijing’s continued crackdown on private industry. The S&P 500 Index and Stoxx 600 Europe Index have both fallen less than 2.5%.  “The Chinese authorities aren’t looking to regulate everything all of sudden, but rather following the policy in accordance to the push for ‘common prosperity’,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management in Tokyo. “That said, it’s hard for investors to see what actions the government will actually take. It may discourage foreign investors away from Chinese equities for some time.”  Vietnam’s VN Index was the worst performer in the region, dropping as much as 4.2% on concerns of stricter restrictions as the government tackles the country’s worst outbreak. Philippine stocks also declined for the first time in five sessions, even as the government eased a lockdown in the capital region.

Japanese stocks slid, as automakers weighed on the Topix which capped its worst weekly drop since July 2020, after a report that Toyota is set to slash its output due to the chip shortage and the spread of the delta variant. Electronics makers and trading houses were also among the biggest drags on benchmark, which fell 0.9% Friday, pushing its weekly loss to 3.9%. SoftBank Group and Fast Retailing were the largest contributors to a 1% slide in the Nikkei 225, which closed at a fresh low for the year. Japan’s inflation slid for a 12th month in July, extending the longest losing streak in a decade after data revisions showed weakness during the pandemic was worse than previously reported

In Australia, the S&P/ASX 200 index gave back early gains to slip 0.1% to 7,460.90 at the close, pulled lower by miners as commodities headed for their worst week in two months. The benchmark lost 2.2% this week, the most since Jan. 29. Sentiment remained weak as a lockdown in Sydney was extended until the end of September.  On Friday, the best performing stock was Redbubble after it was raised to add at Morgans. Cochlear was the worst performer after analysts said the company’s FY22 guidance missed expectations. In New Zealand, the S&P/NZX 50 index fell 0.1% to 12,940.49. The government announced its nationwide lockdown would last until at least Tuesday.

In rates, Treasuries held small gains led by the long end, flattening the 5s30s curve for a fourth straight day as traders look ahead to next week’s auctions and month-end index rebalancing. Yields were are lower across the curve led by the 10 Year, down 1.5bp at 1.228% and 4.8bp lower on the week; 30-year is 7.2bp lower on the week, including 1.5bp Friday. Ten- and 30-year yields have declined every day this week, and 5s30s spread breached 110bp, approaching lowest level in nearly a year.  5s30s at ~110bp is flatter for a third straight week; it collapsed to under 110bp from ~140bp over four days in June after hawkish changes in the Fed’s dot plot led traders to price in a more aggressive path of rate hikes. German bunds rose for a sixth day, the longest run of gains since October

In FX, with Delta cases rising across the globe from the United States to Australia, New Zealand and Japan, safety was key and the dollar a chief beneficiary: the Bloomberg Dollar Spot Index advanced a fifth consecutive day as the greenback gained against all of its Group-of-10 peers apart from the franc and the yen. The Dollar DXY index rose, hitting the highest level since November.

Commodity currencies extended their slide, led by the Canadian dollar and Norwegian krone, while the euro hovered around the weakest level this year. The Australian and New Zealand dollars both fell to nine-month lows due to a fresh round of lockdowns. The euro was flat. The pound fell to its lowest level against the dollar in a month and wasn’t helped by U.K. retail sales falling unexpectedly at the sharpest pace since the economy was in lockdown in January. Japanese government bond futures edged higher as uncertainties about the global outlook fueled demand for havens; the 10-year yield hovered above zero.

Oil prices continued to edge lower, building on sharp falls earlier in the week, with U.S. crude down 0.8% at $63.17 a barrel and Brent crude down 0.6% at $66.04 per barrel. WTI futures headed for the longest losing streak since 2019, as concerns mounted about global demand. Bitcoin rose above $47,000 and gold also rose, up 0.3% and heading for its second straight week of gains.

To the day ahead now, and it’s a fairly quiet one on the calendar with data releases including German PPI and UK retail sales for July. Otherwise, Dallas Fed President Kaplan will be speaking, and there’s an earnings release from Deere & Co.

Market Snapshot

  • S&P 500 futures down 0.5% to 4,378.25
  • STOXX Europe 600 down 0.3% to 465.74
  • MXAP down 1.0% to 190.83
  • MXAPJ down 1.2% to 623.86
  • Nikkei down 1.0% to 27,013.25
  • Topix down 0.9% to 1,880.68
  • Hang Seng Index down 1.8% to 24,849.72
  • Shanghai Composite down 1.1% to 3,427.33
  • Sensex down 0.5% to 55,344.86
  • Australia S&P/ASX 200 little changed at 7,460.87
  • Kospi down 1.2% to 3,060.51
  • German 10Y yield down 0.4 bps to -0.493%
  • Euro little changed at $1.1673
  • Brent Futures down 0.1% to $66.37/bbl
  • Gold spot up 0.2% to $1,784.31
  • U.S. Dollar Index little changed at 93.65

Top Overnight News from Bloomberg

  • Reserve Bank of Australia board member Ian Harper said he expects the jobless rate to climb back above 5% and to see a “much bigger” fall in participation as renewed lockdowns along the nation’s east coast flow through to the labor market
  • Money managers who scooped up an unprecedented amount of Japanese government bonds in July appear to be well placed for a surge in risk aversion this month
  • Germany’s financial markets watchdog says tough regulations it’s preparing to prevent greenwashing in investment funds will help shape the next chapter of Europe’s efforts to make capitalism more sustainable
  • China’s rolling regulatory crackdown on unfair markets found more targets Friday among liquor makers, cosmetics firms and online pharmacies
  • Norway’s economy returned to its pre-pandemic level in the second quarter as the reopening of the richest Nordic nation triggered a surge in consumption

A more detailed breakdown of global markets courtesy of Newsquawk

The mood in Asia was mostly subdued following on from the losses in European bourses and indecision stateside where energy was the worst performing sector once again as oil retreated for a 6th consecutive day and cyclicals lagged. Nonetheless, ASX 200 (-0.1%) weathered the risk aversion despite the extension of the Sydney lockdown to end-September and curfew announcement, with participants digesting another influx of earnings results and as strength in defensives kept the index afloat. Nikkei 225 (-1.0%) retreated towards the 27k level amid a choppy currency and with notable losses seen in automakers after Toyota announced to reduce domestic capacity by 40% as the worsening COVID-19 situation in the region impacts auto parts supplies. Hang Seng (-1.8%) and Shanghai Comp. (-1.1%) were pressured by Beijing’s tightening regulatory grip on the private sector with the market regulator to hold discussions with relevant enterprises today regarding the spirit industry and China's legislature passed personal information protection law, while the PBoC provided no surprises on its benchmark rates in which it maintained the 1-Year and 5-Year Loan Prime Rates at 3.85% and 4.65%, respectively. Finally, the gains in JGBs were only minimal despite the risk aversion with prices subdued after the whipsawing in T-notes and with the BoJ also refraining from JGB purchases, while Aussie yields were slightly softer following relatively firm demand at the Australian government 2025 bond auction.

Top Asian News

  • Hong Kong’s Benchmark Stock Index Slumps Into Bear Market
  • Asian Stocks Extend This Week’s Rout on Growth, China Tech Woes
  • China’s Slow Bond Sales Will Delay Infrastructure Boost
  • Record Binge on Japanese Bonds Looks Prescient in Risk-Off Lurch

After a relatively flat open, European equities (Stoxx 600 Unch) have initially drifted lower in quiet trade with the Stoxx 600 on track to close the week out with losses of around 1.8%, however the mild losses diminished in the run-up to the US entrance. The Asia-Pac handover was a negative one once again with notable losses in Chinese bourses after China's legislature passed its Personal Information Protection Law and reports noted that the domestic market regulator is to hold discussions with relevant enterprises today regarding the spirit industry. Futures in the US are also succumbing to the selling pressure with the ES showing losses of 0.2%. From a regional perspective in Europe, French and Italian equities have been downgraded to underweight versus neutral at UBS. Sectoral performance is mostly softer with Retail the only outlier to the upside with Inditex (+1.5%) the largest contributor to the gains. Autos are lagging once again as investors digest the continued fallout from chip shortages which saw Toyota announce that it will have to cut production at several plants next month. Marks & Spencer (+11.4%) sit at the top of the FTSE 100 with the Co. now expecting profits to be at the upper end of its prior GBP 300-500mln range following encouraging trading. Morrisons (+4.4%) is another notable gainer after CD&R boosted its offer for the Co. to GBP 2.85/shr from 2.30/shr; Morrisons said CD&R's offer has been recommended unanimously by the board.

Top European News

  • Marks & Spencer Surges as Lockdown Rebound Lifts Profit Forecast
  • Kingspan Jumps to Record; Morgan Stanley Notes ‘Solid Update’
  • U-Blox Falls Most Since March; Analysts Flag 1H Earnings Miss
  • Genel Says KRG Plans to Terminate Bina Bawi, Miran Contracts

In FX, the index continues to extend on the upside seen post-FOMC as the risk tone remains tilted towards caution/risk aversion. Overnight, the DXY found a floor at 93.500 before rising to 93.684 at best as sentiment in Europe is tainted in early trade. From a technical standpoint, the index eyes resistance around the 93.900 mark - which acted as a ceiling on several occasions during Q3 and Q4 2020. Above that, a breach of the psychological 94.000 mark could open the door to resistance around 94.300 (4th Nov 2020 high), 94.500 and thereafter the 100 and 200 WMAs at 94.650 and 94.807 - although these are still some way off. To the downside, yesterday’s low was at 93.214, the psychological 93.000, whilst the 21 DMA (92.674) and the 50 DMA (92.377) reside just below. Ahead, an empty state-side calendar but price action will likely be dictated by the risk tone. As a side note Fed Chair Powell is to speak on the economic outlook at the Jackson Hole Symposium on August 27th at 15:00BST/10:00EDT.

  • AUD, CAD, NZD - The non-US high betas are again at the bottom of the bunch in early European trade - subdued by the overall risk tone. The Loonie is the notable laggard - but seemingly more so on technical as opposed to crude dynamics. USD/CAD found support at 1.2800 overnight and tests 1.2900 to the upside at the time of writing, following the CAD's crude-drive demise during the week. As a reminder, SocGen earlier this week suggested that USD/CAD above its 200 DMA (1.2560) opens the door for a rise closer towards 1.3000 - with the CAD-WTI correlation also strengthening over the past month to 0.5 from 0.25. Participants look ahead to today's Canadian Retail Sales for an impulse. If the pair mounts 1.3000, then the 100 and 200 WMAs overlapping around 1.3077. Meanwhile, the AUD and NZD are pressured by the worsening domestic cases prompting an extension of the Kiwi nationwide lockdown alongside Australia's Sydney's curbs extended until the end of September. NZD/USD threatens a breach of 0.6800 to the downside from a 0.6852 overnight high. The AUD/USD similarly threatens a downside breach of 0.7100 after finding a current base close to the psychological level. Meanwhile, the AUD/NZD cross remains in favour of the Kiwi - likely on the RBA/RBNZ differential, with the latter still on course aggressively tighten before the former.
  • JPY, CHF - The safe-havens FX trade flat/firmer amid the cautious risk tone and amid a lack of fresh catalysts. USD/JPY remains sandwiched between its 21 DMA (109.84) and 100 DMA (109.63), with the next downside level being interim support around 109.47 (Wed and Thu lows). USD/CHF is similarly contained just under 0.9200 but north of its 50 DMA (0.9160).
  • EUR, GBP - The European majors are relatively uneventful, but the EUR has been drifting lower in recent trade against the Buck and Sterling. EUR/USD trades within a tight 1.1670-89 range, with 1.1650 the next real support point. It's worth noting that the pair sees some EUR 1.1bln in OpEx between strikes 1.1700-1.1710 for today's NY cut. Sterling, meanwhile, was unreactive to sub-par July retail sales – amid the dissipating effects from the Euro 2020 Championship. GBP/USD trades just off session lows in its current 1.3610-48 parameter. A breach of 1.3600 could open the door to support at 1.3589 and 1.3570 (21st and 20th July lows). EUR/GBP trades in a current 0.8556-82 band, with the 100 DMA seen at 0.8591.

In commodities, WTI and Brent front-month futures are once again on a softer footing amid the continuing COVID concerns coupled with the cautious tone around the market. On the former, the overnight session saw an extension of the Kiwi nationwide lockdown alongside Australia's Sydney's curbs extended until the end of September. Aside from that news flow has been quiet for the complex and the market in general - with sentiment and Delta woes likely to take precedence in the absence of catalysts. WTI makes its way back towards UD 63/bbl (vs high 64.04/bbl) and Brent towards USD 66/bbl (vs 66.93 high). Elsewhere, spot gold and silver vary but remain flat in the grander scheme above USD 1,775/oz and north of USD 23/oz respectively. Base metals meanwhile see a mild rebound from yesterday's violent selloff, but benchmark LME copper remains sub-9,000/t after finding a ceiling at the mark.

US Event Calendar

  • Nothing major scheduled

DB's Jim Reid concludes the overnight wrap

I’ve never been a massive TV watcher, but I’m worried I’m stuck in one of those science fiction time loops writing the EMR this week. I almost feel like a broken record. Every day (broadly speaking) it’s been equities down, commodities down, 10yr Treasury yields down, US dollar up. At this rate, perhaps I should start writing Monday’s edition already.

Anyway, if you hadn’t worked out this week’s script by now, risk appetite continued to evaporate in yesterday’s session as an array of concerns gathered pace, which served to reinforce the moves we’d already seen this week. The delta variant remains the biggest worry for investors right now, and along with the question of waning vaccine efficacy has made the risks to the outlook much more pronounced relative to just a few months ago. However, nervousness about possible tapering by the Fed ahead of next week’s Jackson Hole speech by Chair Powell, along with a potential Chinese growth slowdown have further played on investors’ minds, and brought the narrative a long way from the reflation hopes many had back in Q1.

Looking at yesterday’s moves in more depth, the selloff gathered pace as European markets opened, with the STOXX 600 falling -1.51% in its worst performance for a month. Energy stocks were among the biggest underperformers against the backdrop of continued falls in oil prices, but luxury goods stocks slumped as well, which follows a speech from Chinese President Xi earlier in the week about growing wealth inequality. That’s prompted concerns about whether the super-rich could have to pay higher taxes, and saw brands such as LVMH (-6.38%) and Kering (-9.47%) lose significant ground, meaning that the CAC 40 (-2.43%) noticeably underperformed other European indices. In the US, the S&P 500 (+0.13%) did manage to pare back its earlier losses to move into positive territory by the close, but other indices including the Dow Jones (-0.19%) and the small-cap Russell 2000 (-1.22%) similarly moved lower on the day. In fact, the small-cap index has underperformed all week as cyclicals have lagged behind, down -4.08%.

That selloff in equity markets was also witnessed among commodities, with Bloomberg’s Commodity Spot Index (-1.69%) seeing its biggest decline in a month as investors moved to price in the more negative outlook. Oil prices continued their slump, with WTI (-2.70%) and Brent Crude (-2.61%) having fallen for 6 successive days now, which is the longest run of declines for both in over a year. That said, even with the recent poor run for oil, it’s worth noting that they’re still one of the best-performing major assets on a YTD basis, with WTI up +31.27%. But that’s also a far cry from its closing peak last month when it’d been up +55.1% on a YTD basis.

On the plus side, core sovereign bonds continued to do well amidst the flight to safety, with yields on 10yr Treasuries (-1.5bps) and bunds (-0.7bps) declining further, whilst the 30yr bund yield (-1.7bps) fell to its lowest level in 6 months. Gold (-0.42%) did move lower, though that was a relative outperformance compared to other commodities, whilst the dollar index (+0.46%) strengthened to its highest level since last November.

Overnight in Asia, concerns about the outlook have accelerated, particularly in New Zealand where a further 11 community cases were reported, which brings the total in this outbreak to 31. In turn, that’s seen Prime Minister Ardern extend the national lockdown by a further 4 days to August 24. But given what occurred in Australia, where lockdowns were designed around a similar zero tolerance policy framework, there remains a very real risk that the lockdowns could be extended much further, for weeks if not months. Nevertheless, RBNZ Governor Adrian Orr said that policy makers planned to raise the official cash rate at their next meeting, even if there are still cases of Covid-19 in the community. He said “What we’ve learned through time is that incomes remain strong, demand bounces back very quickly, and that these rolling lockdowns will continue for a while,” and added, we cannot lose focus on inflation so “Of course October is a live meeting.”

As well as New Zealand, there’s been bad news on Covid from elsewhere in the Asia-Pacific region over the last 24 hours. In Australia, New South Wales reported a further 642 cases, whilst Victoria state reported 57, and has Sydney’s lockdown is now set to last until the end of September. Furthermore, New South Wales is set to make mask wearing compulsory outdoors except when exercising, and a curfew will be placed on areas of western Sydney hardest hit by the outbreak. Separately in Japan, the country reported a record number of new daily cases, at 25,156, which is a tenfold rise in the daily count relative to a month earlier.

Against this backdrop, markets in Asia have taken yet another leg lower overnight, with the Nikkei (-0.79%), Hang Seng (-2.28%), Shanghai Comp (-1.66%) and Kospi (-0.69%) all losing ground this morning, and futures on the S&P 500 are down -0.15%. On the data side, Japan’s CPI reading for July came in slightly weaker than expected at -0.3% yoy (vs. -0.4% expected), although the previous month’s reading was revised sharply lower to -0.5% (vs. +0.2% previously).

Elsewhere on the pandemic, cases are continuing to rise rapidly in the US with schools remaining in focus. A stark divide is forming between states led by Democratic and Republican Governors, with some of the former – namely Washington, New Jersey, and Oregon – enacting mask mandates and calling all on teachers and school personnel to be vaccinated. On the other hand, Florida and Georgia have seen their Governors speak out against mask and vaccine mandates both in schools and to enter indoor social settings. Otherwise, daily vaccinations in the US rose above 1 million for the first time since 3 July yesterday. The number receiving jabs have been picking up for the past few weeks now as the delta variant spreads and state and local governments push new incentives and restrictions for the unvaccinated. Separately in the UK, the ONS estimated that 94% of the adult population in England would have tested positive for Covid antibodies in the week commencing July 26, which is the highest number yet. That said, on the topic of waning immunity, the weekly data show that there’s been a small but noticeable decline among antibody rates among the elderly, albeit they’re still above 90%.

In Germany, it’s only 5 weeks on Sunday until they hold their federal election, and another couple of polls out yesterday showed the centre-left SPD moving ahead of the Greens into second place, which suggests this shift is more than just an outlier poll. The first from Kantar showed the top 3 parties within an incredibly tight 3 percentage points of each other, with the CDU/CSU on 22%, the SPD on 21% and the Greens on 19%. But another from Allensbach for the FAZ newspaper yesterday gave Chancellor Merkel’s CDU/CSU bloc a more decisive lead, with 27.5% of the vote, ahead of the SPD on 19.5% and the Greens on 17.5%, which would put them in a much stronger position in the next Bundestag and in coalition negotiations.

On the data front, the weekly initial jobless claims from the US for the week through August 14 fell to a post-pandemic low of 348k (vs. 364k expected), whilst the 4-week moving average was also at a post-pandemic low. That said, the Philadelphia Fed’s manufacturing business outlook survey saw the diffusion index for current activity fall to 19.4 (vs. 23.1 expected), marking a 4th consecutive decline. Furthermore, the current prices received index rose to 53.9, which was its highest level since May 1974.

To the day ahead now, and it’s a fairly quiet one on the calendar with data releases including German PPI and UK retail sales for July. Otherwise, Dallas Fed President Kaplan will be speaking, and there’s an earnings release from Deere & Co.

Tyler Durden Fri, 08/20/2021 - 08:17

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Bitcoin Education For Indonesia

The Indonesia Bitcoin Conference is a chance to educate Indonesians about a better savings technology.



The Indonesia Bitcoin Conference is a chance to educate Indonesians about a better savings technology.

Bitcoin represents a new and open internet standard for hard money. Nowadays, with the increasing awareness about bitcoin’s superior properties, it is increasingly being adopted by global financial institutions as pristine collateral, a longer-term store of value, and unstoppable money. We believe that bitcoin was not formed in a vacuum. Like any other technology, bitcoin was invented to fix problems; in this case, the global economic problem.

Indonesia represents the fourth-largest population in the world, with 60% of the citizens owning smartphones. As a country that has experienced hyperinflations in the past, it is crucial for Indonesians to understand what bitcoin stands for. Most Indonesians at the moment see and treat bitcoin as a get-rich-quick scheme. Due to lack of information and comprehensive education in Bahasa Indonesia, many have fallen into scams that are associated with the words bitcoin, blockchain, ”crypto” and mining.

Indonesians wanting to invest have also struggled with mismanagement and corruption. Over the years, we’ve seen cases of fund managers and property developers (similar to the crypto space) who were unable to deliver on their promises and failed to return their customers’ money. This has happened both in the private sector and also in government. News of these cases can easily be found online, both in Indonesian and in English. Even some of Indonesia’s Covid-19 relief funds were embezzled. For these reasons, Indonesians desperately need savings that not only perform, but are also trustworthy.

For years, Indonesians have preferred savings in gold and property; now bitcoin, a better alternative, has dawned. Since Covid-19, all of the other markets have experienced stagnation. The latest government bond SR015 yields 5.1%. The economy was declared to be in a recession since Q3 2020, and is currently trying to climb out of the recession. In the midst of this, bitcoin continues to gain traction, with an approximate 90% gain YTD (October 2021) as an indicator of its dominating performance.

We believe the majority of Indonesians will leapfrog from gold and property markets straight into digital assets (bypassing bonds and securities). This would be similar to how most Indonesians bypassed the use of PCs and most adopted Android smartphones. The government data shows that the number of people in the digital assets space already reached 6.5 million people at the end of May 2021, way more than the 5.4 million people in the stock market. 20 years of user growth in the stock market was easily surpassed by 1 year of user growth in the digital assets space.

Number of smartphone users in Indonesia from 2017 to 2020 with forecasts until 2026. Source: Statista

Indonesia Bitcoin Conference: A Leap For Better Education

There are many challenges for bitcoin adoption as the best savings technology in the country. It is not easy to understand Bitcoin, and requires a multidisciplinary approach. The Indonesia Bitcoin Conference is a way for Indonesians to get proper information and education about Bitcoin. This conference features speakers from Indonesia and abroad such as Saifedean Ammous, Robert Breedlove and Danny Taniwan.

With topics such as the future of crypto exchanges, mining, retiring with bitcoin, Lightning Network, and bitcoin through the islamic lense, we hope to change the mindset of Indonesians about bitcoin.

The Indonesia Bitcoin Conference will happen on October 31, 2021, the same date as when Satoshi Nakamoto published his Bitcoin whitepaper as the beginning of the monetary revolution.

Visit the conference website for ticketing information:

This is a guest post by Konsultan BTC . Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

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Futures Jump On Profit Optimism As Oil Tops $85; Bitcoin Nears $60,000

Futures Jump On Profit Optimism As Oil Tops $85; Bitcoin Nears $60,000

One day after the S&P posted its biggest one-day surge since March, index futures extended this week’s gains, helped by a stellar bank earnings, while the latest…



Futures Jump On Profit Optimism As Oil Tops $85; Bitcoin Nears $60,000

One day after the S&P posted its biggest one-day surge since March, index futures extended this week’s gains, helped by a stellar bank earnings, while the latest labor market data and inflation eased stagflation fears for the time being. . The 10-year Treasury yield rose and the dollar was steady. Goldman Sachs reports on Friday. At 715 a.m. ET, Dow e-minis were up 147 points, or 0.42%, S&P 500 e-minis were up 16.5 points, or 0.37%, and Nasdaq 100 e-minis were up 42.75 points, or 0.28%.

Oil futures topped $85/bbl, jumping to their highest in three years amid an energy crunch that’s stoking inflationary pressures and prices for raw materials. A gauge of six industrial metals hit a record high on the London Metal Exchange.  Energy firms including Chevron and Exxon gained about half a percent each, tracking Brent crude prices that scaled the 3 year high.

Solid earnings in the reporting season are tempering fears that rising costs and supply-chain snarls will hit corporate balance sheets and growth. At the same time, the wider debate about whether a stagflation-like backdrop looms remains unresolved.

“We don’t sign up to the stagflation narrative that is doing the rounds,” said Hugh Gimber, global strategist at the perpetually optimistic J.P. Morgan Asset Management. “The economy is being supported by robust consumer balance sheets, rebounding business investment and a healthy labor market.”

“After a choppy start to the week, equity markets appear to be leaning towards a narrative that companies can continue to grow profits, despite the combined pressures of higher energy prices and supply chain disruptions,” said Michael Hewson, chief market analyst at CMC Markets in London.

Bitcoin and the crypto sector jumped after Bloomberg reported late on Thursday that the Securities and Exchange Commission is poised to allow the first U.S. Bitcoin futures exchange-traded fund to begin trading in a watershed moment for the cryptocurrency industry. Bitcoin traded off session highs having tested $60k during Asian hours, but will likely rise to new all time highs shortly.

Also overnight, Joe Biden signed a bill providing a short-term increase in the debt limit, averting the imminent threat of a financial calamity. But it only allows the Treasury Department to meets its financial obligations until roughly Dec. 3, so the can has been kicked for less than two months - brace for more bitter partisan battles in the coming weeks.

This week’s move into rate-sensitive FAAMG growth names looked set to continue, with their shares inching up. Moderna rose 3.0% after a U.S. FDA panel voted to recommend booster shots of its COVID-19 vaccine for Americans aged 65 and older and high-risk people. Western Digital slipped 2.5% as Goldman Sachs downgraded the storage hardware maker’s stock to “neutral” from “buy”. Here are some of the key premarket movers on Friday morning:

  • Virgin Galactic (SPCE US) shares slump as much as 23% in U.S. premarket trading as the firm is pushing the start of commercial flights further into next year after rescheduling a test flight, disappointing investors with the unexpected delay to its space tourism business plans
  • Cryptocurrency-exposed stocks rise in U.S. premarket trading after a report that the Securities and Exchange Commission is poised to allow the first U.S. Bitcoin futures exchange-traded fund to begin trading.  Bit Digital (BTBT US) +6.7%, Riot Blockchain (RIOT US) +4.6%, Marathon Digital (MARA US) +3.6%
  • Alcoa (AA US) shares jump 5.6% in thin volumes after co. reported profits that beat the average analyst estimate and said it will be paying a dividend to its shareholders
  • Moderna (MRNA US) extends Thursday’s gains; Piper Sandler recommendation on Moderna Inc. to overweight from neutral, a day after co.’s Covid-19 booster got FDA nod for use in older, high-risk people
  • Duck Creek Technologies (DCT US) shares fell 12% in Thursday postmarket trading after the software company projected 2022 revenue that fell short of the average analyst estimate
  • 23andMe Holdings (ME US) soared 14% in Thursday postmarket trading after EMJ Capital founder Eric Jackson called the genetics testing company “the next Roku” on CNBC
  • Corsair Gaming (CRSR US) shares fell 3.7% in post-market trading after it cut its net revenue forecast for the full year

Early on Friday, China's PBOC broke its silence on Evergrande, saying risks to the financial system are controllable and unlikely to spread. Authorities and local governments are resolving the situation, central bank official Zou Lan said. The bank has asked lenders to keep credit to the real estate sector stable and orderly.

In Europe, gains for banks, travel companies and carmakers outweighed losses for utilities and telecommunications industries, pushing the Stoxx Europe 600 Index up 0.3%. Telefonica fell 3.3%, the most in more than four months, after Barclays cut the Spanish company to underweight. Temenos and Pearson both slumped more than 10% after their business updates disappointed investors. Here are some of the biggest European movers today:

  • Devoteam shares rise as much as 25% after its controlling shareholder, Castillon, increased its stake in the IT consulting group to 85% and launched an offer for the remaining capital.
  • QinetiQ rises as much as 5.4% following a plunge in the defense tech company’s stock on Thursday. Investec upgraded its recommendation to buy and Berenberg said the shares now look oversold.
  • Hugo Boss climbs as much as 4.4% to the highest level since September 2019 after the German apparel maker reported 3Q results that exceeded expectations. Jefferies (hold) noted the FY guidance hike also was bigger than expected.
  • Mediclinic rises as much as 7.7% to highest since May 26 after 1H results, which Morgan Stanley says showed strong underlying operating performance with “solid metrics.”
  • Temenos sinks as much as 14% after the company delivered a “mixed bag” with its 3Q results, according to Baader (sell). Weakness in Europe raises questions about the firm’s outlook for a recovery in the region, the broker said.
  • Pearson declines as much as 12%, with analysts flagging weaker trading in its U.S. higher education courseware business in its in-line results.

Earlier in the session, Asian stocks headed for their best week in more than a month amid a list of positive factors including robust U.S. earnings, strong results at Taiwan Semiconductor Manufacturing Co. and easing home-loan restrictions in China.  The MSCI Asia Pacific Index gained as much as 1.3%, pushing its advance this week to more than 1.5%, the most since the period ended Sept. 3. Technology shares provided much of the boost after chip giant TSMC announced fourth-quarter guidance that beat analysts’ expectations and said it will build a fabrication facility for specialty chips in Japan.

Shares in China rose as people familiar with the matter said the nation loosened restrictions on home loans at some of its largest banks.  Conditions are good for tech and growth shares now long-term U.S. yields have fallen following inflation data this week, Shogo Maekawa, a strategist at JPMorgan Asset Management in Tokyo. “If data going forward are able to provide an impression that demand is strong too -- on top of a sense of relief from easing supply chain worries -- it’ll be a reason for share prices to take another leap higher.”  Asia’s benchmark equity gauge is still 10% below its record-high set in February, as analysts stay on the lookout for higher bond yields and the impact of supply-chain issues on profit margins. 

Japanese stocks rose, with the Topix halting a three-week losing streak, after Wall Street rallied on robust corporate earnings. The Topix rose 1.9% to close at 2,023.93, while the Nikkei 225 advanced 1.8% to 29,068.63. Keyence Corp. contributed the most to the Topix’s gain, increasing 3.7%. Out of 2,180 shares in the index, 1,986 rose and 155 fell, while 39 were unchanged. For the week, the Topix climbed 3.2% and the Nikkei added 3.6%. Semiconductor equipment and material makers rose after TSMC said it will build a fabrication facility for specialty chips in Japan and plans to begin production there in late 2024.  U.S. index futures held gains during Asia trading hours. The contracts climbed overnight after a report showed applications for state unemployment benefits fell last week to the lowest since March 2020.  “U.S. initial jobless claims fell sharply, and have returned to levels seen before the spread of the coronavirus,” said Nobuhiko Kuramochi, a market strategist at Mizuho Securities in Tokyo. “The fact that more people are returning to their jobs will help ease supply chain problems caused by the lack of workers.”

Australian stocks also advanced, posting a second week of gains. The S&P/ASX 200 index rose 0.7% to close at 7,362.00, with most sectors ending higher.  The benchmark added 0.6% since Monday, climbing for a second week. Miners capped their best week since July 16 with a 3% advance. Hub24 jumped on Friday after Evans & Partners upgraded the stock to positive from neutral. Pendal Group tumbled after it reported net outflows for the fourth quarter of A$2.3 billion. In New Zealand, the S&P/NZX 50 index fell 0.3% to 13,012.19

In rates, the U.S. 10-year Treasury yield rose over 3bps to 1.54%. Treasuries traded heavy across long-end of the curve into early U.S. session amid earning-driven gains for U.S. stock futures. Yields are higher by more than 3bp across long-end of the curve, 10- year by 2.8bp at about 1.54%, paring its first weekly decline since August; weekly move has been led by gilts and euro-zone bonds, also under pressure Friday, with U.K. 10-year yields higher by 3.3bp. Today's bear-steepening move pares the weekly bull-flattening trend. U.S. session features a packed economic data slate and speeches by Fed’s Bullard and Williams.  

In FX, the Bloomberg Dollar Spot Index was little changed even as the greenback weakened against most of its Group-of-10 peers; the euro hovered around $1.16 while European and U.S. yields rose, led by the long end. Norway’s krone led G-10 gains as oil jumped to $85 a barrel for the first time since late 2018 amid the global energy crunch; the currency rallied by as much as 0.6% to 8.4015 per dollar, the strongest level since June. New Zealand’s dollar advanced to a three-week high as bets on RBNZ’s tightening momentum build ahead of Monday’s inflation data; the currency is outperforming all G-10 peers this week. The yen dropped to a three-year low as rising equities in Asia damped demand for low-yielding haven assets. China’s offshore yuan advanced to its highest in four months while short-term borrowing costs eased after the central bank added enough medium-term funds into the financial system to maintain liquidity at existing levels.

In commodities, crude futures trade off best levels. WTI slips back below $82, Brent fades after testing $85. Spot gold slips back through Thursday’s lows near $1,786/oz. Base metals extend the week’s rally with LME nickel and zinc gaining over 2%.

Today's retail sales report, due at 08:30 a.m. ET, is expected to show retail sales fell in September amid continued shortages of motor vehicles and other goods. The data will come against the backdrop of climbing oil prices, labor shortages and supply chain disruptions, factors that have rattled investors and have led to recent choppiness in the market.

Looking at the day ahead now, and US data releases include September retail sales, the University of Michigan’s preliminary consumer sentiment index for October, and the Empire State manufacturing survey for October. Central bank speakers include the Fed’s Bullard and Williams, and earnings releases include Charles Schwab and Goldman Sachs.

Market Snapshot

  • S&P 500 futures up 0.3% to 4,443.75
  • STOXX Europe 600 up 0.4% to 467.66
  • German 10Y yield up 2.4 bps to -0.166%
  • Euro little changed at $1.1608
  • MXAP up 1.3% to 198.33
  • MXAPJ up 1.2% to 650.02
  • Nikkei up 1.8% to 29,068.63
  • Topix up 1.9% to 2,023.93
  • Hang Seng Index up 1.5% to 25,330.96
  • Shanghai Composite up 0.4% to 3,572.37
  • Sensex up 0.9% to 61,305.95
  • Australia S&P/ASX 200 up 0.7% to 7,361.98
  • Kospi up 0.9% to 3,015.06
  • Brent Futures up 1.0% to $84.83/bbl
  • Gold spot down 0.5% to $1,787.54
  • U.S. Dollar Index little changed at 93.92

Top Overnight News from Bloomberg

  • China’s central bank broke its silence on the crisis at China Evergrande Group, saying risks to the financial system stemming from the developer’s struggles are “controllable” and unlikely to spread
  • The ECB has a good track record when it comes to flexibly deploying its monetary instruments and will continue that approach even after the pandemic crisis, according to policy maker Pierre Wunsch
  • Italian Ministry of Economy and Finance says fourth issuance of BTP Futura to start on Nov. 8 until Nov. 12, according to a statement
  • The world’s largest digital currency rose about 3% to more than $59,000 on Friday -- taking this month’s rally to over 35% -- after Bloomberg News reported the U.S. Securities and Exchange Commission looks poised to allow the country’s first futures-based cryptocurrency ETF
  • Copper inventories available on the London Metal Exchange hit the lowest level since 1974, in a dramatic escalation of a squeeze on global supplies that’s sent spreads spiking and helped drive prices back above $10,000 a ton

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded higher amid tailwinds from the upbeat mood across global peers including the best day for the S&P 500 since March after strong US bank earnings, encouraging data and a decline in yields spurred risk appetite. The ASX 200 (+0.7%) was positive as the tech and mining sectors continued to spearhead the advances in the index in which the former took impetus from Wall St where the softer yield environment was conducive to the outperformance in tech, although mining giant Rio Tinto was among the laggards following weaker quarterly production results. The Nikkei 225 (+1.8%) was buoyed as exporters benefitted from the JPY-risk dynamic but with Fast Retailing failing to join in on the spoils despite an 88% jump in full-year net as its profit guidance underwhelmed with just 3% growth seen for the year ahead, while Taiwan's TAIEX (+2.2%) surged with the spotlight on TSMC earnings which reached a record high amid the chip crunch and with the Co. to also build a factory in Japan that could receive JPY 500bln of support from the Japanese government. The Hang Seng (+1.5%) and Shanghai Comp. (+0.4%) were initially indecisive amid the overhang from lingering developer default concerns although found some mild support from reports that China is to relax banks' mortgage limits through the rest of 2021. Focus was also on the PBoC which announced a CNY 500bln MLF operation, although this just matched the amount maturing this month and there are mixed views regarding prospects of a looming RRR cut with ANZ Bank's senior China strategist recently suggesting the potential for a 50bps cut in RRR or targeted MLF as early as today, although a recent poll showed analysts had pushed back their calls for a RRR cut from Q4 2021 to Q1 2022. Finally, 10yr JGBs marginally pulled back from this week’s advances after hitting resistance at the 151.50 level, with demand hampered amid the firm gains in Japanese stocks and the lack of BoJ purchases in the market today.

Top Asian News

  • Hong Kong Probes Going Concern Reporting of Evergrande
  • U.S. Futures Hold Gains as Oil Hits 3-Year High: Markets Wrap
  • Toyota Cuts November Outlook by 15% on Parts Shortage, Covid
  • Yango Group Wires Repayment Fund for Onshore Bond Due Oct. 22

Bourses in Europe have held onto the modest gains seen at the cash open (Euro Stoxx 50 +0.4%; Stoxx 600 +0.3%), but the region is off its best levels with the upside momentum somewhat faded heading into the US open, and amidst a lack of fresh newsflow. US equity futures have remained in positive territory, although the latest leg lower in bonds has further capped the tech-laden NQ (+0.2%), which underperforms vs the ES (+0.3%), YM (+0.3%) and RTY (+0.7%), with traders on the lookout for another set of earnings, headlined by Goldman Sachs at 12:25BST/07:25EDT. Back to Europe, bourses see broad-based gains, whilst sectors are mostly in the green with clear underperformance experienced in defensives, with Telecoms, Utilities, Healthcare and Staples at the foot of the bunch. On the flipside, Banks reap rewards from the uptick in yields, closely followed by Travel & Leisure, Autos & Parts and Retail. Renault (+4%) drives the gains in Autos after unveiling a prototype version of the Renault Master van that will go on sale next year. Travel & Leisure is bolstered by the ongoing reopening trade with potential tailwinds heading into the Christmas period. Retail meanwhile is boosted by Hugo Boss (+1.8%) topping forecasts and upgrading its guidance.

Top European News

  • Autumn Heat May Curb European Gas Demand, Prices Next Week
  • Bollore Looking for Buyers for Africa Logistics Ops: Le Monde
  • U.K. Offers Foreign Butchers Visas After 6,000 Pigs Culled
  • Europe’s Car-Sales Crash Points to Worse Year Than Poor 2020

In FX, the Greenback was already losing momentum after a relatively tame bounce on the back of Thursday’s upbeat US initial claims data, and the index failed to sustain its recovery to retest intraday highs or remain above 94.000 on a closing basis. However, the Buck did reclaim some significant and psychological levels against G10, EM currencies and Gold that was relishing the benign yield environment and the last DXY price was marginally better than the 21 DMA from an encouraging technical standpoint. Nevertheless, the Dollar remains weaker vs most majors and in need of further impetus that may come via retail sales, NY Fed manufacturing and/or preliminary Michigan Sentiment before the spotlight switches to today’s Fed speakers featuring arch hawk Bullard and the more neutral Williams.

  • GBP/NZD/NOK - Sterling has refuelled and recharged regardless of the ongoing UK-EU rift over NI Protocol, though perhaps in part due to the fact that concessions from Brussels are believed to have been greeted with welcome surprise by some UK Ministers. Cable has reclaimed 1.3700+ status, breached the 50 DMA (at 1.3716 today) and yesterday’s best to set a marginal new w-t-d peak around 1.3739, while Eur/Gbp is edging closer to 0.8450 having clearly overcome resistance at 1.1800 in the reciprocal cross. Similarly, the Kiwi continues to derive impetus from the softer Greenback and Aud/Nzd flows as Nzd/Usd extends beyond 0.7050 and the Antipodean cross inches nearer 1.0500 from 1.0600+ highs. Elsewhere, the Norwegian Crown is aiming to add 9.7500 to its list of achievements relative to the Euro with a boost from Brent topping Usd 85/brl at one stage and a wider trade surplus.
  • CAD - The Loonie is also profiting from oil as WTI crude rebounds through Usd 82 and pulling further away from 1.5 bn option expiry interest between 1.2415-00 in the process, with Usd/Cad towards the base of 1.2337-82 parameters.
  • EUR/AUD/CHF/SEK - All narrowly mixed and rangy vs the Greenback, or Euro in the case of the latter, as Eur/Usd continues to straddle 1.1600, Aud/Usd churn on the 0.7400 handle, the Franc meander from 0.9219 to 0.9246 and Eur/Sek skirt 10.0000 having dipped below the round number briefly on Thursday.

In commodities, WTI and Brent front month futures remain on a firmer footing, aided up the overall constructive risk appetite coupled with some bullish technical developments, as WTI Nov surpassed USD 82/bbl (vs 81.39/bbl low) and Brent Dec briefly topped USD 85/bbl (vs 84.16/bbl low). There has been little in terms of fresh fundamental catalysts to drive the price action, although Russia's Gazprom Neft CEO hit the wires earlier and suggested that reserve production capacity could meet the increase in oil demand, whilst a seasonal decline in oil consumption is possible and the oil market will stabilise in the nearest future. On the Iranian JCPOA front, Iran said it is finalising steps to completing its negotiating team but they are absolutely decided to go back to Vienna discussions and conclude the negotiations, WSJ's Norman. The crude complex seems to have (for now) overlooked reports that the White House is engaged in diplomacy" with OPEC+ members regarding output. UK nat gas prices were higher as European players entered the fray, but prices have since waned off best levels after Russian Deputy PM Novak suggested that gas production in Russia is running at maximum capacity. Elsewhere, spot gold has been trundling amid yield-play despite lower despite the Buck being on the softer side of today’s range. Spot gold failed to hold onto USD 1,800/oz status yesterday and has subsequently retreated below its 200 DMA (1,794/oz) and makes its way towards the 50 DMA (1,776/oz). LME copper prices are on a firmer footing with prices back above USD 10,000/t – supported by technicals and the overall risk tone, although participants are cognizant of potential Chinese state reserves releases. Conversely, Dalian iron ore futures fell for a third straight session, with Rio Tinto also cutting its 2021 iron ore shipment forecasts due to dampened Chinese demand.

US Event Calendar

  • 8:30am: Sept. Retail Sales Advance MoM, est. -0.2%, prior 0.7%
  • 8:30am: Sept. Retail Sales Ex Auto MoM, est. 0.5%, prior 1.8%
  • 8:30am: Sept. Retail Sales Control Group, est. 0.5%, prior 2.5%
  • 8:30am: Sept. Retail Sales Ex Auto and Gas, est. 0.3%, prior 2.0%
  • 8:30am: Oct. Empire Manufacturing, est. 25.0, prior 34.3
  • 8:30am: Sept. Import Price Index MoM, est. 0.6%, prior -0.3%; YoY, est. 9.4%, prior 9.0%
  • 8:30am: Sept. Export Price Index MoM, est. 0.7%, prior 0.4%; YoY, prior 16.8%
  • 10am: Aug. Business Inventories, est. 0.6%, prior 0.5%
  • 10am: Oct. U. of Mich. 1 Yr Inflation, est. 4.7%, prior 4.6%; 5-10 Yr Inflation, prior 3.0%
  • 10am: Oct. U. of Mich. Sentiment, est. 73.1, prior 72.8
  • 10am: Oct. U. of Mich. Current Conditions, est. 81.2, prior 80.1
  • 10am: Oct. U. of Mich. Expectations, est. 69.1, prior 68.1

DB's Jim Ried concludes the overnight wrap

A few people asked me what I thought of James Bond. I can’t say without spoilers so if anyone wants my two sentence review I will cut and paste it to all who care and reply! At my age I was just impressed I sat for over three hours (including trailers) without needing a comfort break. By the time you email I will have also listened to the new Adele single which dropped at midnight so happy to include that review as well for free.

While we’re on the subject of music, risk assets feel a bit like the most famous Chumbawamba song at the moment. They get knocked down and they get up again. Come to think about it that’s like James Bond too. Yesterday was a strong day with the S&P 500 (+1.71%) moving back to within 2.2% of its all-time closing high from last month. If they can survive all that has been thrown at them of late then one wonders where they’d have been without any of it.

The strong session came about thanks to decent corporate earnings releases, a mini-collapse in real yields, positive data on US jobless claims, as well as a further fall in global Covid-19 cases that leaves them on track for an 8th consecutive weekly decline. However, inflation remained very much on investors’ radars, with a range of key commodities taking another leg higher, even as US data on producer prices was weaker than expected.

Starting with the good news, the equity strength was across the board with the S&P 500 experiencing its best daily performance since March, whilst Europe’s STOXX 600 (+1.20%) also put in solid gains. It was an incredibly broad-based move higher, with every sector group in both indices rising on the day, with a remarkable 479 gainers in the S&P 500, which is the second-highest number we’ve seen over the last 18 months. Every one of the 24 S&P 500 industry groups rose, led by cyclicals such as semiconductors (+3.12%), transportation (+2.51%) and materials (+2.43%). A positive start to the Q3 earnings season buoyed sentiment, as a number of US banks (+1.45%) reported yesterday, all of whom beat analyst estimates. In fact, of the nine S&P 500 firms to report yesterday, eight outperformed analyst expectations. Weighing in on recent macro themes, Bank of America Chief, Brian Moynihan, noted that the current bout of inflation is “clearly not temporary”, but also that he expects consumer demand to remain robust and that supply chains will have to adjust. I’m sure we’ll hear more from executives as earnings season continues today.

Alongside those earnings releases, yesterday saw much better than expected data on the US labour market, which makes a change from last week’s underwhelming jobs report that showed the slowest growth in nonfarm payrolls so far this year. In terms of the details, the weekly initial jobless claims for the week through October 9, which is one of the most timely indicators we get, fell to a post-pandemic low of 293k (vs. 320k expected). That also saw the 4-week moving average hit a post-pandemic low of 334.25k, just as the continuing claims number for the week through October 2 hit a post-pandemic low of 2.593m (vs. 2.670m expected). We should get some more data on the state of the US recovery today, including September retail sales, alongside the University of Michigan’s consumer sentiment index for October.

That optimism has fed through into Asian markets overnight, with the Nikkei (+1.43%), the Hang Seng (+0.86%), the Shanghai Comp (+0.29%) and the KOSPI (+0.93%) all moving higher. That came as Bloomberg reported that China would loosen restrictions on home loans amidst the concerns about Evergrande. And we also got formal confirmation that President Biden had signed the debt-limit increase that the House had passed on Tuesday, which extends the ceiling until around December 3. Equity futures are pointing to further advances in the US and Europe later on, with those on the S&P 500 (+0.30%) and the STOXX 50 (+0.35%) both moving higher.

Even with the brighter news, inflation concerns are still very much with us however, and yesterday in fact saw Bloomberg’s Commodity Spot Index (+1.16%) advance to yet another record high, exceeding the previous peak from early last week. That was partly down to the continued rise in oil prices, with WTI (+1.08%) closing at $81.31/bbl, its highest level since 2014, just as Brent Crude (+0.99%) hit a post-2018 high of $84.00/bbl. Both have posted further gains this morning of +0.58% and +0.61% respectively. Those moves went alongside further rises in natural gas prices, which rose for a 3rd consecutive session, albeit they’re still beneath their peak from earlier in the month, as futures in Europe (+9.14%), the US (+1.74%) and the UK (+9.26%) all moved higher. And that rise in Chinese coal futures we’ve been mentioning also continued, with their rise today currently standing at +13.86%, which brings their gains over the week as a whole to +39.02% so far.

As well as energy, industrial metals were another segment where the recent rally showed no sign of abating yesterday. On the London metal exchange, a number of multi-year milestones were achieved, with aluminum prices (+1.60%) up to their highest levels since 2008, just as zinc prices (+3.73%) closed at their highest level since 2018. Separately, copper prices (+2.56%) hit a 4-month high, and other winners yesterday included iron ore futures in Singapore (+1.16%), as well as nickel (+1.99%) and lead (+2.43%) prices in London.

With all this momentum behind commodities, inflation expectations posted further advances yesterday. Indeed, the 10yr US Breakeven closed +1.0bps higher at 2.536%, which is just 3bps shy of its closing peak back in May that marked its highest level since 2013. And those moves came in spite of US producer price data that came in weaker than expected, with the monthly increase in September at +0.5% (vs. +0.6% expected). That was the smallest rise so far this year, though that still sent the year-on-year number up to +8.6% (vs. +8.7% expected). That rise in inflation expectations was echoed in Europe too, with the 10yr UK breakeven (+5.6bps) closing at its highest level since 2008, whilst its German counterpart also posted a modest +0.7bps rise.

In spite of the rise in inflation expectations, sovereign bonds posted gains across the board as the moves were outweighed by the impact of lower real rates. By the end of yesterday’s session, yields on 10yr Treasuries were down -2.6bps to 1.527%, which came as the 10yr real yield moved back beneath -1% for the first time in almost a month. Likewise in Europe, yields pushed lower throughout the session, with those on 10yr bunds (-6.3bps), OATs (-6.2bps) and BTPs (-7.1bps) all moving aggressively lower.

To the day ahead now, and US data releases include September retail sales, the University of Michigan’s preliminary consumer sentiment index for October, and the Empire State manufacturing survey for October. Central bank speakers include the Fed’s Bullard and Williams, and earnings releases include Charles Schwab and Goldman Sachs.

Tyler Durden Fri, 10/15/2021 - 07:50

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Weekly investment update – Stagflation chatter

Domestic energy supply shortages in Europe and dependence on volatile global markets are contributing to record gas prices across the continent. In the US, the latest inflation data is further testing the US Federal Reserve’s hypothesis that inflationary.



Domestic energy supply shortages in Europe and dependence on volatile global markets are contributing to record gas prices across the continent. In the US, the latest inflation data is further testing the US Federal Reserve’s hypothesis that inflationary pressures are transitory in nature.  

COVID-19 – A brighter picture?

World daily new Covid-19 cases have continued to fall and are now at around 410 000 per day.

However, high levels of infection rates, while no longer translating to the same degree in deaths, continue to have an economic impact.

Evidence of this came in the US September payrolls report, based on data collected in mid-September when the Delta wave was near its peak. Job growth in leisure and hospitality businesses was particularly subdued.

Antiviral treatment – A potential game changer?

Late-stage clinical trials have shown that a leading US pharmaceutical company has developed an antiviral pill that could halve the risk of hospitalisation and death. The company has applied for emergency use authorisation from the US Food and Drug Administration. Treatment involves twice-daily pills, prescribed for five days to patients diagnosed with Covid-19.

Antiviral treatments have advantages over other treatments. They are simple, easy to administer, cheaper, and manufacturing is less complicated. In addition to vaccines, an antiviral treatment could transform Covid into a manageable disease, moving it from a ‘pandemic’ to an ‘endemic’ phase. There are also potential benefits for emerging economies whose vaccination rates are low.  

Winter is coming

There are early signs of a new wave of infections in eastern Europe with caseloads starting to rise in countries where vaccination rates are low. There is clearly the potential for a new outbreak as the approach of winter in the northern hemisphere coincides with a rising risk of breakthrough infections as vaccine efficacy across the population wanes over time.

In countries with high vaccination rates, the fact that vaccines remain highly efficient against hospitalisation combined with boosters for vulnerable people should help contain any pressure on health systems. A return to tough restrictions therefore appears unlikely now.

Stagflation chatter

Stagflation is a loose term that means different things to different people. A broad definition, however, would be a period of rising inflation and slowing growth because of higher energy prices.

Stagflation talk is getting louder (see exhibit 1) because natural gas prices have tripled in the last three months. The price of liquid natural gas (LNG) has soared from about USD 5 per metric million British thermal units (mmBtu) a year ago to more than USD 30 today, having briefly spiked above USD 50 last week.

Gas in the spotlight

In the past, oil prices were the dominant force in energy markets. However, natural gas, which until recently was mainly priced off oil contracts, has moved to the centre of the energy complex. A global squeeze in supplies has been driving prices higher (see exhibits 2 and 3). Europe is particularly dependent on the global market for gas.

Oil prices have been rising too: Brent crude oil reached its highest level in three years last week at USD 83 a barrel. So far, the Opec+ group has not been prepared to accelerate production. Under these circumstances, with demand for oil rebounding hard as economies reopen after the pandemic, prices are likely to remain high. Crude prices could also be affected by the shortage of gas as some sectors envisage replacing gas with oil where possible.

Gas demand differs from oil in that it is more seasonal with stronger demand in winter due to the central role gas plays in domestic heating.

Among the reasons for Europe’s current gas shortages are: 

  • Domestic European gas fields and storage facilities have been run down as the continent’s focus has shifted to renewable energy sources.
  • In the global gas market, Europe now competes with Asia, where demand for LNG has risen by 50% over the last 10 years. Cold weather in China, the world’s biggest importer of LNG, raises prices in the global market.
  • Russia supplies around 30% of Europe’s gas. The focus now is on whether Russia can meet Europe’s gas needs in the event of a cold winter. However, Russia-Europe export volumes may not return to pre-Covid levels until early-2022; firstly, Russian gas exports have increasingly shifted towards Asia; secondly, Russia’s domestic inventories are also low, leading to local stockpiling. Finally, certification of the Nord Stream 2 pipeline to Europe has been complicated by the delays in the formation of a new German government.
  • Gas is seen as a bridge fuel during the energy transition. It produces around half the CO2 of coal when burnt. However, methane emissions from gas during extraction and transportation have arguably discouraged new investments, again restricting domestic supplies in Europe. 

We are monitoring developments closely. As uncertainty persists around supplies, European high-yield credit markets are vulnerable, given their greater exposures to sectors that are sensitive to energy price changes.

US prices – Housing sector inflation picks up

US core inflation data was in line with market expectations in September, up by 0.2% month-on-month. That left the annual rate at 4%.

At first glance, this data supports the hypothesis that the surge in inflation in late spring/early summer would be ‘transitory’. Price pressures in used vehicles, hotels and transportation – all segments clearly connected to Covid-related supply chain stress and post-vaccine re-openings –  were robust earlier in the year, but netted out at almost zero in September, in part due to the resurgence of Covid in late summer.

Instead, the main contributor to US core inflation was housing rents. Housing is by far the largest component in the core index (CPI) and a segment where inflation often persists month-to-month: Strength (or weakness) in one month’s data tends to be followed by further strength (or weakness).

The rebound in rental inflation is mainly seen in cities in the Midwest and south of the US, which is consistent with the notion of people looking for more space in relatively cheaper markets.

If rent inflation does continue to rise into 2022, it will increase the challenge the Federal Reserve faces in balancing the employment and inflation sides of its mandate.

Even allowing for the smaller weight of rents in the PCE (personal consumption expenditures index), the measure of inflation the Fed targets, sustained housing rental inflation at 5% or more is unlikely to be consistent with core PCE inflation slowing to 2.3% by end-2022, as forecast by the Fed three weeks ago.

Yet it also looks unlikely that the US will return to pre-pandemic labour market conditions by the end of next year. That would require new payrolls to average around 700 000 a month for the next 15 months in a row.

With the Fed’s forward guidance on the timing of the first rate rise requiring both ‘maximum employment’ and 2% inflation, there is set to be intense debate between the hawks and the doves at the Fed over the definition of ‘maximum’ employment. Which side wins will determine when the first rate increase happens.

US bond yields steady  

Yields of the benchmark 10-year US Treasury note slipped back in the wake of the latest inflation data to around 1.54% after hitting a four-month high at the start of the week.

A USD 24 billion auction of long-dated 30-year government bonds met with strong demand. Indirect bidders, which include foreign buyers of US government debt, took up roughly 71% of the amount on offer, marking the highest percentage at a reopening of that maturity since July 2020.

This strong demand from overseas buyers may partly counter the effects of the Fed’s expected taper of its USD 120 billion a month in asset purchases in November.

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

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

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

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

Writen by Andrew Craig. The post Weekly investment update – Stagflation chatter appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.

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