[PODCAST] US Open Rundown 13th July 2021
- European bourses and US equity futures are contained with mild outperformance in the NQ (+0.4%) vs the ES (U/C)
- The DXY has been grinding higher with peers mixed/flat; USTs & EGBs are little changed
- Chinese trade data topped estimates but Customs warned of many uncertainties and instabilities in H2 due to the pandemic
- OPEC+ delegates believe the next ministerial meeting to discuss oil output policy won't occur until next month at the earliest
- Looking ahead, highlights include US CPI, Fed's Bostic & Rosengren, Fed Discount Rate Minutes, supply from the US
- Earnings include JPMorgan & Goldman Sachs
The US FDA warned that adverse events following use of Johnson & Johnson (JNJ) COVID-19 vaccine suggested an increased risk of Guillain-Barre syndrome in 42 days following vaccination. FDA added there have been 100 preliminary reports of Guillain-Barre syndrome from 12.5mln doses administered of the Janssen vaccine in which 95 of the 100 were serious and required hospitalization, while there was 1 death reported from the 100 preliminary reports. Furthermore, it stated that although evidence suggests an association between the vaccine and increased risk of the syndrome, it is insufficient to establish a causal relationship and the FDA affirmed that the known and potential benefits of the vaccine outweigh the known and potential risks. There were also comments from JNJ that it is in discussions with the FDA about rare cases of Guillain-Barre syndrome that were reported after vaccination with the Janssen COVID-19 vaccine, while it added that the probability of having the syndrome occur is very low and the rate of reported cases is higher than the background rate by just a small degree. (Newswires)
Asia-Pac stocks traded higher across the board after a similar positive performance in US where the major indices posted fresh record closes once again but with upside capped heading into the key events including US CPI data and the start of earnings season later today, while participants also digested the latest Chinese trade figures. ASX 200 (U/C) was led higher by outperformance in tech and materials, although the advances were limited after a deterioration in Business Sentiment and amid speculation that the Sydney lockdown could be extended by another 4-6 weeks - which would likely impact the economy severely, with Goldman Sachs already lowering its Australian Q3 GDP forecast to 0.6% from 1.0% due to the current Sydney restrictions. Nikkei 225 (+0.5%) remained elevated as exporters benefitted from the currency-related tailwinds, and the KOSPI (+0.8%) was underpinned after the South Korean Minimum Wage Commission agreed to increase minimum wages by 5.1%. Hang Seng (+1.6%) and Shanghai Comp. (+0.5%) adhered to the broad constructive mood with the outperformance in Hong Kong led by autos and tech, with Tencent among the biggest gainers after China’s market regulator gave unconditional approval for the Co. to take Sogou private, although gains in the mainland were moderated amid the ongoing crackdown concerns, which are said to have prompted ByteDance to shelve its IPO due to regulators' warnings over data security alongside other issues, and Didi confirmed the takedown of 25 additional apps which it operated in China. Participants also digested the latest trade data from China which showed USD-denominated Exports and Imports topped estimates, although its Customs noted that trade is expected to slow in H2 due to a higher base in 2020, as well as suggested many uncertainties and instabilities in H2 due to the pandemic. Finally, 10yr JGBs were flat after the subdued performance in USTs, with demand also sapped by the gains in stocks and following weaker results at the 20yr JGB auction.
PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires)
PBoC set USD/CNY mid-point at 6.4757 vs exp. 6.4720 (prev. 6.4785)
PBoC official says they expect the macro leverage ratio to be stable in Q2; RRR cut will help to lower aggregate financing costs; reiterates policies are to be flexible, targeted, reasonable, appropriate. Expect PPI to hover at elevated levels in Q2 and Q3 before falling back in Q4. (Newswires)
- Chinese Trade Balance (USD)(Jun) 51.53B vs. Exp. 44.2B (Prev. 45.54B)
- Chinese Exports YY (USD)(Jun) 32.2% vs. Exp. 23.1% (Prev. 27.9%)
- Chinese Imports YY (USD)(Jun) 36.7% vs. Exp. 30.0% (Prev. 51.1%)
China Customs said trade is expected to slow in H2 due to a higher base in 2020, while it added that trade still faces many uncertainties and instabilities in H2 due to the pandemic. (Newswires)
US President Biden's administration is said to be mulling a digital trade deal to counter China's digital presence in Asia, which could involve countries including Australia, Japan, Canada, Singapore and Chile although it is still in early stages, according to sources. In other news, President Biden was said to have asked the US appeals court to dismiss the TikTok case, according to a court document. (Newswires) Subsequently, and seemingly in-spite of the above report, Lalamove is reportedly mulling shifting its IPO from the US to Hong Kong, sources state. (Newswires)
US President Biden's administration will, this week, warn US Co's about the growing risk of operating within Hong Kong given China's increasing control on the area, FT; Biden may also impose more sanctions against Chinese officials in Hong Kong. Sources indicate the threats include the Chinese Gov't ability to access data that foreign Co's store in Hong Kong. (FT)
Fed's Kashkari (2023 voter) said the US is poised for a strong recovery but reiterated there are still 7-10mln Americans out of work, while he added that the labour market is the most important factor for inflation and still sees inflation as transitory. (Newswires)
Fed's Bullard (2022 voter) is ready to start slowing the pace of central bank bond buying as soon as his colleagues are; " I think we’re in a very good position to start a taper.", WSJ. The large decrease in bond yields in recent sessions is a bullish development for the outlook. Makes him comfortable with the idea of continued robust growth in H2 and FY22. (WSJ)
US Commerce Secretary Raimondo said she is working to get all Democrats to support proposed USD 400bln spending on home care for elderly and disabled, while she added that failure to proceed with such spending will be a large drag for the economy and noted that 1.5mln women have still not returned to the workforce following the pandemic exodus. Furthermore, Commerce Secretary Raimondo said she is pressing the White House to relax travel restrictions to the US. (Newswires)
US Republican Senator Portman said a bipartisan infrastructure deal still needs to be improved and that it would be difficult to produce a bill this week amid issues with the payfors. Separately, US Bipartisan group of 10 Senators, who are negotiating the infrastructure deal, will meet today and have said they are making good progress, Punchbowl; However this bill is not likely to be complete this week and the Democrats budget resolution could, in some form, be released from today. (Punchbowl/Twitter)
US NFIB Business Optimism Idx (Jun) 102.50 (Prev. 99.6). (Newswures)
UK PM Johnson is reportedly facing a new dispute with MPs regarding the cut to the aid package as rebels within the party seek to force a reversal of the GBP 4bln reduction to the aid bill after the PM agreed to put it to a vote in the Commons. (FT)
Barclaycard reported UK June Consumer Spending rose 11.1% compared to June 2019, while it added that spending in bars and pubs increased by most since September last year due to warm weather and sporting events. (Newswires)
BoE Financial Stability Report (July): Households and businesses will need continued support from the UK financial system; FPC supports the PRC’s decision that extraordinary guardrails on shareholder distributions are no longer necessary. (BoE)
- UK BRC Retail Sales YY (Jun) 6.7% (Prev. 18.5%)
ECB may use tools to rein in excessive dividends, according to an official. In addition, reports also noted comments from Bank of Spain Deputy Governor Delgado that the ECB will most likely lift its dividend cap this year and that banks should pursue a more average payout policy. (Newswires)
ECB's President Lagarde said she is not under the illusion that at every policy meeting there will be unanimous consent as there will be some variations and this is ok. Stressed the importance of making policy 'especially forceful or persistent'. (FT)
European Commission is reportedly to offer financial support in an effort to gain support for its climate plan. (FT)
German CPI Final YY (Jun) 2.3% vs. Exp. 2.3% (Prev. 2.3%)
EU agreed to a sanctions regime to target leaders in Lebanon amid a stalemate in forming a government that had lasted for nearly a year. (FT)
North Korean propaganda website reportedly warned South Korea against proceeding with joint military drills with the US. (Yonhap)
Russian has warned Washington against transferring troops from Afghanistan to neighboring countries, according to the Russian Foreign Ministry cited by Al Jazeera. (Twitter)
Venezuelan opposition leader Guevara was arrested by secret police and will be charged with terrorism and treason. (AFP)
European cash bourses initially saw somewhat of a lukewarm start, with the majors all in modest positive territory having taken APAC's lead, which saw China outperform following strong June trade numbers. However, this mild optimism did not last long as the region then deteriorated slightly to a mixed picture (Euro Stoxx 50 Unch). US equity futures also trade horizontally in the run-up to the much-anticipated US CPI, which comes ahead of Fed Chair Powell's double-appearing to Congressional Committees on Wednesday and Thursday – although the Chair is expected to continue to describe inflation as "transitory". Back to Europe, the UK's FTSE 100 (+0.3%) is underpinned by mining names maid the rebound in base metal prices, alongside the strength in its banking sector after the BoE scrapped the pandemic-related dividend curbs, saying its stress test showed the sector is well capitalised to cope with the fallout from the pandemic. As such HSBC (+1.5%), Barclays (+1.2%), Lloyds (+2.1%), Standard Chartered (+1.1%), and NatWest (+1.6%) reap rewards. Conversely, Eurozone peers BBVA (-1.3%), Intesa Sanpaolo (-0.5%), Deutsche Bank (-0.8%), ING (-0.3%), and BNP (+0.2%) vary amid reports that the ECB may use tools to rein in excessive dividends. The ECB will most likely lift its dividend cap this year, and that banks should thereafter pursue a more average pay-out policy, according to the Bank of Spain's Deputy Governor. Sectors are mixed with no overarching theme nor bias. Basic Resources, Telecoms and Tech reside as the current winners whilst Healthcare, Real Estate, Food & Beverages and Travel & Leisure remain at the bottom of the pack. In terms of individual movers, the telecoms sector is lifted by Nokia (+7.5%) after the telecom firm lifted its 2021 guidance. However, the group does expect "meaningful headwinds due to market share loss and price erosion in North America". Swatch (+2.1%) shares are supported by H1 earnings, whereby it noted that H2 sales are guided higher than the comparable 2019 period. Note, Swatch will be replaced by Logitech (-2.4%) in the SMI from September 20th. State-side, reports noted that the US has approved Amazon founder Bezos' Blue Origin license to carry humans into space, which comes ahead of Besoz' flight and after Richard Branson's Virgin Galactic (-7.5% pre-market) successfully launched and returned. Elsewhere, it's also worth noting that this week, US President Biden's administration will warn US firms about the growing risk of operating within Hong Kong given China's increasing control on the area, according to the FT – with sources indicating threats including the Chinese government's ability to access data that foreign companies store in Hong Kong. In related news, US President Biden's administration is mulling a digital trade deal to counter China's digital presence in Asia, involving countries including Australia, Japan, Canada, Singapore and Chile, although it is still in the early stages, according to sources.
PepsiCo Inc (PEP) Q2 21 (USD): EPS 1.72 (exp. 1.53), Revenue 19.2bln (exp. 17.96bln). FY21 view: EPS 6.20 (exp. 6.09/6.03 GAAP); revenue 74.46bln (exp. 75.46bln). (PepsiCo)
Fox's Pergram notes of a Senate hearing today on “anticompetitive conduct” in drug pricing. (Twitter)
USD - Not much deviation in Usd/major pairings, but the Greenback retains an underlying bid as the clock ticks down to this week’s key US data and potentially pivotal events in the form of semi-annual testimony from Fed chair Powell to the House and Senate on Wednesday and Thursday respectively. First up, CPI is expected to be softer in m/m terms, but stay firm on a y/y basis and it goes without saying that any upside surprise could give the Greenback a fillip as the DXY edges up to 92.396 from 92.138 at one stage. Also ahead, more from the Fed after typically hawkish remarks from Bullard (see Headline Feed at 10.31BST for details) via Bostic twice, albeit at the same event, Rosengren and the latest Discount Rate Meeting minutes, while Usd 24 bn long bonds represent the final leg of this week’s Treasury auctions.
AUD/NZD - Bucking the overall trend, and the Aussie also shrugging off declines in NAB business sentiment and conditions, though the former from record highs, with the aid of much better than forecast Chinese trade data that was only partly offset by cautious comments from the Customs Office warning that trade will slow in H2 this year due to base effects plus many uncertainties and instabilities caused by COVID-19. Aud/Usd has faded somewhat after peering over 0.7000 alongside Nzd/Usd that has waned above 0.7000 again as the Aud/Nzd cross trades mostly on the 1.0700 handle ahead of Aussie consumer sentiment and the RBNZ.
JPY/CHF/EUR/CAD/GBP - All softer vs their US counterpart, but narrowly as the Yen contains losses into 110.50, the Franc through 0.9150 and 1.0850 against the Euro irrespective of softer Swiss producer and import prices. Meanwhile, the Euro is meandering between 1.1841-75 and looks hemmed in by decent option expiry interest along with a Fib given 1.7 bn rolling off from 1.1870-80, 1.3 bn at 1.1900-10 and the 23.6% retracement of the pull-back from May high (1.2266) to July low (1.1782) coming in at 1.1896. Elsewhere, the Loonie is holding within a 1.2482-42 range pending Wednesday’s BoC policy meeting and weighing up a rebound in WTI against lumber prices erasing all their y-t-d gains, while Sterling continues to find it tough when above 1.3900 and supported around 1.3850, as Eur/Gbp pivots 0.8550.
EM - The Yuan is firm in wake of the aforementioned encouraging trade surplus and internals, but the Rand is still suffering from the pandemic and protests in SA, while mining production also missed consensus. However, the Rouble has pared and reversed some heavy declines with Brent firmly back over Usd 75/brl and despite ongoing angst between Russia and the US regarding troops in Afghanistan and bordering nations and the Lira is up prior to the CBRT tomorrow and not unduly ruffled by a slowdown in Turkish ip it seems
Notable FX Expiries, NY Cut:
Trade remains pretty non-descript in the grand scheme of things with only minor range extension in debt futures and still no convincing or confirmed breaks as Bunds recover from a deeper 173.92 Eurex low having climbed to 171.17 at best and Gilts probe parity again following a retreat to 128.82 (-12 ticks vs +9 ticks at the Liffe high). Note, very little reaction to a sluggish German Bobl sale, but the long end of the US Treasury curve may be more responsive to the 30 year auction if that fails to go down well after CPI and amidst more Fed orators following a hawkish Bullard, plus the latest Discount Rate meeting minutes.
WTI and Brent front-month futures have been drifting higher since European players entered the fray, with markets keeping a close eye on the supply impact from OPEC+ alongside the demand shock from the Delta COVID variant. WTI Aug' trades off sessions highs around USD 74.75/bbl (vs low USD 74.09/bbl), whilst Brent Sep' inches closer towards USD 76/bbl (vs low USD 75.19/bbl). There have been almost no developments telegraphed on the OPEC front regarding the impasse with the UAE. Energy Intelligence tweeted that some OPEC+ delegates believe the next ministerial meeting to discuss oil output policy will not occur until next month at the earliest – suggesting August output will equate to July output (and no hikes) in the absence of an accord. Subsequently, the most notable snippets from the IEA monthly oil market this morning suggested that the oil market will tighten significantly if the OPEC+ stalemate continues and output remains at July levels – with prices expected to remain volatile until the producers provide some clarity. The report also noted of an oil demand surge by an estimated 3.2mln BPD to 96.8mln BPD in June. However, escalating COVID cases in several economies remain a key downside risk. Preliminary data via the IEA also suggests that Q3 could see the largest crude oil stock draw in at least 10 years. Over to the demand side, economies are sounding increasingly worried about the spread of the Delta variant. French President Macron said France is facing a strong resurgence of the pandemic and that a curfew is to be reinstated in Martinique and Reunion Island. Spot gold and silver remain in holding patterns as US CPI figures loom, with prices within recent ranges above USD 1,800/oz and USD 26/oz, respectively. Meanwhile, copper prices were initially supported by the strong Chinese trade data that saw (in USD terms) exports and imports top expectations. However, China Customs said trade is expected to slow in H2 due to a higher base in 2020, while it added that trade still faces many uncertainties and instabilities in H2 due to the pandemic. LME copper has since receded off best levels and continue to remain sub-9,500/t. Finally, China's June imports of iron ore fell to the lower in around 13 months – with analysts suggesting that demand could continue to ease in H2.
IEA notes that oil markets will tighten significantly if OPEC+ stalemate continues and output were to remain at July levels; oil demand surged by an estimated 3.2mln BPD to 96.8mln BPD in June.
- Prelim data suggests that Q3 could see the largest crude oil stock draw in at least 10 years
- Escalating COVID cases in several countries remain a key downside risk
Energy Intelligence tweeted that some OPEC+ delegates believe the next ministerial meeting to discuss oil output policy won't occur until next month at the earliest. (Twitter)
US Treasury issued a general license authorising certain transactions of liquefied petroleum gas to Venezuela. (Newswires)
Australian NAB Business Conditions (Jun) 24 (Prev. 37)
Australian NAB Business Confidence (Jun) 11 (Prev. 20)
EUR/USD 1.1720-25 (435M), 1.1740-45 (1.17BLN), 1.1795-00 (900M), 1.1870-80 (1.7BLN), 1.1900-10 (1.3BLN), 1.1925 (332M)