[PODCAST] US Open Rundown 27th July 2021
- Sentiment slipped around the European cash open given pressure in China's bourses, though we are currently off lows; Euro Stoxx 50 -0.4%, ES -0.3%
- USD is firmer with activity currencies pressured on the tone and safe-haven JPY outperforming; though, attention is on rising Tokyo COVID-19 cases amid the Olympics
- Senate Majority Leader Schumer noted that the Senate may stay in session through the weekend to finish the bill
- Tesla earnings exceeded expectations after reporting record deliveries; shares higher by 2.2% in the pre-market
- Chinese officials are said to be considering adding more national laws to Hong Kong's Basic Law annex, according to reports; NPC is to hold a meeting August 17-20th
- Looking ahead, highlights include US Durable Goods, Consumer Confidence, supply from the US. Earnings from Apple, Alphabet, Microsoft, General Electric, 3M, Visa, AMD
UK is reportedly to consider easing travel restrictions from the EU and US. In other news, leaked data for the UK showed that over half of COVID hospitalisations were patients who only tested positive after admission which suggests that large numbers were being classed as hospitalised by COVID when actually admitted with other ailments, while experts noted that it meant the national statistics may greatly overstate the levels of pressures on the NHS. (FT/Telegraph)
Australia's Victoria state Premier announced the decision to ease lockdown restrictions in the state from midnight tonight and reports noted that South Australia will also exit lockdown, while New South Wales reported 172 locally transmitted COVID-19 infections which is the highest since the Sydney outbreak began. (Newswires)
South Korea extended strictest Level 4 distancing measures in Seoul metropolitan area for another two weeks to August 8th amid a continuing increase in infections. (Newswires)
Tokyo daily COVID-19 cases exceed 3.0k vs yesterday's 1.42k, according to media; subsequently, Japanese ministers are meeting at the PM's official residence, Kantei to discuss the COVID situation, according to TBS. (Newswires)
Asian equity markets traded mostly positive as the region found inspiration from Wall St. where all major indices extended on record highs, led by outperformance in cyclicals and with earnings in focus including the looming results from the mega cap tech giants Apple, Alphabet and Microsoft that are due to report after-market on Tuesday. ASX 200 (+0.5%) was underpinned by strength in the commodity-related sectors following further production updates and with BHP lifted after it reached a deal related to port infrastructure for handling of potash which spurred hopes the Co. may proceed with the multi-billion-dollar Jansen mining project. There was also some encouragement from reports that South Australia and Victoria states will exit their lockdowns, although the most-populous state of New South Wales continued to suffer from increasing infections. Nikkei 225 (+0.5%) remained positive and re-tested the 28k level to the upside as earnings results began to trickle in but with gains limited amid concerns of PM Suga’s approval rating which slipped to a nine-year low beneath the 35% level that is seen as a “point of no return” and which has historically resulted in most LDP PMs stepping down within a year. KOSPI (+0.3%) was buoyed by the latest GDP data which despite missing expectations at 5.9% vs exp. 6.0%, it was still the fastest pace of growth in a decade and above the 4.2% government projection for this year, while it was also reported that South Korea and North Korea reopened their hotline and that their leaders exchanged several letters since April. Hang Seng (-4.2%) and Shanghai Comp. (-2.4%) were varied with the mainland temperamental following the prior day’s regulatory-triggered sell-off and with the continued downturn in Hong Kong led by underperformance in healthcare and heavy losses in tech, while Evergrande shares saw double-digit declines after it scrapped its special dividend proposal - pressure for the indexes became more pronounced going into the European session. Finally, 10yr JGBs were marginally lower after the recent pullback in T-notes and amid mild gains in Japanese stocks, while softer demand at the 40yr JGB auction later also added to the headwinds for prices.
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 6.4734 vs exp. 6.4748 (prev. 6.4763)
US SEC official stated that US-listed Chinese companies must disclose risks of interference by the Chinese government as part of their regular reporting responsibilities. (Newswires)
China criticised the UK for recent comments made by UK Defense Secretary Wallace regarding the South China Sea which China stated sowed discord, while China’s Global Times noted that gunboat diplomacy no longer works and that as a country outside of the region, the UK should refrain from overstretching its arms. Furthermore, the Chinese Embassy in UK also urged that Chinese companies are provided with a fair and non-discriminatory business environment. (Newswires/Global Times)
Chinese officials are said to be considering adding more national laws to Hong Kong's Basic Law annex, according to reports; NPC is to hold a meeting August 17-20th, according to Xinhua. (Newswires)
- Chinese Industrial Profits YY (Jun) 20.0% (Prev. 36.4%)
- Chinese Industrial Profits YTD YY (Jun) 66.9% (Prev. 83.4%)
- South Korean GDP QQ (Q2) 0.7% vs. Exp. 0.7% (Prev. 1.7%)
- South Korean GDP YY (Q2) 5.9% vs. Exp. 6.0% (Prev. 1.9%)
US Senator Sanders said a budget measure could be ready for a vote as soon as August. (Newswires)
USMCA hearing in the US Senate on its implementation and enforcement one year after coming into force; starts from 14:30BST/09:30EDT. (US Senate)
UK government sources admitted that the GBP 23bln Hinkley Point C project could beat risk by UK plans to block China General Nuclear from future UK projects, as the Chinese company is partially bankrolling the Hinkley reactor. (Telegraph)
The UK has informed the EU that fresh proposals from Brussels aimed at resolving the stalemate over the Northern Ireland protocol do not go far enough. (Telegraph)
ECB's Panetta says pandemic-era EU tools such as the NGEU and SURE could be extended/adapted to support multiple policy objectives during the recovery phase and calls for targeted fiscal reform as this 'firepower' is nested within national policies. (Politico)
ECB's Holzmann said he did have reservations on the new ECB guidance; lack of new guidance on PEPP/TLTRO was due to high uncertainty over the summer period, too much uncertainty now for policy decisions. Will discuss policy in September alongside the updated forecasts. Says they would have to act if inflation hit 3%. (CNBC)
The communication line between South Korea and North Korea has been restored, while South Korean President Moon and North Korean Leader Kim exchanged multiple letters since April, according to a South Korean government source. (Newswires)
US President Biden is to end the US military's combat mission in Iraq by year-end after reaching an agreement with Iraqi PM Al-Kadhimi, while President Biden stated the US will continue to train, assist and help to deal with ISIS as it arises but will not going to be in a combat zone by the end of the year. (Sky News)
Stocks in Europe trade lower across the board (Stoxx 600 -0.4%) as early losses in futures markets were exacerbated ahead of the cash open amid another decline in Chinese stocks. The downside in China was partly a continuation of the moves seen yesterday which, were triggered by the ongoing regulatory crackdown by the government. News flow overnight was also downbeat for the region after a US SEC official stated that US-listed Chinese companies must disclose risks of interference by the Chinese government as part of their regular reporting responsibilities. Furthermore, Evergrande shares saw double-digit declines after it scrapped its special dividend proposal. In terms of the damage, the Shanghai Composite closed lower by 2.5%, the Hang Seng was softer by 4.2% (lowest since 4th November 2020) with its Tech Index declining nearly 8% to a record low close. This added to the selling pressure at the open in Europe with US futures also succumbing to the deterioration in sentiment. As a reminder, US indices were able to close at record highs yesterday with some desks suggesting the China-inspired declines were overblow with focus switching to a slew of large-cap earnings reports. Tesla (+2.2%) are higher in the pre-market post-results with attention now turning to earnings from GE, UPS, 3M and Raytheon ahead of the Wall St open, whilst Alphabet, Apple, Microsoft, AMD, Visa and Starbucks report after-hours. Back to Europe, sectors are all softer with defensive names fairing marginally better than peers whilst Autos, Basic Resources and Retail names lag. Earnings in Europe have continued to pick up pace with French luxury heavyweight LVMH (+0.5%) bucking the downbeat trend amid strong sales metrics for Q2. Elsewhere, Reckitt (-8.9%) sit the near the foot of the Stoxx 600 as sales numbers and margins disappointed investors at its Q2 results release. Finally, Just Eat Takeaway.com (+2.3%) sit near the top of the Stoxx 600 with Cat Rock Capital (4.2% stake) calling on the Co. to take urgent action to increases its share price in order to avoid a possible hostile takeover.
Amazon (AMZN) denied a report that it will accept Bitcoin this year and denied it is planning to launch its own crypto coin next year, but added that it will continue to explore crypto. (Newswires)
Tesla Inc (TSLA) Q2 2021 (USD): Adj. EPS 1.45 (exp. 0.98/0.58 GAAP), Revenue 11.96bln (exp. 11.30bln). Q2 automotive gross margin 28.4% (exp. 26.1%, prev. 25.4% Y/Y). Q2 cash and cash equivalents USD 16.23bln vs exp. USD 16.55bln. Co. notes of supply challenges and in particular semiconductor shortages, as well as port congestion remained present in Q2. Bitcoin-related impairment of USD 23mln recorded for the quarter. Co. expects car deliveries to increase more than 50% this year. Co. is to delay its Semi electric truck program due to battery cell supply constraints. (Newswires) Shares +2.2% in the pre-market
United Parcel Service Inc (UPS) Q2 2021 (USD): Adj EPS 3.05 (exp. 2.82/2.82 GAAP), Revenue 23.4bln (exp. 23.24bln)
Big pharmaceutical Co's and lobbyists are calling on Congress to not raise taxes on the industry seeking to use their role in the pandemic as leverage, according to sources via WSJ; companies warning Congress that higher taxes could weaken US players and make them vulnerable to foreign takeovers, according to sources. (WSJ)
DXY, JPY - The Dollar Index and Japanese Yen have been firming throughout the European morning as the deterioration in sentiment prompt flows into the traditional safe-havens. However, the DXY remains somewhat contained within a relatively tight range sub-93.000 with a plethora of risk events ahead, including the FOMC, US GDP, PCE alongside a slew of large-cap earnings. From a fiscal standpoint, US Senate Democratic Leader Schumer said he is committed to passing the bipartisan infrastructure bill and the Senate may stay in session through the weekend to finish the bill. Despite the positive noises out of The Hill, participants remain sceptical regarding a swift and seamless passage as some Dems are adamant that a reconciliation bill should also be at hand. From a technical perspective, DXY’s 50 DMA (91.435) and 200 DMA (91.352) diverge further after forming a “golden cross”, and near-term resistance levels include yesterday’s 92.959 high ahead of the round figure. USD/JPY meanwhile probes 110.00 having had waned from its 110.39 overnight peak, with the 21st July trough at 109.85 and 100 DMA seen around 109.54. Japan’s COVID situation remains in focus as the Tokyo Olympics are underway, with positive cases more than doubling D/D to 3,000. Japanese ministers are meeting at the PM's official residence to discuss the COVID situation.
CNH - The Yuan has been the marked EM laggard, with investors skittish over China’s crackdown on onshore and offshore domestic firms (with speculation that the US may restrict investments in China and Hong Kong), whilst three districts in north-eastern Beijing issued red alerts for a rainstorm on Tuesday - following the fatal flooding in the Henan province last week. The Yuan saw sideways trade overnight following a steady PBoC fix and shrugged off a slower-paced rise in Industrial profits, but the Chinese currency yielded as losses across Chinese assets accelerated heading into the European open – with the Hang Seng posting intraday losses in excess of 5% at one point. USD/CNH popped higher to a three-month high of 6.5224 (vs low 6.4772), with gains exacerbated by an upside breach of the 200 DMA (6.4988) and the psychological 6.5000.
CAD, AUD, NZD, SEK, NOK - The non-US Dollars underperform and the Scandis are pressured amid the soured risk mood and losses across commodities. The petro-G10s CAD and NOK are pressured by the losses across the crude complex, albeit off worst levels as oil prices stage a mild rebound at the time of writing. USD/CAD stopped short of the 1.2600 handle before pulling back – with similar action seen across NOK pairs after EUR/NOK tested 10.4900 to the upside. The SEK sees losses to a lesser magnitude, whilst a rise in Sweden’s June trade balance surplus provided no reprieve. Turning to the antipodeans AUD and NZD lag with the latter the G10 underperformer as AUD/NZD climbs back above 1.0550 (vs 1.0538 low), whilst the former seems less pronounced losses as Australia's Victoria state Premier announced the decision to ease lockdown restrictions in the state from midnight tonight and reports noted that South Australia will also exit lockdown. AUD/USD declined from a 0.7389 overnight peak to a 0.7340 base. NZD/USD has dipped under 0.6950 from a 0.7006 peak.
GBP, EUR - All modestly softer as a function of the Buck. GBP/USD trades on either side of USD 1.3800 and remains some way off its 200 DMA (1.3717) to the downside and 100 DMA (1.3920) to the upside. EUR/USD remains subdued just under 1.1800 within a 1.1775-1812 band. EUR/GBP remains flat within a narrow 0.8532-49 range, whilst the Telegraph reported that the UK has informed the EU that fresh proposals from Brussels aimed at resolving the stalemate over the Northern Ireland protocol do not go far enough.
Notable FX Expiries, NY Cut:
- EUR/USD: 1.1725 (907M), 1.1750 (1BLN), 1.1775 (515M), 1.1800 (322M), 1.1825 (812M), 1.1850-60 (1.4BLN)
- USD/JPY: 109.50 (1BLN), 111.00 (632M)
S&P does not expect immediate ratings action on South Africa amid recent social unrest, but doesn't rule out a weakening of corporate credit quality within the next few years; if the rest is repeated or prolonged, this could pose a risk to ratings. The unrest will likely lower 2021 headline growth by around 0.7%. (Newswires)
A firmer start to the European session for core debt with counterparts bolstered further after the European cash equity open as attention centred further around the selling pressure in China and the accompanying deterioration in sentiment. Action that took the Bund to highs of 176.32 before the move fizzled out as fresh drivers remain sparse and as such debt counterparts remain well within the parameters of yesterday; where, for instance, the Bund printed a high of 176.42. For reference, if we see a reversal of this initial debt strength amid what is a quiet session on the EZ front with focus firmly on tomorrow’s FOMC then support lies firstly within the 175.62-56 band and then last Thursday’s 175.24 trough. In the periphery, the first tap of the 2024 Short Term BTP passed without remark after last week’s EGB issuance drought while the MEF’s BTP announcement yesterday features EUR 6.5-7.5bln across the 0.00% 2026 and 0.95% 2031 lines due on July 29th, alongside a CCTeu; a total BTP figure slightly short of the EUR 7.0-8.0bln UBS was expecting. Elsewhere, the DMO’s 2026 Gilt was relatively well received though the b/c did dip slightly from the prior but perhaps not a negative as it was accompanied by a reduced average yield; a sale that prompted no reaction in Gilts with the benchmark firmer and tracking broader performance though seemingly capped by 130.00 presently. Finally, USTs are bid with the yield curve lower across the board though no over steepening/flattening bias present currently ahead of the US Consumer Confidence reading for July followed by a USD 61bln 5yr note offering. As a reminder, the sales follows yesterday’s, overall, well received 2yr sale though foreign demand as measured by Indirects drew attention as it did not experience an increase of the same magnitude as the Direct measure did; when compared to both the prior and six-auction average.
WTI and Brent front month futures have experienced choppy trade within a tight range, with losses seen heading into the European open as stocks in China continue to bleed, keeping upside capped for the oil contracts via broader sentiment. That being said, the overarching force remains the supply/demand balance – with the supply side unlikely to see many updates until at least early-to-mid August, whilst demand tracks COVID and vaccine developments. Of course, the FOMC and tier-1 US data later in the week will likely sway prices at that point. On the travel front, the UK is reportedly to consider easing travel restrictions from the EU and the US, which would provide a rosier outlook for fuel demand. WTI prints on either side of USD 72/bbl whilst its Brent counterpart forfeited the USD 75/bbl handle and resides around mid-74/bbl. Elsewhere, spot gold and silver are relatively flat but see a mild divergence, with the yellow metal just south of USD 1,800/oz having had printed a current high a Dollar above the psychological mark awaiting this week’s upcoming risk events. LME copper is softer on the day amid general risk aversion, but prices came to under USD 100/t away from the USD 10k/t level. The sentiment is also dented by overnight reports that China is reportedly mulling steel export levies to curb domestic prices. Finally, reports suggested that BHP reached a deal related to port infrastructure for the handling of potash which spurred hopes the Co. may proceed with the multi-billion-dollar Jansen mining project.
China is reportedly mulling steel export levies to curb domestic prices. (Newswires)