Original insights into market moving news

[PODCAST] European Open Rundown 29th July 2021

  • FOMC stood pat on policy whilst noting that progress has been made towards goals; substantial threshold not yet met
  • FOMC is on track to make an explicit ‘taper is coming’ signal at the Jackson Hole Symposium
  • Asia-Pac stocks traded positively alongside a rebound in Chinese equities as regulators attempted to stem the rout
  • The DXY was softer post-FOMC but maintains 92.00 status; EUR/USD and GBP sit on 1.18 and 1.39 handles respectively
  • US Senate voted 67-32 to move forward with the bipartisan infrastructure bill after a bipartisan agreement was reached
  • Looking ahead, highlights include German Labour Market Report, German CPI, US GDP, IJC
  • Earnings from Airbus, EDF, L'Oreal, Nestle, Total, Volkswagen, Lloyds, Amazon, Mastercard, Merck, Comcast


The FOMC left rates unchanged, as expected, and there weren’t many wholesale changes to the statement. However, there were two new additions: the Fed now acknowledges that the “economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings" but the Fed does not appear to think that the ‘substantial further progress’ threshold has been met, noting that “the sectors most adversely affected by the pandemic have shown improvement but have not fully recovered". The recent delta concerns by market participants do not seem to be reflected in any statement language change, and therefore, this should support the expectation that the Fed will likely make an explicit ‘taper is coming’ signal at the Jackson Hole Symposium at the end of August, followed by an announcement in Q4 (September is clearly in play), before implementing the scaling back of asset purchases early 2022. On the health crisis, the Fed removed the line that sectors affected by the pandemic "remain weak but have shown improvement" replacing that with "sectors most affected by the pandemic have shown improvement but have not fully recovered" which suggests that the recent delta variant fears have not forced the Fed to revise its outlook for growth lower just yet. Elsewhere, the Fed finally launched its standing repo facility, as has been heavily alluded to, but likely will not be used until money market rates begin rising towards the top-end of the Federal Funds target range - the Fed is facing the opposite problem currently with the surge in the Reverse Repo Facility demand.

Fed Chair Powell was asked if the statement tweaks were part of the advance notice on taper, but he repeated that they have not reached substantial further progress. On the rate of asset purchases, Powell suggested that the current pace of purchases remains appropriate until 'substantial further progress' has been met, repeating that the timing of the taper will depend on incoming data, and reiterated that the Fed will provide advance notice before any change. Later, Powell said that the Fed has not made any decision about the timing of the taper but did note he expects further progress to be made. He did however offer some insight into the configuration of how the taper will be carried out, stating that it was likely that both MBS and Treasury purchases will be tapered at the same time (some were calling for MBS to be tapered more quickly on account of the 'heat' in the housing market). In terms of the labour market, Powell reinforced the message that substantial further progress has not yet been made, stating that the labour market still has a "ways to go" while pandemic factors appear to be weighing on employment growth, but should wane in the "coming months". Powell also said there was still "some ground to cover" on substantial further progress and is hopeful that the Fed can make good progress towards full employment over the next couple of years (note: this is consistent with the Fed's recent forecasts which pencil in an unemployment rate of 3.5% in 2023) but said it should not take long to reach a strong labour market. Furthermore, Powell continues to frame inflation as transitory and will remain elevated in the coming months before moderating, but added that inflation could turn out to be higher, more persistent than expected, while he provided the usual caveats that the Fed would use tools to guide inflation lower if there was an extended period of high inflation. Powell also said that continued progress on vaccinations would help support the return to more normal economic conditions although noted that there has been fewer implications from each wave and didn't tout much concern on the economic front from the Delta variant, as some analysts had warned Powell might beforehand. In terms of rates, Powell suggested that the Fed is still a ways away from considering lifting rates and there was a small hint on sequencing, with the Fed chair suggesting that ideally the central bank would not raise rates before the taper has concluded. (Newswires)


US FDA says agrees with Johnson & Johnson (JNJ) that its COVID-19 vaccine shelf-life can be extended to six months from four and a half months when stored at 2-8 degrees Celsius, while it was also reported that contractor Emergent BioSolutions (EBS) is planning to resume vaccine production at its troubled plant in Baltimore. (Newswires/WSJ)

Efficacy of Pfizer (PFE)/BioNTech (BNTX) COVID-19 vaccine fell to 84% from 96% after six months, according to STAT News. The data which was released in a preprint and has not been reviewed by outside scientists, suggested the vaccine was 91% effective overall at preventing COVID-19 over six months and that efficacy peaked at more than 96% within two months of vaccination but slipped to 84% after six months. (STAT News)

The UK expects the US to drop its travel ban on the nation after ministers reopened the border to the US, according to the UK Transport Secretary. (Telegraph)


Asia-Pac stock markets traded positively as focus in the region centred on a deluge of earnings results and with Chinese stocks rebounding after the nation’s securities regulator convened a meeting with banks and brokerages in a bid to restore market calm after the recent stock rout. Conversely, US equity futures were lacklustre amid ongoing Delta variant fears and following on from the FOMC which resulted in an indecisive mood for stocks after the Fed maintained its policy settings as expected and although it kept future tapering in play, as well as stated that the economy has made progress towards goals, it didn’t offer any clues on the timing for a taper and noted that sectors most adversely affected by the pandemic have not fully recovered. ASX 200 (+0.4%) was led higher by tech and mining names with software company IRESS rallying following a takeover approach and with participants digesting earnings and results from the likes of Rio Tinto and Regis Resources. Nikkei 225 (+0.7%) was also kept afloat with Nissan and Advantest the biggest gainers following their earnings including the return to profit by the automaker although upside for the index was initially limited by currency headwinds and anticipation of state of emergency declarations for Tokyo's neighbouring prefectures, while the KOSPI (+0.1%) was contained by increasing virus infections and with index top-constituent Samsung Electronics sluggish despite beating on its Q2 earnings. Hang Seng (+2.7%) and Shanghai Comp. (+1.0%) outperformed after the recent meeting involving China’s securities regulator to soothe market fears and where the regulator said it will continue to allow Chinese companies to go public in US as long as they satisfy listing requirements. In addition, the PBoC mildly upped its liquidity efforts, while the gains were amplified in Hong Kong amid notable strength in tech and digital health stocks. Finally, 10yr JGBs were relatively unchanged with demand subdued by the rebound in riskier assets, the indecisive post-FOMC mood in T-notes and mixed results at the 2yr JGB auction.

  • PBoC injected CNY 30bln via 7-day reverse repos with the rate at 2.20% for a net daily injection of CNY 20bln. (Newswires)
  • PBoC set USD/CNY mid-point at 6.4929 vs exp. 6.4976 (prev. 6.4929)

US President Biden to tap the US prosecutor in the Huawei case for Commerce Department post key to controlling exports to China, according to a source. (Newswires)

US Commerce Secretary Raimondo said there’s a place for tariffs if China is not going to play by the rules, while she added the US sometimes has to use tariffs to get a level playing field and that tariffs can sometimes be very effective. Raimondo also stated that President Biden will decide on grants to foreign chipmakers and that Taiwan is an ally of the US at the moment. (Newswires)

China's securities regulator told brokerages at yesterday's meeting that it will allow Chinese companies to go public in the US as long as they satisfy listing requirements, according to sources. (CNBC)

China press noted that Yuan-denominated assets are to become more attractive, while a separate report stated that China’s strengthening economy provides a guarantee and foundation for capital market development. (China Securities Journal/Xinhua)

US Destroyer conducted a Taiwan Strait transit on July 28th. (Newswires)


UK H1 car production rose 31% Y/Y compared to slump last year and announced investment into the car industry for H1 rose by 25% Y/Y to GBP 606mln, according to SMMT. (Newswires)

ECB's Panetta says the ECB will raise interest rates only when convinced that inflation can stabilise at 2% in the medium-term; both fiscal and monetary policy needs to continue its support. (Newswires)


In FX markets, the DXY ultimately weakened in the aftermath of the FOMC although the initial reaction was choppy as the statement noted that substantial further progress has been made and that it will continue to assess progress in coming meetings, but added that the sectors most adversely affected by the pandemic have shown improvement but have not fully recovered, while Fed Chair Powell commented that the labour market has a ways to go and that there is still some ground to cover to reach substantial further progress. Focus was also on Congress after an agreement was reached on the bipartisan infrastructure spending valued at a total USD 1tln which the Senate voted to proceed on and with Senate Majority Leader Schumer sticking to his target of passing both the bipartisan infrastructure bill and budget framework before the August recess. EUR/USD and GBP/USD both benefitted from the softer USD to breach 1.1850 to the upside and extend above 1.3900, respectively, with the FOMC being the main catalyst amid light news flow and sparse data releases in Europe although there was confirmation from the UK government to allow fully vaccinated travellers from the EU and US to arrive without quarantining as of August 2nd. USD/JPY continued to languish beneath 110.00 owing to pressure in the base currency and JPY-crosses were choppy, while antipodeans just about kept afloat but with upside restricted amid the rising infections in New South Wales and softer New Zealand Business Survey data.

  • New Zealand NBNZ Business Outlook (Jul) -3.8% (Prev. -0.6%)
  • New Zealand NBNZ Own Activity (Jul) 26.3% (Prev. 31.6%)


Commodities edged mild gains overnight in which WTI crude futures extended above 72.50/bbl and Brent crude revisited the USD 75.00/bbl level amid the softer greenback and improved risk appetite. On the geopolitical front, US warned Iran's new government that it won't get a better nuclear deal and had also condemned the use of violence against protestors in Iran, there were earlier comments from Iran's Supreme Leader that the US is tying the Iran deal return to 'future' talks on missiles and regional issues. Gold rebounded back above the USD 1800/Oz level after the dust settled from the latest FOMC meeting and copper prices were kept afloat by the broad China-led constructive mood.


US warned Iran's new government it won't get a better nuclear deal, while it was separately reported that the US condemned the reported use of violence against protestors in Iran and that the US supports rights of Iranians to peacefully assemble and is monitoring reports of internet slowdown. (Newswires)


Treasuries sold off by a few bps from the belly out on Wednesday with Fed's Powell not letting the Delta variant impede the tapering path. By settlement, 2s +0.8bps at 0.211%, 3s +2.4bps at 0.386%, 5s +3.0bps at 0.740%, 7s +2.8bps at 1.020%, 10s +2.7bps at 1.261%, 20s +2.7bps at 1.831%, 30s +2.2bps at 1.911%; TYU1 volumes were average at best, and well below an average FOMC day. 5yr TIPS -2.4bps at -1.889%, 10yr TIPS -5.6bps at -1.105%, 30yr TIPS +3.2bps at -0.332%. SOFR and EFFR unchanged at 5bps and 10bps, respectively. A shaky NY cash equity open saw yields pare back lower to take T-Notes only modestly cheaper on the session and the cash curve only a few bps steeper into the Fed policy decision. There was little noticeable reaction to the statement release, which did note progress has been made on the Fed's goals. There weren't too many surprises in Powell's presser/Q&A either, with the Fed Chair not willing to sound any alarm bells on the economic consequences of the Delta variant just yet, saying he expects further progress to be made. Treasuries tracked sideways into the futures settlement, with the potential scenario of a dovish Fed shift knocked off. Participants now look to Thursday's 7yr auction, with the event risk of the FOMC in the rear window. T-note (U1) futures settle 6+ ticks lower at 134-08.

US Senate voted 67-32 to move forward with the bipartisan infrastructure bill after a bipartisan agreement was reached on the major issues of the infrastructure plan and Senate Majority Leader Schumer commented after the vote that his goal remains to pass both the bipartisan infrastructure bill and budget framework before August recess. The deal was reported to include USD 550bln in new spending on infrastructure projects and will amount to USD 1tln when factoring in other expected funding such as for transportation projects, while the infrastructure financing authority was removed after GOPs objected to the provision intended to lift wages and the infrastructure deal is expected to be paid for by USD 200bln repurposed COVID aid, USD 50bln recouped UI fraud, USD 49bln Medicare Part D rebate rule, USD 56bln in dynamic scoring, USD 20bln in spectrum sales USD 13bln in superfund fees and 6bln in petroleum reserve sales. Furthermore, the White House stated the plan will be financed with unspent emergency relief funds, targeted corporate user fees, stronger tax enforcement related to crypto currencies and revenue from stronger growth. (Newswires)

US House Speaker Pelosi said that she can't commit to not changing the infrastructure bill. There were also separate comments from US Democrat Senator Sinema that President Biden signed off on the infrastructure deal and that she does not support the Democrats' USD 3.5tln budget, while Senator Sanders said the Senate has all 50 Democrat votes to pass the budget resolution next week. (Newswires/AZ Central)

Facebook Inc (FB) - Q2 2021 (USD) EPS 3.61 (exp. 3.04), Revenue 29.08bln (exp. 27.87bln); Advertising Revenue 28.58bln (exp. 27.05bln). Daily Active Users 1.91bln (exp. 1.95bln); Monthly Active Users 2.90bln (exp. 2.97bln). Co. expects that advertising revenue growth will be driven by YY advertising price increases during the rest of 2021. Co. expects total revenue growth vs 2019 levels to decelerate modestly in H2 vs Q2 growth rate. Co. sees increased ad targeting headwinds in 2021 from regulatory and platform changes, notably the recent Apple (AAPL) iOS updates, which are expected to have a greater impact in Q3 vs Q2. (PR Newswire) Shares fell 3.5% after market [2.8% SPX weight 5.7% NDX weight]