[PODCAST] US Open Rundown Rundown 4th August 2021
- Equity bourses are firmer in Europe with US futures little changed in a contained session pre-Clarida/quarterly refunding; ES U/C
- In FX, the USD rose to fresh weekly highs with peers mixed as antipodeans outperform and EUR/USD drops to within a 2bln FX option band for the NY cut
- China's Caixin Services PMI topped forecasts, but companies reported having higher staff, fuel and raw material costs during July
- The US military is expected to reposition at least one vessel to monitor a hijacked tanker off the coast of the UAE; suspected to be linked to Iran
- Looking ahead, highlights include US Composite & Services PMIs (Final), US ISM Services PMI, Fed's Clarida, the US Quarterly Refunding announcement
- Earnings: General Motors, Kraft Heinz, Uber
Spain is set to remain on the UK's "amber" travel list and avoid being placed on the "red" list amid a significant fall in cases and lack of capacity in hotel rooms for travellers to quarantine in. (Times)
The Infectious Diseases Society of America has cautioned that the spread of the delta variant has pushed the threshold for herd immunity to over 80% and potentially near 90%. (Newswires)
Australia's New South Wales reports 233 new COVID cases vs yesterday's 199 (vs record 239). (Newswires)
Asia-Pac equities traded mostly higher after initially overlooking the gains on Wall Street, in which the S&P 500 rose to another record high heading into Friday’s US jobs report. US equity futures overnight resumed trade modestly softer and were caged throughout the session, albeit the ES, NQ, and RTY remained above 4400, 15000, and 2200 respectively. Back to APAC, newsflow remained light overnight, the ASX 200 (+0.5%) pulled back after fleetingly topping 7,500, whilst the Nikkei 225 (-0.3%) experienced early underperformance and briefly dipped below 27,500 as chatter regarding a potential nationwide State of Emergency kept the index subdued. The Hang Seng (+1.5%) and Shanghai Comp (+0.6%) initially conformed to the sluggish trade seen across the region at the time, before a notable beat in the Caixin Services PMI bolstered the two indices – with the constituents in the former also cheering China tempering down its crackdown language. SMIC and Tencent both rose some 4% whilst the Hang Seng Tech Index rebounded over 3%. The KOSPI (+1.3%) also welcomed China’s softened stance. Elsewhere, the Japanese 10yr yield fell to zero for the first time since December.
SGH Macro Advisors' understanding is that the recent Chinese Politburo meeting warned that the risk of holding US Treasuries is increasing amid the rising US financial deficit and debt levels, alongside China's concerns over a potential US recession. It was reportedly agreed that US Treasury holdings should continue to be reduced rather than increased. The State Council was reportedly told to speed up oversight and guide “platform companies” to make “comprehensive rectifications” in-line with regulatory requirements. The meeting is said to have also stressed the importance of keeping strong pressure on virtual currency trading; a senior official said the PBoC's goal is to ensure that there will be no more virtual currency trading in China by the end of the year. The meeting also called for improving the oversight mechanism for Chinese overseas IPOs. Furthermore, sources said new loans in H2 will be guided to remain at or slightly above 2020 levels, whilst the PBoC will utilise “low-profile tools” to inject long-term liquidity. (SGH Macro Advisors)
- Chinese Caixin Services PMI (Jul) 54.9 vs. Exp. 50.6 (Prev. 50.3) - "Companies reported having higher staff, fuel and raw material costs during July. Consequently, prices charged by services companies also increased during July, as firms looked to alleviate pressure on their operating margins. The rate of inflation was the quickest seen in the year to date and solid overall" (IHS)
- Chinese Caixin Composite PMI (Jul) 53.1 (Prev. 50.6)
PBoC injected CNY 10bln via 7-day reverse repos at a maintained rate of 2.20% for a net neutral daily position PBoC set USD/CNY mid-point at 6.4655 vs exp. 6.4654 (prev. 6.4610)
Japan's LDP Party proposes leadership contest ballot counting to be done between September 20-29th. (NHK)
US CDC says the new residential eviction order will expire on October 3rd, according to a statement. (Newswires)
Apple (AAPL) is tapping more suppliers in China for key roles in producing the iPhone 13 production. (Nikkei)
US DoJ is reportedly mulling a lawsuit to block UnitedHealth's (UNH) USD 8bln Change Healthcare (CHNG) acquisition. (The Information) UnitedHealth is the largest-weighted Dow stock with a 7.9% weighting
The Times’ shadow committee of rate setters have said the BoE should scrap the final GBP 50bln of its planned QE and deliver a clear signal that it is worried about rising inflation at this week’s policy decision. (The Times)
EU Markit Composite Final PMI (Jul) 60.2 vs. Exp. 60.6 (Prev. 60.6); Services Final PMI (Jul) 59.8 vs. Exp. 60.4 (Prev. 60.4)
- German Markit Composite Final PMI (Jul) 62.4 vs. Exp. 62.5 (Prev. 62.5); Services PMI (Jul) 61.8 vs. Exp. 62.2 (Prev. 62.2)
UK Markit/CIPS Services PMI Final (Jul) 59.6 vs. Exp. 57.8 (Prev. 57.8)
- Composite PMI Final (Jul) 59.2 vs. Exp. 57.7 (Prev. 57.7)
- "The full easing of pandemic restrictions appears to have helped limit the overall loss of momentum towards the end of July. At 59.6, the PMI reading for services output was much stronger than our earlier 'flash' figure of 57.8 in July, largely due to the final index covering an extra five working days since 'freedom day''.
The Times noted that British sources are working on the assumption Iranian military or proxies have boarded the vessel. (Asphalt Princess) The US military is expected to reposition at least one vessel in the general vicinity of the Asphalt Princess to keep a closer eye. Officials add this is to monitor the situation rather than any imminent military moves, via Reuter's Foreign Correspondent. Subsequently, Iran's Revolutionary Guard warn of a tough response to any confrontation, according to the Fars News Agency. (Twitter/Newswires)
European equities (Eurostoxx 50 +0.7%) trade predominantly firmer following on from yesterday’s strong close on Wall St and an APAC session which was characterised by a reprieve for Chinese equities. More specifically, a solid Caixin Services PMI and China tempering its crackdown rhetoric helped provide support for the Hang Seng Tech index, albeit there are clearly still reasons to be cautious about Xi’s intentions for the Chinese corporate sector. In Europe, a minor downward revision to the composite PMI has done little to shift the dial with many of the themes covered by the report very much already part of the narrative for the region. Stateside, price action for futures is relatively lacklustre with the ES hugging the unchanged mark. All sectors in Europe trade in positive territory with Tech, Autos and Travel & Leisure top of the leaderboard. Of note for the latter, investors await tomorrow’s travel update from the UK with the latest press reports suggesting that the announcement will see Spain avoid the “red list” amid a significant fall in cases and lack of capacity in hotel rooms for travellers to quarantine in. Earnings reports have slowed down from the pace seen last week as the reporting season begins to wind down. However, notable reports from the pre-market today included Taylor Wimpey (+3.5%) and Legal & General (+2.4%) who sit at the top of the FTSE 100. In Germany, Commerzbank (-4.6%) earnings disappointed after restructuring efforts at the Co. prompted a EUR 527mln net loss for Q2. Elsewhere, Hugo Boss (+1.1%) trade firmer on the session with the Co. noting a Q2 return to pre-pandemic levels of sales in China and Britain. Finally, Thales (+1.6%) is a notable gainer in France after agreeing to sell its Railway signalling business to Hitachi in a deal valued at EUR 1.66bln.
Toyota (7203 JT) has suspended production at one of its assembly lines in Guangzhou, China according to sources. (Newswires)
US Congress Democrats are looking to tax Exxon (XOM) and Chevron (CVX), alongside other oil majors, arguing that the largest climate producers should pay for damages linked to fossil fuel burning, NY Times
NZD/AUD - It’s almost deja vu for the Kiwi, but this time on a stonking NZ jobs report that has prompted another ratchet up in RBNZ rate hike pricing for this month’s policy meeting and put clear daylight between the Nzd, Aud and Usd. In short, almost all elements of the Q2 labour report were above consensus and upbeat, though the standout metric was the unemployment rate dropping to 4% from a revised 4.6% vs 4.5% forecast and returning to pre-pandemic levels much sooner than envisaged. In response, another three local banks are now echoing Westpac’s prediction that the OCR will reach 1% by the end of 2021 from 0.25% at present, while a 25 bp hike on August 18 is fully factored in and more to the extent that +50 bp is deemed to be a 5-1 shot. Back to the Kiwi, 0.7050 and the nearby 50 DMA at 0.7052 have offered little resistance as it probes 0.7080 vs its US counterpart, while 1.0500 has been breached in the Aussie cross with similar ease even though Aud/Usd is firmly back above 0.7400 with the aid of much stronger than expected Chinese Caixin services and composite PMIs.
DXY - Notwithstanding ongoing outperformance down under, the Dollar and index retain an underlying bid and the latter a fairly tight grasp of the 92.000 handle as the countdown continues to this week’s headline event in the form of US jobs data (assuming the BoE does not upstage NFP tomorrow of course). However, the midweek agenda has potential for further deviation and direction given more proxies for the BLS report via ADP and the employment component of the services ISM, not to mention the headline reading itself, while many will be looking for policy clues from Fed’s Clarida as one of the more influential FOMC members and vice chair rather than Bullard who has made his hawkish views and desire to get on with tapering well known. Back to the DXY, a marginal new w-t-d peak at 92.196 followed a bounce from 91.956 and exposes late July highs of 92.202 and 92.289 amidst broad retreats in most basket components bar Sterling and the Swedish Crown.
GBP/SEK - The Pound and Swedish Krona may be deriving impetus from relative strength in the respective services PMIs, but in truth the UK’s final print was inflated by an additional five days following ‘Freedom Day’. Hence, Cable is probably getting more of a tailwind from the Eur/Gbp cross retesting recent lows into 0.8500 as it probes 100 and 50 DMAs around 1.3922 and 1.3931/2 ahead of the half round number awaiting super BoE Thursday, while Eur/Sek remains anchored either side of 10.200.
CAD/EUR/JPY/CHF - Some solace for the Loonie after its midweek meltdown alongside WTI as the crude benchmark attempts to form a base above Usd 70/brl, with Usd/Cad retreating from circa 1.2575 to sub-1.2550 in advance of Canadian building permits. Conversely, the Euro has lost more momentum and support that was keeping it propped in the high 1.1800 area in wake of softer than forecast Eurozone services and composite PMIs, though Eur/Usd could be cushioned by 2 bn option expiries between 1.1845-55 and/or 1 bn in Eur/Jpy at the 129.25 strike given the Yen’s inability to extend gains through 109.00. Elsewhere, the Franc has pared some gains as well, but is still pivoting 0.9050.
EM - Rather mixed and contrasting performances, but the Zar remains underpinned as Gold holds Usd 1800+/oz status with scope to approach 200 and 50 DMAs if it extends beyond the 21 day mark or at least closes above, while the Brl will be looking for further encouragement from the BCB following another SELIC rate hike.
- New Zealand HLFS Unemployment Rate (Q2) 4.0% vs. Exp. 4.5% (Prev. 4.7%, Rev 4.6%)
- New Zealand HLFS Job Growth QQ (Q2) 1.0% vs. Exp. 0.7% (Prev. 0.6%)
- New Zealand HLFS Participation Rate (Q2) 70.5% vs. Exp. 70.6% (Prev. 70.4%)
- New Zealand Labour Cost Index - YY (Q2) 2.2% vs. Exp. 2.0% (Prev. 1.6%)
- New Zealand Labour Cost Index - QQ (Q2) 0.9% vs. Exp. 0.6% (Prev. 0.4%)
- Australian Retail Trade (Q2) 0.8% vs. Exp. 0.9% (Prev. -0.5%)
- Australian Retail Sales MM Final (Jun) -1.8% vs. Exp. -1.8% (Prev. -1.8%)
ANZ, ASB & BNZ have all adjusted their RBNZ calls and now expect the Official Cash Rate at 1.00% by year-end. (Newswires)
Gilts and US Treasuries remain somewhat reluctant or just wary ahead of major BoE and NFP risk events, but Bunds and their EZ peers are perking up after losing momentum earlier, regardless of the broader risk tone that is upbeat. Sub-forecast Eurozone services and composite PMIs may be a factor, while Germany’s 5 year issuance was taken down well at a considerably more punitive cost for the buyer and only a marginal increase in the proportion retained. The core bond just climbed to 177.11, and just a tick short of yesterday’s Eurex best, while Gilts and the 10 year T-note are both hovering around parity within 130.19-37 and 134-29/135-01 respective ranges pre-ADP, final Markit PMIs, the non-manufacturing ISM, Fed’s Bullard and Clarida plus details of next week’s Quarterly Refunding.
WTI and Brent are contained on the session in a continuation of the steady APAC performance with fresh catalysts slim aside from geopolitical updates and weekly crude data. Currently, the benchmarks are diverging slightly around the unchanged level. On the weekly data, last night’s private inventories saw a smaller than expected headline draw prompting some modest initial pressure; albeit, this was offset by the bullish internals when compared to their expectations. For reference, today’s EIA equivalent is expected to post a headline draw of 3.102M with the internals expected to draw as well. On the geopolitical front Iran has denied it was involved in yesterday hijackings off the coast of the UAE; however, sources indicate that the UK’s working assumption is they are behind it – whether directly or indirectly – while the US believes its too early to determine. Furthermore, reports suggest the US will reposition at least one military vessel to the general area of the incident while the IRGC has warned of a tough response to any confrontation. Moving to metals, spot gold and silver are supported at present but have not manged to successfully deviate, by any real magnitude, from the unchanged mark. The aforementioned precious metals perhaps gleaned their initial support from the softer USD and lower real-yields but have been unfazed by the USD’s resurgence to fresh WTD peaks. Elsewhere, base metals are in-fitting with the broader tone and little changed with players remaining attentive to the BHP/Chile copper situation with no updates on talks at present. While Peru, the second largest copper producing nation, is in focus as domestic mining executives are concerned about the new administrations campaign pledge to increase industry taxation.
US Energy Inventory Data (bbls): Crude -0.879mln (exp. -3.1mln), Cushing +0.659mln, Gasoline -5.751mln (exp. -1.8mln), Distillate -0.717mln (exp. -0.5mln). (Newswires)