Newsquawk EU Mid Session: Buck still bid on Fed taper vibe, while Bunds and Gilts bounce post-ZEW and DMO supply - 10th August 2021

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EQUITIES

European equities (Eurostoxx 50 +0.2%) broadly trade on a marginally firmer footing whilst macro impulses for the region remain light during summer trade. A disappointing German ZEW report did little to shift the dial in Europe despite expectations falling for a third time in a row. The lead from Asia was characterised by choppy price action whilst US futures trade with little in the way of firm direction. Of note for China, China’s Daily suggested the PBoC may have to cut the RRR or interest rate to spur growth. From a US perspective, the Senate is set to vote on the infrastructure deal at 11:00EDT/16:00BST. The bill is expected to pass and head to the House, where lawmakers are set to decide on the internals of the bill. Note, House Speaker Pelosi remains committed to not holding a vote on the bill unless the Senate passes a reconciliation package. Elsewhere, Fed speakers continue to lean in favour of a taper announcement sooner rather than later with Rosengren the latest to back this view. In terms of house calls, Goldman Sachs has upgraded its Stoxx 600 12-month target to 520 from 480 and now sees the FTSE 100 at 7900 vs prev. view of 7600. GS notes that it sees good catch-up trade and value in Banks, Energy and Basic Resources names. Sectors in Europe are mostly firmer with outperformance in the Travel & Leisure sector amid earnings from Flutter Entertainment (+7.7%) who account for around 15.3% of the Stoxx 600 sector index. Limiting upside however, is InterContinental Hotels Group (-2.2%) post-results, whilst Air France (-1.2%) is also seen lower after the US CDC raised the travel advisory to France to its highest level. To the downside, Banking names lag peers, however, the magnitude of the underperformance is relatively modest with little in the way of corporate updates thus far behind the price action. Elsewhere, Bayer (-0.8%) are a touch softer after a court of appeals upheld the USD 86.7mln Roundup verdict relating to the Pilliod case.

FX

DXY - Price formation is looking increasingly constructive for the index and Buck overall as more Fed officials recognise further progress towards max employment and deem that inflation has already satisfied the substantial criteria for tapering. Indeed, the DXY has now probed 93.000 after falling fractionally short on Monday and is eyeing the next peak beyond the round number, having breached 93.028 from July 23rd that came 2 days earlier at 93.194 vs 93.067 at best so far. All this even before another potential midweek boost via US CPI data and further commentary from the Fed later today as Mester and Evans deliver speeches on inflation risks and the economy respectively.

CHF/JPY/NZD - The major casualties of ongoing Greenback strength, as the Franc and Yen concede ground or premium on relative yield and divergent SNB/BoJ-Fed policy dynamics. Usd/Chf is now above 0.9200 and Usd/Jpy testing 110.50, while Nzd/Usd has relinquished 0.7000+ status partly on a change in Aud/Nzd cross flows rather than NZ specifics. However, the Kiwi may glean some traction on technical factors around the 21 DMA at 0.6984 and the fact that its Antipodean counterpart is still feeling the adverse effects of the virus outbreak with NSW suffering another record rise in the number of cases.

GBP/AUD/CAD/EUR - Sterling is still straddling 1.3850 having faded just ahead of 1.3900, but the Pound remains on an upward trajectory vs the Euro following its rally beyond the prior y-t-d apex, and with the single currency looking more prone in general on the back of a disappointing German ZEW survey. In fact, the latter could be the final straw in terms of Eur/Usd tripping stops and filling underlying bids circa 1.1725 that would open the door for a test of the current 2021 base at 1.1704 from March 31. Elsewhere, the Aussie is holding between 0.7344-16 parameters in wake of a marked deterioration in NAB business sentiment and decline in conditions, while the Loonie is deriving support from a bounce in oil prices within a 1.2589-55 band.

SCANDI/EM - The Nok is also benefiting from Brent regaining a degree of momentum over the Usd 70/brl mark, but firmer than forecast Norwegian headline inflation may be providing additional impetus as it underscores expectations for a Norges Bank rate hike next month. Hence, Eur/Nok is back under 10.5000 vs a steadier Eur/Sek either side of 10.2200 following somewhat mixed Swedish ip and new manufacturing orders data. Meanwhile, the Zar has fallen with Gold again, but the Try has pared some downside with the help of a decent drop in Turkish unemployment.

FIXED INCOME

US Treasuries are still trailing behind after their brief pop during APAC trade on a big 10 year futures purchase, but core EU debt futures have regained composure after Bunds and Gilts retreated to fresh intraday lows of 176.41 and 129.47 (-11 ticks and -10 ticks on the day respectively). However, roles are reversing as the latter posts a marginal new Liffe best at 129.77 in wake of decent demand for the latest 2031 DMO offering and the former holds sub its earlier 176.77 Eurex peak irrespective of a rather downbeat German ZEW survey. Ahead, US NFIB business optimism, prelim Q2 labour costs and productivity plus the first leg of the Quarterly Refunding in the form of Usd 58 bn 3 year notes that falls between speeches from Fed’s Mester and Evans.

COMMODITIES

Crude benchmarks have commenced the session firmly on the front-foot and have reclaimed the USD 68/bbl and USD 70/bbl marks in WTI and Brent respectively at best; vs lows of USD 66.58/bbl and USD 68.95/bbl respectively. Fresh drivers from a macro standpoint have been sparse thus far though the calendar ahead features the EIA STEO due 17:00BST/12:00EDT and will be the next point of focus prior to the weekly private inventory report, which is expected to post a headline draw of 1.1mln. The mornings crude performance has extended upon the modest gains seen overnight where the complex derived support from mixed COVID-19 travel updates where the EU said it will not be imposing US travel restrictions. However, the US’ CDC lifted the advisory to France and Israel to its highest level. Since these updates, COVID related newsflow has dried up with the only notable update being from Tokyo where cases were modestly below yesterday’s update. Most recently, the aforementioned upside was seemingly capped by the ZEW release which missed expectations across the board citing a potential fourth COVID wave or a slow down in Chinese growth as factors. Elsewhere, spot gold and silver are little changed on the session though the yellow-metal remains in proximity to the current low of USD 1728.7/oz. Separately, copper prices are bolstered but off best levels as we await further updates on the Chile situation after BHP and the Escondida mines union extended contract talks to avoid a strike; while workers at the Caserones mine in the region, unrelated to BHP, are to begin strike action today after talks broke down yesterday.

10 Aug 2021 - 10:55- Fixed IncomeData- Source: Newsquawk