Newsquawk EU Mid Session: Contained trade before a final US data impulse - 13th August 2021

To download the report, please click here If you would like to subscribe to receive the research sheets directly in your inbox, you can now do so under the Research Suite section of the portal. To subscribe simply check the box next to "Email these reports" under the desired category.

EQUITIES

European equities (Eurostoxx 50 +0.2%) trade with little in the way of firm direction as macro newsflow remains light and markets remain in “holiday mode”. The Stoxx 600 is on course to finish the week with gains of around 1% having printed several record highs along the way and extending its rally seen since the start of the month. Overnight, Asia-Pacific trade was predominantly softer with underperformance in Chinese bourses alongside a backdrop of increased regulation and mounting COVID concerns. Stateside, futures are little changed with some minor underperformance in the RTY (-0.1%) relative to the ES (+0.1%) with the latter currently at record highs. Commentary from JP Morgan notes that “the trends in prospective EPS growth forecasts, seasonality in earnings expectations, and recent changes in sector EPS revisions, all suggest a more cautious approach may be warranted”. JP Morgan goes on to state that it believes “there are increasing opportunities to support Staples and Health Care as we progress through H2”. Sectoral performance in Europe is relatively mixed and narrow in terms of breadth as Travel & Leisure and Retail names lead, whilst Tech and Basic Resources lag. In terms of stock specifics, Adidas (+2.1%) sits at the top of the DAX following the sale of Reebok to Authentic Brands for EUR 2.1bln. GEA Group (+3.1%) sits near the top of the Stoxx 600 after announcing a EUR 300mln share buyback programme. To the downside, Ipsen (-11.7%) is the clear laggard after announcing that, following FDA discussions it has withdrawn the NDA for palovarotene.

FX

DXY - It’s been a particularly quiet start for trade in the FX space with the DXY confined to particularly tight parameters around the 93.00 mark (range of 92.913-93.012). If the index manages to stage a more meaningful breach of 93.00 to the upside, this will bring yesterday’s high of 93.037 into play with this week’s peak of 93.195 thereafter. Beyond that an approach of the 31st March YTD high of 93.439 could be a tall order with a particularly barren data docket asides from the prelim. Uni. Of Michigan release at 15:00BST. Prelim. data for August is expected to show a pick-up for headline consumer sentiment, to 82.0 from 81.2. The inflation components will also by eyed by market participants in the context of this week’s CPI and PPI metrics in which, the former calmed 'runaway inflation' fears and emboldened those who argued that inflation is of a transitory nature. All else equal, markets continue to remain fixated on the Jackson Hole Symposium at the end of the month.

EUR/GBP - EUR has managed to eke out gains against the USD but thus far unable to move back above 1.1750 after slipping below the level on Wednesday. As such, a retake of the 1.18 handle looks some way off with the pair unable to claw back losses seen in the wake of last Friday’s US jobs report. That said, EUR bulls will take some solace from the fact that EUR/USD just about managed to avoid slipping below its YTD low at 1.1702 with this week’s trough for the pair standing at 1.1704. If EUR/USD does make its way on to a 1.16 handle, potential support could be provided at 1.1694 which marks the 38.2% Fib of the 2020-21 move. For EUR/GBP, focus is on the 0.85 mark with the cross currently oscillating around the psychological level. If the cross is able to pick up traction to the upside, technicians eye the 21 DMA (0.8530), 50 DMA (0.8554), and 100 DMA (0.8590). GBP is currently unchanged vs. the USD with the pair’s recent downtrend being held up by support at the 1.38 mark.

JPY/AUD/NZD - Price action for other majors against the USD is near-enough non-existent. The JPY is faring mildly better than most peers and sub-110.50 vs. the greenback after peaking at 110.79 on Wednesday. If the pair continues to head south, this could bring Monday’s low into play at 110.01, which of course rests just above the psychological 110.00 mark. If this level does give way, technicians note the 21 DMA at 109.97 and 100 DMA at 109.69. From a fundamental perspective, news that Tokyo’s COVID cases have surpassed the previous record of 5,042 has done very little to sway prices. Antipodeans are eking minor gains vs. the USD with AUD/USD on track to see the week out pretty much where it started. Given the COVID situation in the nation which has seen increasing restrictions and record cases in many regions, this is arguably somewhat impressive with the pair able to recover from its 0.7314 low set on Tuesday. Across the Tasman, NZD/USD has fluctuated on either side of the 0.7000 mark – sandwiched between its 50 and 21 DMAs at 0.7022 and 0.6990 respectively and looking ahead to next week’s RBNZ policy announcement, which is expected to mark the first G10 central bank interest rate hike since the pandemic.

FIXED INCOME

A contained and uneventful start to the last session of the week for debt as Bunds are pivoting the unchanged mark in-spite of an early flurry higher; albeit, one that didn’t threaten yesterday’s 176.77 peak which lies ahead of noted resistance at 83 and 95. In a similar fashion, Gilts are also pivoting the unchanged mark in a sub-25 tick range thus far. Fresh drivers have been minimal thus far and the docket doesn’t provide much to look forward too aside from prelim. Michigan data for another reading into the inflation situation Stateside. Data aside, the speaker schedule is also empty and as we are deep into Summer-conditions is unlikely to be bothered by unscheduled remarks before Powell next Tuesday and Fed minutes thereafter. More so for USTs than EGBs, we do have a short-end Fed operation due later today which is expected above the 12bln mark within the 0-2.25yr sector and could well spur some action in quiet conditions. Continuing with USTs, the US benchmark is currently outpacing its European peers posting gains of circa 5-ticks; although, is similarly off-highs and directionally in-fitting with the broader complex and hasn’t managed to lift too far from the current week’s trough of 133.09+. As such, the yield environment is portraying slight bull-flattening but is, again, well within the week’s range.

COMMODITIES

A slightly choppy European morning for the crude benchmarks as they struggle to settle on a clear direction in an absence of specific, or even macro, newsflow. As it stands, WTI and Brent are near the unchanged mark for today but are set to conclude the week with gains of around USD 1/bbl from Monday’s sub-USD 68/bbl open in WTI, for instance. Attention resides firmly on the geopolitical front in Afghanistan as the Taliban continue to capture more territory, including the 2nd largest city of Kandahar. Though this is not, currently, dictating price action. Elsewhere, OPEC related updates after the US’ call to ramp up production have been minimal; but, on this, Goldman Sachs writes that this call is unlikely to materialise given the COVID-19 Delta variant, among other factors. The session ahead has little explicitly for the complex, aside from weekly rig count data via Baker Hughes – last week’s total print was +3 at 491. For metals, spot gold and silver are similarly contained though have a mild upward-bias benefitting from a softer USD and lower rates. Elsewhere, copper is firmer but again around familiar levels as we await confirmation of sources that BHP and Escondida, Chile workers have agreed on a new contract.

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