Newsquawk EU Mid Session: Debt pressured and Dollar drifts whilst commodities bounce back, and equities regroup - 23rd August 2021

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Analysis details (10:46)

EQUITIES

Equities remain on a firmer footing, but the region lost momentum shortly after the cash open and following a string of mixed/disappointing Flash PMI figures. All metrics remained in expansionary territory, but the common themes were COVID-related growth slowdown concerns alongside supply/demand led price pressures. Meanwhile, the Fed’s Jackson Hole Symposium format has shifted to an online event as opposed to the initial in-person meeting – with some suggesting that this shift in format signals near-term COVID caution from policymakers. Meanwhile, US equity futures hover around the levels seen heading into the European cash open, with the RTY (+1.0%) the marked outperformer vs the ES (+0.4%), NQ (+0.3%) and the YM (+0.5%). Back to Europe, the majors see somewhat of a varying picture vs the broad-based gains seen at the open. The DAX (Unch) resides as the laggard following an overall soft German PMI release, whilst the latest German INSA poll shows the CDU/CSU and the SPD neck-and-neck – marking the worst result ever for the CDU and an unexpected comeback for the SPD. Elsewhere, the CAC (+0.7%) narrowly outperforms as luxury names rebound from last week’s selloff. In terms of sectors, Retail (+1.3%) is the standout winner as Sainsbury’s (+12%) soars on the back of PE takeover speculation, with the Times noting of potential bids in excess of GBP 7bln, with the likes of Tesco (+2.0%) also lifted in tandem. Sticking with sectors, the broader picture is a pro-cyclical one with defensives towards the bottom of the bunch. In terms of other individual movers, Prosus (+1.0%) gains on the announcement of a USD 5bln share buyback scheme. On the flip side, DAX-listed Vonovia (-1.8%) announced a public takeover for Deutsche Wohnen (-0.4%)

FX

CAD/DXY - Far from all change within the G10 ranks, but the Loonie is rebounding further and firmly from recent lows with the aid of a similar recovery in oil prices that has lifted WTI back up beyond Usd 64/brl. Indeed, Usd/Cad is currently testing support just below 1.2750 having retreated from around 1.2840 and last Friday’s peak only just shy of the 1.2950 mark, while the Greenback has reversed from best levels almost across the board with the index hovering under 92.500 within a 93.485-209 band vs 93.734 at one stage on August 20. Ahead, US National Activity Index, Markit’s flash PMIs and Existing Home Sales.

AUD/NZD - The Aussie and Kiwi are also regaining some composure and the former is gleaning encouragement from a rebound in iron ore and other base metal prices as well to offset a degree of the ongoing COVID-19 issues that are adversely impacting both Antipodean countries and currencies. Hence, Aud/Usd is back above 0.7150 and Nzd/Usd has reclaimed 0.6850+ status as the Aud/Nzd cross straddles 1.0450 in wake of hawkish/bullish comments from RBNZ chief economist Ha overnight. Next up for the Kiwi, Q2 retail sales.

CHF/EUR/GBP - All firmer vs the Buck, with the Franc pivoting 0.9150 irrespective of latest weekly Swiss sight deposit balances indicating little in the way of intervention and Eur/Chf remains relatively depressed between 1.0742-16 parameters. Meanwhile, the Euro has bounced from sub-1.1700 amidst mixed Eurozone flash PMIs and the Pound from the low 1.3600 zone following even more contrasting UK preliminary prints.

JPY - The major laggard against the backdrop of firmer Treasury yields and a steeper curve, as the Yen recoils through a couple of technical supports and soaks up some export offers said to be layered upwards from 110.00, including the 55 DMA and 200 HMA at 109.80 and 109.91 respectively.

SCANDI/EM - Crude relief for the Nok, Rub and Mxn as Brent prices extend towards Usd 67.50, while the Zar is deriving traction from Gold’s recuperative gains and the Try via an improvement in overall risk sentiment rather than the fall in Turkish consumer sentiment. However, the Brl may be hampered by reports that Brazilian President Bolsonaro is having second thoughts about giving the BCB its independence.

FIXED INCOME

Debt futures have gradually recoiled from intraday peaks narrowly either side of parity even though risk sentiment in terms of equities has faded after a bright start to Monday’s session and it appears that the ongoing recovery in WTI and Brent has been a negative factor alongside chart impulses. Bunds, Gilts and the 10 year T-note are now just off fresh lows of 176.56, 129.91 and 133-30+ for losses of 59 ticks, 38 ticks and 5/32+ on the day respectively compared to +1 tick, -2 ticks and +2/32 at best ahead of a fairly busy pm agenda and rather conflicting EU prelim PMIs.

COMMODITIES

WTI and Brent front month futures remain on the front foot as optimism from the APAC session reverberated into Europe. That being said, the benchmarks have only chipped away at a fraction of last week’s losses. The fundamental landscape remains unchanged – with COVID the overarching force. On this note, Australia’s Victoria state expanded its lockdown beyond the city of Melbourne whilst New Zealand is to remain on a nationwide alert level 4 until at least midnight on Friday. Looking ahead, this week could see the release of OPEC sources heading into next week’s confab. Traders will also be cognizant of geopolitics as China, Iran, and Russia are poised to hold joint maritime exercises in the Persian Gulf late-2021/early-2022. WTI Oct’ inches towards USD 64/bbl from a base of USD 61.74/bbl, while its Brent counterpart mounts USD 67/bbl (vs low USD 64.60/bbl). Elsewhere, spot gold and silver gain as a softer Dollar keeps prices buoyed, but spot gold sees more contained trade in the run-up to this week’s Fed Jackson Hole Symposium. Meanwhile, base metals are bolstered by risk appetite and a broader rebound in commodities LME copper has reclaimed USD 9,000/t status whilst Dalian coke and coking coal hit limit up at the open, with traders also citing supply concerns arising from suspended Mongolian imports amid COVID concerns.

23 Aug 2021 - 10:46- Fixed IncomeData- Source: Newsquawk