Newsquawk EU Mid Session: Dollar yields to Yen advances, while bonds regain poise, stocks tread water and oil surges - 15th September 2021

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Analysis details (10:42)

EQUITIES

Bourses in Europe have adopted a downside bias (Euro Stoxx 50 -0.1%; Stoxx 600 -0.1%) vs the mixed/uninspiring start seen at the cash open and following on from a mostly downbeat APAC handover. US equity futures have been edging higher in during the morning, but the magnitude of the price action is again contained, with the tech-laden NQ (+0.3%) narrowly outperforming the cyclically induced RTY (+0.1%) in a continuation of the divergence seen post-US CPI. Back to Europe, sectors are mostly negative but one of the few in the green include Oil & Gas – spurred on by the gains across the energy complex, whilst Banks also see some consolidation following yesterday’s hefty yield-induced losses. The downside meanwhile features more cyclical names, such as Retail and Travel & Leisure, in what seems to be a continuation of the value unwind seen post-US CPI yesterday. In terms of individual movers, Deliveroo (+1.4%) holds onto gains following a deal with Amazon, although competitor Just Eat Takeaway (-4.0%) is subsequently hit. Elsewhere, Lagardere (-3.5%) shares fell after Le Point reported that its HQ was raided yesterday in relation to "abuse of power, presentation of inaccurate accounts, dissemination of false or misleading information, abuse of corporate assets and vote buying". Daimler (+0.6%) is supported by commentary from its CFO, who expects Mercedes to return to more normal performance in Q4 and confirmed FY21 profit margin guidance. Meanwhile, the pre-market saw earnings from the likes of Darktrace (+9.0%), Fevertree (+1.5%), Inditex (-1.5%), Mediaset (+1.4%), and Tullow Oil (+6.6%).

FX

JPY/GBP/DXY - The Yen has extended post-US CPI gains vs the Dollar to probe 109.50 irrespective of underwhelming Japanese machinery orders data or a marginal back-up in Treasury yields and curve realignment from flatter levels. Instead, Usd/Jpy and Yen crosses appear to be moving in line with bearish technical impulses and an element of safe-haven positioning amidst several geopolitical developments that could flare up, like North Korea’s latest ballistic missile tests, China testing its air defence forces in Tibet against possible Indian missiles or jets, according to state media cited by SCMP, and Saudi air defenses destroying a drone launched by Yemen's Houthis towards Abha airport, Al Hadath. However, the headline pair may yet find underlying bids into 109.00 and 1.4 bn option expiry interest between 109.60-70 could also sap strength from the Yen ahead of trade data tomorrow. Meanwhile, Sterling is back on a firmer footing in wake of a clean sweep of forecast topping UK inflation metrics, including headline and core CPI eclipsing the upper end of the BoE’s target band, with Cable regaining 1.3800+ status and testing the 200 DMA at 1.3830. Conversely, the Buck’s broad bounce is waning, as the index slips back from 92.683 through 92.500 in the run up to more data (Empire State, import/export prices, ip and cap u).

AUD/NZD/EUR/CAD/CHF - All clawing back ground against the Greenback after their flip-flop or knee-jerk advances on Tuesday, with the Aussie forming a base above 0.7300 pre-labour report, the Kiwi creeping over 0.7100 again in time for NZ Q2 GDP, the Euro securing a firmer grip of the 1.1800 handle, the Loonie rebounding from sub-1.2700 before Canadian CPI and Franc continuing its revival from lows some way under 0.9200.

SCANDI/EM- Notable Nok outperformance, and aside from the latest Norges Bank regional survey underscoring overwhelming expectations for a hike this month, Brent is offering more traction as it eyes Usd 74.50/brl and also give the Rub a boost. Elsewhere, the Mxn is riding a WTI wave beyond Usd 71/brl after a bigger than anticipated API crude drawdown and the Zar is bouncing, albeit belatedly, as Gold pivots Usd 1800/oz, while the Cnh and Cny have shrugged off disappointing Chinese retail sales and ip on general Usd weakness and relief that the PBoC opted to roll the 1 year MLF in full.

FIXED INCOME

Bunds are at the forefront of a decent bond bounce from post-UK inflation release lows, and regardless of the fact that Eurozone ip also exceeded expectations by a big margin. Of course the latter was preempted by national releases and Germany beating consensus handsomely, while Gilts are also grinding higher in wake of a solid 10 year DMO auction, albeit not as strong as the previous 2031 sale even though the average yield was close to 75 bp. The core EU benchmarks have forged fresh intraday peaks within 171.99-66 and 128.07-127.79 extremes on Eurex and Liffe respectively, while US Treasuries are essentially flatlining ahead of NY Fed manufacturing, import/export prices, ip and cap u.

COMMODITIES

WTI and Brent front month futures are once again on a firmer footing, with the contracts extending upside in early European trade in conjunction with the cash open. News flow for the complex has been light to spur the upside, but the strength does come amid a larger-than-expected draw in the weekly Private Inventory data alongside bullish internals ahead of today’s DoEs – with the headline looking for a draw of 3.54mln barrels. The complex this week also saw bullish commentary from both OPEC and the IEA, which could be acting as wind in the sails. Meanwhile, from a COVID standpoint, the booster programme is poised to set off, particularly in the UK, which abates fears of a persistent slowdown in activity by the Delta COVID variant. WTI Oct’ has topped USD 71/bbl (vs low 70.65/bbl) whilst Brent Nov’ trades north of USD 74.00/bbl (vs low 73.78/bbl). Meanwhile in terms of gas, Norway’s Equinor is ramping up gas production where possible to meet the European demand and expects fundamentals behind the high European gas prices to continue into autumn and winter. Gas prices have since firmed, +2.4% last for the NG Oct’ contract. Elsewhere spot gold and silver are relatively flag with a mild divergence, spot gold trades on either side of the USD 1,800/oz mark which coincides with its 21 DMA. Several other DMAs reside in close proximity including the 50 DMA (1,798/oz), 200 DMA (1,807/oz), and the 100 DMA (1,815/oz). Turning to base metals. LME copper is firmer and attempts to gain a firmer footing above USD 9,500/t following yesterday’s declines. Meanwhile, the Chilean Copper Commission downgraded its average copper price projection to USD 4.20/lb for 2021 vs prev. USD 4.30/lb, whilst maintaining its 2022 forecast as USD 3.95/lb. Dalian iron ore futures overnight slid to a nine-month low amid compounding demand concerns, according to desks.

15 Sep 2021 - 10:42- Fixed IncomeData- Source: Newsquawk