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Risk appetite resurfaces, HSBC shares soar
Risk appetite has returned after last week’s turbulence. European bourses rose 1-2% in early trade on Monday after Wall Street’s rally on Friday lifted the boats. The S&P 500 was still down for the week, but with the broad market -10% from its all-time highs at the low, those looking for a correction after the hot summer rally may have found it already.
The market tested 3200, which is where it reached at the peak in June before the pullback and where it closed 2019. Bonds have not taken part in the drawdown – US 10-year Treasuries have barely budged this month and remain stuck around 0.66%. This might imply that the September sell-off is more about a repricing of risk assets based on valuations and profit-taking after the summer run-up, rather than deeper fears about a prolonged stagnation in the economy.
Volatility likely on US presidential debate, NFP this week
Nevertheless, with the first US presidential debate and the last jobs report before the election coming this week, there is ample scope for markets to remain volatile. Until we clear the highs from a fortnight ago – 3400 on SPX, around 3300 on Stoxx 50 and 6,000 on the FTSE, the downside bias remains.
Rising numbers of coronavirus cases imply a softer recovery, depressed consumer sentiment and the need for more fiscal support to generate upside. Markets don’t seem to be moving too much on vaccine news and rumours – there may be a realisation that a vaccine is not a silver bullet that will repair all the damage done in 2020, even if it makes 2021 look brighter.
Ping An adds to HSBC stake
HSBC shares rallied 10% after Ping An Asset Management increased its stake in the bank. HSBC’s largest shareholder only marginally bolstered its holding to 8% from 7.95%, but the vote of confidence translated into a very substantial rally for the shares both in Hong Kong and London.
HSBC had lately sunk to a 25-year low after being named in reports relating to money laundering, so maybe this was some simple averaging-in by Ping An. Shares are only back to where they were a fortnight ago – when stocks have been beaten down as much as HSBC they are often ripe for larger percentage swings as investors try to figure out what is the real value.
If you think Britain’s banks are fundamentally sound, shares are priced compellingly. Lloyds at 25p trades at 0.35 of book value.
BoE Tenreyro defends negative rates
Bank of England rate setter Silvana Tenreyro defended negative rates in an article over the weekend, in what we could construe as a careful piece of choreography to communicate the bank’s shift towards a state of outright financial repression.
She said there were ‘encouraging’ signs that there are no longer the same obstacles to cutting rates to below zero. But she’s been positive on negative rates for several months so we should probably not read too much into her comments.
Andrew Bailey remains the most important voice of the MPC and whilst he did not seek to quell speculation last week that the Bank is considering how to use negative rates, he did stress that it’s not in a hurry to pull them out the toolbox.
Brexit talks in focus for GBP
Brexit talks resume this week and despite all the noise, both sides want a deal. Whilst the UK threw a spanner in the works with the internal market bill, the real substance of the trade deal is what matters. On that front the EU and UK are about 90% there. The problem is the remaining elements and without these sorted there is no deal.
Nevertheless there is hope that they will enter the ‘tunnel’: the period of closed, detailed talks that would lead to a deal. If there is white smoke this week then sterling will rally strongly, but I would expect this to drag on for a while longer, for deadlines to be missed and for GBP crosses to remain exposed to negative headline risk.
The euro retained its downside bias after more jawboning from the ECB. Ignazio Visco, Italy’s central bank governor, said the euro’s recent strengthening is “worrying us because it generates further downward pressures on prices at a time when inflation is already low”. A slate of ECB speakers this week are likely to lean hard on governments to deliver fiscal support.
Chart: GBPUSD tests near-term resistance at 1.28
Stocks attempt rally after selloff, sterling down on Bailey remarks, Kingfisher enjoys DIY boom
Stock markets firmed in early European trade but remain battered and bruised by yesterday’s sell-off as fears of a second wave of cases and new lockdown measures dealt a blow to risk sentiment. Selling pressure has been building for some time and the dam broke yesterday.
A recovery in the final hour of trade lifted the market off the lows so it wasn’t full capitulation, but there could yet be more downside as the S&P 500 approaches correction territory.
SPX, Dow tumble, tech strength stems Nasdaq losses
The S&P 500 declined by 1.2% and the Dow dropped 1.8% but tech stocks fared better with the Nasdaq flat for the day. Shares in Apple rose 3% and Microsoft was up 1% as some of the Covid winners showed more resilience to fears over second waves of the pandemic and fresh lockdown measures, which seemed to be the trigger.
Despite the heavy selling, bulls put in a strong finish – the Dow was down over 900 points at the low before ending –500pts. At its lows the S&P 500 plunged by as much as 2.7%. Nevertheless, the broad market is now already –6% for the month of September, has notched four straight daily declines for the first time since March, and is over 8% off its all-time high.
The FTSE 100 fell over 3%, breaching the 21-day simple moving average line. Despite the pressure the bulls just held the 5,800 round number and closed above the Sep 4th low of 5,799. The Stoxx 50 breached the July lows and is now close to its Jun bottom having sunk under its 200-day SMA. The move follows a clear period of congestion that was calling for a breakout, having been caught in an ever-narrower range.
The DAX fell almost 4.5% with heavy selling into the closing bell seen as bears tried but failed to crack the 12,500 round number as the 78.6% retracement of the Feb-Mar rout held. There were modest gains in early trade on Tuesday but the rally looks a little wobbly.
Fading hope for another round of stimulus in the US is another weight, with the death of Ruth Bader Ginsburg over the weekend seen as a decisive blow against a bipartisan deal being achieved before the election, since it materially magnifies the polarisation in Washington. A deal will need to wait until after November 3rd.
In addition, a heavy ramp up in August with far too much hot money chasing too few shares, increasingly stretched valuations, the lack of a vaccine on the horizon and the rising risk of volatility around the US Presidential Election – and uncertainty over whether we will get a clean result – seems to have caught up with the markets.
UK government set to introduce new Covid curbs, Kingfisher gets DIY boost in Q2
The UK government is set to introduce fresh measures to ‘control’ the virus – curfews and working from home if possible. What a difference a month makes – only a few weeks ago we were being implored to get out and about to help out. It’s almost like they don’t know what they are doing.
While pub shares fell on curfew news, several earnings reports today highlight the uneven nature of the recovery so far, and the uncertain path ahead.
Tui – uncertainty over the course of lockdowns and quarantine rules is leaving holidaymakers unsure about booking in the coming months. The winter 20/21 programme has been further reduced by 20% since the Q3 update, to around 40% adjusted capacity, reflecting ‘the current uncertainty relating to travel restrictions’. TUI says it is currently 30% sold for the adjusted winter capacity.
Compared to the normal levels of prior year, bookings are currently down 59%, in line with adjusted capacity. Consumers are much happier to assume things will be ‘back to normal’ by summer 2021. Tui says bookings are up 84% but at 80% adjusted capacity, however we should caution that much of this will be pushback demand from this summer as consumers changed travel dates to next year.
Cost-cutting has helped TUI weather the storm – that and some whopping bailouts from the German government, but it and the entire travel industry needs governments across Europe to give far greater clarity over restrictions and quarantines. Shares rose a touch but the rest of the travel sector was weaker with Carnival off another –4% and IAG down –3% after a drubbing yesterday.
Kingfisher enjoyed a strong recovery in Q2 as DIYers tackled their jobs lists. This recovery has continued into Q3 to date, management say, with growth across all banners and categories. Q3 20/21 group LFL sales to Sep 19th are up 16.6%.
DIYers are driving the recovery – sales at B&Q rose 28% in Q2 on a like-for-like basis. Trade less so – Screwfix LFL sales were up just 2.4%, though they are +9.9% in Q3 so far – as the construction industry struggles to get going again. Overall UK & Ireland sales rose 2.4% in the first half despite lockdown as people rediscovered their homes and their desire for improving them. French bounced back strongly, with Q2 sales +27% vs the –41.5% decline in Q1.
First half sales were –5.9% lower. Overall H1 sales were a tad lighter but cost reductions meant adjusted pre-tax profit rose 23% to £415m, with retail margins +140bps to 9%. Shares rose 6% in early trade and have more than doubled off the March low.
Dollar climbs on Fed jawboning, BoE’s Bailey to speak today
In FX, the rollover in risk sentiment and some interesting Fed jawboning played into the dollar bulls, with DXY sustaining a breach of the channel on the upside and clearing its 50–day SMA, which had been a key point of resistance last week. Gold retreated under $1,900 at one point with the stronger dollar weighing.
The Fed’s Bullard said the US has done enough on the fiscal front, whilst Dallas Fed president Kaplan stressed that the Fed should not keep its hands tied by committing to ZIRP forever even if the economy bounces back. Powell stressed that the Fed will use all its tools to do whatever it takes.
More Powell today plus Bank of England governor Andrew Bailey, who said in remarks this morning that the recovery in Q3 has been ahead of expectations but stressed that the hard yards are ahead.
All the market wants to know is whether negative rates are coming or not – he said the Bank has looked ‘very hard’ at the scope to cut rates further, including negative rates. So this was not the attempt to distance the MPC from the negative rate comments in last week’s release to give the central bank more flexibility. As the MPC indicated last week, Bailey wants to leave negative rates on the table.
GBPUSD was under fresh pressure under 1.28 and could be set up for a bear flag continuation with a possible dive back to 1.22. If this holds, bulls need to clear 1.30 to be encouraged. The key test is the 200-day EMA around 1.2760 which was tested last week and held, encouraging a rally back to 1.30. Cable shed this support in the early European session as Bailey got on the airwaves – one to watch today with the 100-day the last line of defence.
BoE quick take: negative rates on the table hit cable
Sterling dropped sharply along with gilt yields, with GBPUSD down one big figure to take a 1.28 handle and 2-year gilt yields dropping to -0.1% after the Bank of England delivered a dovish statement which included overt references to introducing negative rates.
It looks like Bailey is prepared to go big and fast if there is an unemployment crisis once the furlough scheme ends. For the time being he is keeping his powder dry.
Whilst the MPC kept rates on hold at 0.1% and the stock of asset purchases at £745bn, it looks like it is on the cusp of delivery further accommodation. The Bank ‘stands ready’ to do more, it said, adding that will not tighten monetary policy until there is ‘clear evidence’ of achieving its 2% inflation target in a sustainable way.
But it was the mention of negative rates that seems to led to sterling being offered.
Bank of England puts negative rates on the table
The bit that did the damage was included right at the bottom (underlines my own):
‘The Committee had discussed its policy toolkit, and the effectiveness of negative policy rates in particular, in the August Monetary Policy Report, in light of the decline in global equilibrium interest rates over a number of years. Subsequently, the MPC had been briefed on the Bank of England’s plans to explore how a negative Bank Rate could be implemented effectively, should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates. The Bank of England and the Prudential Regulation Authority will begin structured engagement on the operational considerations in 2020 Q4.
It also set the stage for more QE, with the MPC noting that the Bank ‘stood ready to increase the pace of purchases to ensure the effective transmission of monetary policy’. With the current QE ammo due to run out by the end of the year, the Bank looks likely to expand the asset purchase programme by around £100bn in November.
We can now also start to worry about negative rates being implemented – a lot will depend on the unemployment rate as we head towards Dec with the furlough scheme ending.
On the economy, the Bank thinks the UK economy in Q3 will be 7% below Q4 2019 levels, which is not as bad as previously forecast. Inflation is forecast to remain below 1% until next year.
Chart: Cable breaches near-term trend but tries to find support at 1.29.
Looking to see whether this move reasserts the longer-term downtrend – lots depends on the Brexit chatter taking place in the background.
Stocks weaker post-Fed, Bank of England, OPEC+ meetings ahead
Wall Street fell and Asian equities followed the weak handover even as the Fed stayed very much on script with a dovish lower-for-longer message, whilst also presenting a more upbeat take on the economy in the near term.
The Fed put some meat on the new average inflation targeting skeleton that was sketched out by Jay Powell at Jackson Hole, saying it will aim to achieve inflation ‘moderately above 2% for some time so that inflation averages 2% over time and longer-term inflation expectations remain well anchored at 2%’. But the rub is that it doesn’t see this inflation coming through until 2023 at the soonest.
There were no explicit easing measures to get there sooner, so the FOMC has only really filled in some blanks as to what we already knew, and seems content for now to wait for Congress to sort the fiscal side out before it does anything more. The lack of any real determination to get inflation up sooner seemed to disappoint for risk.
Equities lower after FOMC, dollar catches bid
Equities peaked after the statement and then progressed lower during the presser with Powell right into the close, with the S&P 500 finishing down half of one percent at 3,385, led by a decline in tech, which is about a quarter of the index, whilst energy – now a tiny c2% weighting of the index – rallied 4% as oil climbed.
The 21-day SMA offered resistance and now we are looking again to the 50-day line at 3,335, with futures pointing lower. Meanwhile the Nasdaq finished –1.25% lower with Tesla, Apple, Amazon et al falling, and is likewise trapped between its 21-day and 50-day lines, with big trend line support close. European equity markets took the cue and fell over 1% at the open as the FTSE 100 again tested the 6,000 level.
USD caught a bid as well, with the dollar index lifting from a post-statement low of 92.85 to clear 93.50 overnight, before coming off a touch to 93.30 in early European trade. GBPUSD retreated to 1.2950 having earlier hit the 1.30 level. Gold came off its highs at $1970 to test the $1940 support area.
The Fed sees unemployment at a lower level and a larger economy by the end of the year than it did in June. Real GDP forecast for 2020 was revised down to –3.7% from –6.5% in June. Unemployment is seen at 7.6% compared with the 9.3% anticipated in June. Inflation is seen picking up more than it was in June albeit the rise in breakevens has levelled off at about 1.7%.
The key takeaway from the economic projections is that both core and headline PCE inflation are not seen returning to 2% until 2023 – the Fed even had to add a year to the forecast horizon just to get this in. Given it didn’t manage to get to 2% with unemployment under 4%, there is a lack of credibility around this, even though I for one believe inflation will come through.
The Fed is in the dark and there is no more it can really do without spiralling into the abyss of negative rates. The Fed is in the dark not just because it has no control over inflation, but also because the political situation remains very unclear with regards to fiscal stimulus and the presidential election in November.
So, there is a lot of uncertainty and all the Fed can really do is continue to stress its willingness to do whatever it takes and its willingness to overlook overshoots on inflation should they emerge. I’m in the camp that does expect inflation to feed through due to the massive increase in the money supply combined with supply chain disruption and the fiscal largesse.
The Fed’s policy shift also raises the prospect of inflation expectations becoming unanchored. However, we cannot ignore the fact that the pandemic has had a chilling effect on confidence and spending may be slow to reappear, pushing down on inflation for a while longer.
US data softens, focus switches to jobless claims and Bank of England
US retail sales lost momentum last month, with sales rising just 0.6% versus the 1.1% expected, signalling the effect of the expiration of $600 stimulus cheques that made many at the lower end of the income scale better off out of work than in.
US jobless claims later today will be closely watched for signs of any improvement after last week’s disappointment. Last week’s print of 884,000, which was flat on the previous week, signalled a slow down the recovery in the labour market and worried economists.
The Bank of England delivers its monetary policy statement at midday – will it surprise by going ‘big and fast’ with more QE – as governor Andrew Bailey suggested is the best approach for central banks in times of crisis last month?
There is also speculation that the Old Lady of Threadneedle St will turn to negative interest rates to stimulate the economy. Speaking to MPs recently, Bailey refused to rule out negative rates – a policy that has systematically failed to deliver the required inflation in the Eurozone – saying that it remains in the box of tools.
I’d expect the Bank to tee-up an increase in QE in November and not further rate cuts, but it may choose to fire first and ask questions later.
Snowflake surges on IPO
Snowflake (SNOW) shares made an astonishing stock market debut. After pricing the IPO at $120, the stock flew to almost $280 in the first few hours of trading before settling at $253. The price to sales multiple of about 360 is simply astounding – a lot of future growth was priced into the stock on its first day. It’s the biggest software IPO ever and demand was exceptionally high, and the multiples being paid even loftier.
It seems to be a story of the scarcity value of growth. It also shows just how much wild, free-flowing money there is in the market right now chasing whatever’s seen as hot and whatever offers the most growth.
We’re almost into the territory of describing these tech stocks as Veblen goods, where demand rises with the price. The IPO market is getting very frothy. We can blame/thank the Fed for this situation with ultra-low rates assured for a very long time and massive liquidity needing to find a home at whatever price that is. It’s like 1999 all over again.
London sees biggest listing in years as The Hut Group IPOs
Even London is getting in on the action with The Hut Group getting its IPO off with a swagger and a close at more than £6 after listing at £5. As noted when the listing was announced at the end of August, the valuation it deserves depends very much on your point of view.
In 2019 THG achieved year-on-year revenue growth of 24.5% to reach £1.1 billion with adjusted EBITDA of £111.3 million. The float aimed to raise £920m at £4.5bn market cap, which at c40x last year’s EBITDA and x4 sales doesn’t seem like too much to pay for this kind of growth….or does it?! The answer rests surely on whether it deserves a techy or a retail multiple.
Management forecast overall revenue growth of 20-25% over the medium term, with its tech platform Ingenuity (the capital-light growth lever) forecast to grow at 40% primarily as a result of increasing mix of e-commerce revenues as global brand owners accelerate their adoption of D2C strategies.
But revenues from Ingenuity remain relatively small – £61m in the first half of 2020, which was flat on last year and less than 10% of total group revenues. As a percentage of group revenues, the contribution from Ingenuity is going down. Again it’s the promise of growth that is appealing to investors right now.
Oil softens after FOMC statement
Elsewhere, oil was a little softer overnight as risk sentiment came off the boil after the Fed, but this came after a couple of very solid days. WTI for Oct breached $40 on the upside before paring gains but the $39.50 area has held for the time being and offered a springboard in early European trade.
EIA data showed inventories fell 4.4m barrels, contrasting with forecasts for a build. Gasoline stocks were drawn down at twice the rate expected. However, we remain concerned about the demand pick-up through the rest of the year – as all the main agencies have recently revised their demand forecasts lower.
We note also a report suggesting that OPEC is not about to panic by further cutting production – however that would depend on prices; WTI at $30 again might induce action. OPEC+ members are holding an online meeting today to assess compliance and whether additional cuts may be necessary – I would think for now they will stand pat, with the focus chiefly on compliance with current targets, which currently stands at 101%, according to sources reported yesterday.
But if prices come a lot more pressure there would likely be an OPEC+ response.
Stocks open higher ahead of busy central bank week
It looks like a second wave, but not as we know it. Even if cases are starting to rise in Britain and elsewhere, deaths are not picking up in the same way as before – younger, less vulnerable people are getting the virus this time it seems.
The World Health Organization (WHO) recorded a record one-day rise in cases globally. France recorded a record number of new infections – some 10k over the weekend. There is not the appetite for blanket shutdowns of the economy again – this is good, but the ongoing fear factor will keep a lid on animal spirits.
And governments could be spooked into heavy-handed responses, even if they don’t want to kneecap the economy.
AstraZeneca resumes vaccine trial
Fear can be vanquished with a vaccine, so it’s good news that AstraZeneca and Oxford University are resuming trial of their vaccine candidate, after it was paused a week ago. News on a vaccine – good or bad- is set to emerge in October, it seems.
Pfizer says there is a good chance it will deliver data from its late stage trials of its candidate vaccine, developed with German drug maker BioNTech. If approved, it could be available to Americans by the end of the year. The question is whether this may be needed – Sweden seems to be showing the way towards herd immunity.
With vaccines and herd immunity, unemployment becomes a much bigger problem. The end of the furlough scheme raises the prospect of employment rates reaching a cliff-edge. Unemployment could spiral and redundancies are taking place at twice the rate of the last recession. US initial jobless claims last week indicated the recovery is slow, even if job openings are more encouraging.
BoE to signal more stimulus this week?
This could make this week’s Bank of England meeting interesting. It has enough ammo in the quantitative easing quiver to last until the end of the year, but with only two more scheduled before 2020 is over, the Bank will need to lay the ground for more stimulus. Governor Andrew Bailey said central banks should go “big and fast” with QE and other stimulus at times of crisis.
If there an explosion in unemployment, this line will be tested. I’d expect the Bank to sound more dovish this week, although it is unlikely to alter policy so far in advance of the November Budget, in which the government show its fiscal hand.
Of course, there is still time for Rishi Sunak, the Chancellor, to extend furlough, as many are urging him to do. UK 2-year gilt yields hit fresh record lows this morning with the market seemingly convinced the BoE will give a very strong signal it is preparing to deliver additional stimulus – most likely in the form of increased asset purchases rather than a descent into a vortex of negative rates.
The problem of furlough schemes and extending them is of course one of productivity and the opportunity cost of maintaining people in a kind of output stasis. Zombie workers and zombie companies are a growing problem. Indeed, new research shows the number of zombie companies in the US is near the 2000 record.
European stocks build on decent week
European markets opened higher on Monday, with the FTSE 100 solidifying above 6,000 and the DAX ticked up to 13,300. This comes after a decent week for European markets that contrasted with Wall Street weakness.
The Nasdaq finished last week down –4%, with the S&P 500 dropping –2.5% over the five days. The Nasdaq broke under its 50-day simple moving average, whilst the S&P 500 traded through it at the lows but held it at the close.
European markets fared better as they were much less exposed to the sell-off in tech – some rotation taking place as investors look to ‘reopening’ stocks over the Covid-19 winners, but it was far from anything significant.
Indeed, in dollar terms, the moves in the FTSE 100 for example were far less impressive. Investors in the US may also be paying attention to the presidential race – Biden’s tax plans would knock earnings, although it’s far tighter race than the national polls indicate. US futures are higher and have cleared the Friday peak struck during the London morning session.
Abenomics safe as Suga elected new leader?
Suga-high for Japanese equities? In Japan, Yoshihide Suga, the former chief cabinet secretary, looks set to replace Shinzo Abe as prime minister after being elected to the lead the country’s ruling Liberal Democrat Party. Suga has pledged to maintain Abenomics and seems to be causing few ripples in the market.
He will only have a year to make an impact though before the next elections are scheduled – he could choose to call a snap election to shore up his support, but the coronavirus might get in the way.
The Nikkei 225 edged up 0.65%, while the yen was steady against the dollar at 106.
Meanwhile Gilead, whose remdesivir antiviral is treating Covid-19 patients, is buying Immunomedics for $21bn. With vast sums of private equity to be deployed, there may be a slew of deals and takeovers as we head into the autumn.
Brexit and Federal Reserve to weigh on cable, gold rangebound
In FX, ongoing talks between the UK and EU look set to be the chief driver for GBP crosses. However, a Federal Reserve meeting this week will impact the USD side of cable. There is not a new to say about the Brexit talks after last week – we await to see whether the discussions can get any further.
Usual headline risks to cable, but GBPUSD could get squeezed higher absent of any negative news. GBPUSD traded at 1.2840 in early trade having made a firm near-term base at the 200-day EMA at 1.2750. Downtrend still in force until the 1.30 handle is recovered.
Elsewhere, gold is still trading in a very narrow range around the $1940 level. US breakevens have come down a bit, US 10s are hunkered in around 0.66% and real rates (10-year TIPS) have just come down a touch.
Remember it’s Fed week. The Federal Reserve convenes on September 15th and 16th for the first time since Jerome Powell signalled that the central bank would be prepared to tolerate higher inflation as a trade-off for a swifter economic recovery and jobs growth.
Unemployment has fallen since the pandemic peak but is not improving quickly enough. The Fed is not expected to announce any fresh policy change but will reinforce Powell’s message from Jackson Hole on the policy shift.
Indeed the main focus for the Fed right now is actually not monetary policy but fiscal as members await any move in Washington to deliver a fresh stimulus package.
La settimana che ci aspetta: I nonfarm payrolls americani, le decisioni sui tassi della RBA e della BoE: preparatevi per i più grandi eventi con il nostro briefing.
La stagione degli utili sta per terminare, ma questa settimana sarà oggetto di attenzione il rapporto sul terzo trimestre della Walt Disney. Sul fronte economico, la Reserve Bank of Australia e la Bank of England terranno entrambe delle riunioni sulla politica monetaria, e i rapporti sui nonfarm payrolls di venerdì minacciano di mantenere la volatilità dei mercati fino al fine settimana.
Disponibilità degli indici PMI di Markit, Caixin, ISM
Una serie di dati del PMI questa settimana fornirà maggiori informazioni sullo stato dell’economia globale. E’ prevista la definizione degli indici PMI sulla produzione e sui servizi per l’Eurozona, il Regno Unito e gli Stati Uniti. I dati dell’indice PMI manifatturiero cinese Caixin, da seguire con attenzione, sono previsti all’inizio della giornata di lunedì, e a seguire gli indici PMI sui servizi durante la sessione dei mercati asiatici di mercoledì.
Questa settimana sono anche previsti i dati sugli indici manifatturieri e non manifatturieri statunitensi dell’ISM. L’indice non manifatturiero dovrebbe segnare un leggero passo indietro dopo essere rimbalzato in avanti di quasi 12 punti a giugno, pur restando saldamente in crescita.
Riunione della Reserve Bank of Australia – La recente deflazione solleciterà una reazione?
La Reserve Bank of Australia si riunisce in un momento in cui è stata registrata un’impennata dei casi di coronavirus sia a livello globale che nazionale.
Nuovi blocchi minacciano la riapertura dell’economia, e i recenti dati CPI hanno rivelato che nel secondo trimestre i prezzi sono diminuiti su base annuale per la prima volta dal 1997, con il più grande calo dell’indice dei prezzi al consumo che si ricordi.
I mercati sono verosimilmente in cerca di responsabili delle politiche che facciano di più per stimolare l’inflazione. Con tassi di interesse già pari a zero e nessuna intenzione di scendere ulteriormente, l’attenzione sarà focalizzata sul fatto che la Reserve Bank of Australia potrà considerare altre forme di stimolo necessarie in questo momento o a breve termine.
Gli utili della Walt Disney
Nel prossimo rapporto sugli utili terzo trimestre della Disney, previsto dopo la chiusura del 4 agosto, gli investitori osserveranno tre fattori chiave. La maggior parte delle entrate dell’azienda proviene dai suoi parchi a tema. Alcuni di questi hanno riaperto, ma altri sono rimasti chiusi anche dopo le loro date di riapertura previste a causa dell’aumento del numero di casi.
I ritardi non solo nel rilascio, ma anche nella produzione di film di successo avranno un impatto sia sui profitti che sulle linee guida della direzione.
Notizie positive potrebbero arrivare da Disney+: il lockdown ha registrato un aumento degli abbonati per il rivale Netflix, e gli investitori saranno curiosi di scoprire se anche Disney avrà goduto di un simile incremento.
Decisione sui tassi della Bank of England, rapporto sull’inflazione
La commissione sulla politica monetaria della Bank of England annuncerà le sue ultime decisioni nella giornata di giovedì.
L’economista capo Andy Haldane ha recentemente dichiarato al Treasury Select Committee di ritenere che l’economia del Regno Unito abbia recuperato “circa la metà” rispetto all’enorme crisi registrata a marzo e aprile, ma ha avvisato che la disoccupazione potrebbe salire a livelli mai raggiunti dalla metà degli anni ‘80.
Haldane ha elencato diverse politiche che la Bank of England potrebbe adottare se i governanti lo ritenessero necessario: eventuali discussioni su tassi di interesse negativi sarebbero le più interessanti, ma l’MPC potrebbe anche prendere in considerazione ulteriori misure di quantitative easing, di alleggerimento del credito o per le politiche future.
Attualmente non sono previsti cambiamenti ai tassi di interesse o al quantitative easing. Giovedì la Bank of England renderà noto anche l’ultimo rapporto sull’inflazione.
Nonfarm payrolls: le nuove misure di blocco rallenteranno la ripresa del mercato del lavoro?
I dati del rapporto sui salari non agricoli statunitensi di luglio sono previsti per venerdì. Gli ultimi due rapporti hanno mostrato un considerevole rialzo dopo il crollo di 20 milioni registrato ad aprile, con 2,7 milioni di posti di lavoro guadagnati a maggio e 4,8 milioni a giugno. Gli economisti si aspettano altri 2,2 milioni di nuovi posti di lavoro a luglio.
C’è ancora molta strada da fare prima che gli Stati Uniti tornino ai livelli di occupazione pre-Covid, e il numero crescente di casi e nuove restrizioni alle imprese in molti stati potrebbero pesare sull’incremento dei posti di lavoro nel futuro prossimo.
In evidenza su XRay questa settimana
Leggi il programma completo dell’analisi e formazione del mercato finanziario.
|07.15 UTC||Daily||European Morning Call|
|12.00 UTC||03-Aug||Master the Markets with Andrew Barnett|
|From 15.30 UTC||04-Aug||Weekly Gold, Silver, and Oil Forecasts|
|17.00 UTC||06-Aug||Election2020 Weekly|
|12.00 UTC||07-Aug||Marketsx Platform Walkthrough|
I principali rapporti sugli utili di questa settimana
Ecco alcuni dei più importanti rapporti sugli utili previsti per questa settimana:
|05.30 UTC||04-Aug||Bayer – Q2|
|04-Aug||Sony – Q1|
|Pre-Market (UK)||04-Aug||BP – Q2|
|After-Market||04-Aug||Walt Disney – Q3|
|05.00 UTC||05-Aug||Allianz – Q2|
|06.00 UTC||06-Aug||Glencore – Q2|
|06-Aug||Adidas – Q2|
|Pre-Market||06-Aug||Siemens – Q3|
|06-Aug||Uber – Q2|
Eventi economici principali
Presta attenzione agli eventi più importanti sul calendario economico di questa settimana:
|01.45 UTC||03-Aug||China Caixin Manufacturing PMI|
|07.15 UTC – 08.00 UTC||03-Aug||Finalised Eurozone Manufacturing PMIs|
|08.30 UTC||03-Aug||Finalised UK Manufacturing PMI|
|14.00 UTC||03-Aug||US ISM Manufacturing PMI|
|04.30 UTC||04-Aug||RBA Interest Rate Decision|
|22.45 UTC||04-Aug||New Zealand Quarterly Employment Change / Jobless Rate|
|01.45 UTC||05-Aug||China Caixin Services PMI|
|07.15 UTC – 08.00 UTC||05-Aug||Finalised Eurozone Services PMIs|
|08.30 UTC||05-Aug||Finalised UK Services PMI|
|14.00 UTC||05-Aug||US ISM Nonmanufacturing PMI|
|14.30 UTC||05-Aug||US EIA Crude Oil Inventories|
|11.00 UTC||06-Aug||Bank of England Rate Decision, Monetary Policy Report|
|12.30 UTC||06-Aug||US Weekly Jobless Claims|
|14.30 UTC||06-Aug||US Natural Gas Storage|
|01.30 UTC||07-Aug||RBA Monetary Policy Statement|
|06.00 UTC||07-Aug||Germany Industrial Production / Trade Balance|
|12.30 UTC||07-Aug||US Nonfarm Payrolls, Average Earnings, Jobless Rate|
Banks lead European stocks higher
Asian shares soared overnight on Monday, lending a positive start to the European session as equities rode a broad risk rally. The very strong US nonfarm payrolls number continues to mask a lot of ills and investors are happy to hang their hopes on more stimulus.
Hong Kong rose 4%, Tokyo 2%, while shares on mainland China were up around 5% on, among other things, some bullish commentary in state press. Shanghai shares jumped 5.7%, the best one-day gain in five years.
It looks like local investors are chasing the market and the spill-over has lifted the boats across Asia. China’s rally sparked a broad risk-on move. Escalation of US-China tensions don’t seem to be a major worry.
Bank stocks surge as Europe opens higher
European shares took the baton and opened roughly 2% higher in early trade on Monday led by a surge in bank stocks. HSBC rallied 6% apparently on the China trade read across, but elsewhere we saw broad gains as investors looked to new leadership at Lloyds and Commerzbank, whilst hopes of a fiscal lift in Europe may be a factor. Broadly it looks like the Chinese rally has lifted cyclicals like banks and autos.
Eco data was better but not as good as hoped – German factory orders jumped 10.4% in May, although the rebound was less impressive than the 15% expected. Orders remain almost a third below where they were a year before. Bank of France Governor Francois Villeroy de Galhau said on Sunday the country’s economy was bouncing back quicker than expected.
Meanwhile, Andrew Bailey, the governor of the Bank of England, has written to UK banks warning of the operational challenges of negative rates (new computer systems, lower net interest margin). This could be taken either way; either it’s an explicit message to get ready, or it’s way of saying to them not to worry because we know it’s a massive pain. The letter said negative rates remain “one of the potential tools under active review” should the Bank think more stimulus is required.
The rally left the DAX close to the top of the June range, trading above 12,800. The FTSE is close to the 61.8% retrace of the pullback in the second week of June. US futures point towards strong gains when Wall Street reopens after the three-day weekend, with the S&P 500 moving clear of the 78.6% retracement. June peaks are starting to come into view and will be a key test for whether this rally has further to run or whether it’s time for a pullback.
Bets of further stimulus boost stocks
Whilst markets face a wall of worry, investors are confident of getting a leg up from further stimulus. Britain’s chancellor Rishi Sunak will set out a mini-Budget this week focused on jobs. A meeting of Eurozone finance ministers on Thursday will set the tone for the key July 17th-18th summit. Whilst the various countries disagree over the composition of grants and bailouts, on conditionality and over how the funds are divided up, Germany’s Angela Merkel is bound to make sure that a deal is done: the squabbling needs to stop.
Meanwhile the US Congress is set to work on a second stimulus bill this month. At the same time, Covid-19 cases continue to soar – markets are getting used to the numbers – but the pace of recovery in the US will flatten if rising cases means states re-impose lockdown restrictions. As noted last week, the headline number in the jobs report masked some ills, so we will again be very much focused on the weekly initial and continuing claims numbers this week.
Dollar softens, oil edges higher, Buffett bets on natural gas rebound
Elsewhere, the broad risk rally sent the dollar lower, with DXY at 96.80. Sterling pushed a little with GBPUSD back about 1.25, looking to break last week’s peak a little short of 1.2530. EURUSD was a whisker short of 1.13, entering the resistance formed by the July 2nd peak. Clearing this opens up the path to the Jun 23rd swing high at 1.1350. Market positioning remains quite aggressively short, with net speculative positions on the euro the most bearish in three years.
Crude oil was a little higher, with WTI (Aug) just about nudging the $41. Gold is steady at $1776, with the latest CFTC figures showing speculative net longs at the highest in two years. Finally, Warren Buffett is making a $10bn bet on natural gas prices rebounding – the veteran investor thinks the market, which hit a 25-year low last month, has bottomed, making assets cheap and is on course for a rebound.
Update: Bank of England does just enough
The Bank of England left interest rates on hold at the record low 0.1% and increased the size of its asset purchase programme by £100bn to £745bn. Although largely in line with expectations, the expansion of the QE programme was a little less than some of us had anticipated, and indeed was really the bare minimum to satisfy the market. The BoE said it stands ready to increase QE if required – it may need to this autumn. The Old Lady could have been a little bit braver here and expanded the envelope more.
The Bank said it can conduct asset purchases at a slower pace, and that the programme would be completed by the end of the year, which seems to be taken as a positive for sterling as it implies a degree of hawkishness vs expectations. The lack of any chatter about negative rates also lifted the pound off its lows. But by send time cable was still close to the LOD again – there is a degree of calm about the BoE that is slightly at odds with its major peers like the Fed and ECB. The MPC appears a little too relaxed about all this.
Gilt yields moved higher and sterling rose off the lows. 2yr gilt yields spiked, turning positive at one stage having traded around -0.075% ahead of the announcement. GBPUSD dropped to the lows of the day ahead of the announcement but bounced off lows around 1.2475 to touch 1.2550 before paring gains a little. Cable remains stuck within the recent range between 1.2450 (the 50 per cent retracement of the bottom-to-top rally from the May low to the Jun high.) and the 200-day moving average just above 1.2690 that sparked the run lower since Tuesday.
On inflation, the MPC noted that while the decline in oil prices has been very important in the drop in headline CPI figures, a ‘sharp drop in domestic activity is also adding to downward pressure on inflation’. As a result, inflation is expected to fall further below the 2% target in the coming quarters, largely reflecting the weakness in domestic demand.
On the economy, the MPC thinks the downturn in the second quarter will be less severe than it estimated in May. However, we know that the initial rebound is the easy bit; getting back on the previous trend takes a lot longer.
In particular the Bank seems to be very aware of labour market stress, noting that ‘there is a risk of higher and more persistent unemployment’… and that the ‘economy, and especially the labour market, will therefore take some time to recover towards its previous path’. The Bank will need to cope with a significant increase in unemployment as the year progresses and will require to take more aggressive action.
Bank of England wheels for fresh charge
Central banks need to be marshalled like cavalry and stimulus like charges. If your stimulus doesn’t rout the enemy immediately, you can easily get bogged down in a melee in which you lose your advantage. The Federal Reserve keeps wheeling around and managing to rally troops for fresh charges – the corporate bond buying announcement this week was a fine example.
But increasingly the cavalry is wearying and the more this drags on the less impact the Fed’s repeated charges will have against the twin enemies of deflation and unemployment. Investors are clinging on to central bank stimulus like the Gordon Highlanders gripped the stirrups of the Scots Greys, as they rode down the French columns at Waterloo.
BoE preview: more QE on the way
The Bank of England will mount a fresh charge at the enemy formations today. Coordination is the name of the game: it needs to keep on top of the huge amount of issuance – borrowing – by the UK government. Wartime levels of debt means the BoE must expand the envelope to hoover it up or risk yields starting to rise and spreads widening.
So, the BoE is expected to increase QE by at least £100bn, but I think it may well opt for £200bn, or even more, given that even £100bn would only last it until the end of the summer and the real long-term economic problems are going to emerge later in the autumn. Interest rates will stay at 0.1% and expectations firmly anchored for the near future with forward guidance repeating that the Bank will do whatever it takes.
In order to achieve this, the government and central bank will need to coordinate throwing more money at the problem. Indications suggest furlough has been costly but only delayed a lot of the pain – a looming unemployment crisis will require further central bank support, which means more QE is likely. And don’t talk about negative interest rates – Andrew Bailey mentioned it once, but I think he got away with it. Once you go negative, it’s very hard to get back to normal.
Whilst fresh forecasts are not due until August, the Bank will likely set a more defensive tone in terms of its expectations for the recovery. As noted here on May 7th (BoE: for illustrative purposes only) the Bank’s assumptions on economic recovery seem rather optimistic.
Sterling was steady ahead of the decision. GBPUSD held around the middle of its trading range, sitting on the 38.2% retracement of the bottom-to-top rally from the May low to the Jun high. Monday’s test of the 1.2450 (50% level) remains the support whilst the upside seems well guarded by the 200-day moving average just above 1.2690 that sparked the run lower since Tuesday.
Stocks on the back foot on fears of second Covid-19 wave
Wall Street stocks fell yesterday, except for tech, whilst European markets are on the back foot this morning as investors parse new cases in the US and China. The bulls lost energy as new hospitalisations in Texas due to Covid-19 rose 11% in the space of 24hrs. Several other US states are seeing rising cases that are a worry, albeit the kind of mass lockdown seen earlier this year appears an unlikely course of action. The economic damage is too high, and we are generally better equipped to handle it.
Worries about China are also important – markets had largely not bet on a second lockdown in the world’s second largest economy.
Overall, the market swings now suggest investors are reacting to various headlines about recovery, stimulus and new cases without much clear direction as to what it all means as a bigger picture. The major indices are right in the middle of recent trading ranges, sitting around the 50-60% retracements of the move from the multi-month highs at the start of last week to the swing lows this week.
Elsewhere, the US pulled out of talks with Europe over a global digital services tax, which raises the risk of individual countries taking their own steps, in turn sparking a fresh wave of US-EU tensions. An escalation of dormant trade wars is not out of the question if EU nations and the UK decide to tax US tech giants aggressively.
This comes of course after the EU launched an anti-trust probe into Amazon. In Europe, Germany passed additional fiscal stimulus to combat the pandemic costs. This morning Angela Merkel called on the EU to agree to the Covid fund before the summer break.
Crude steady on EIA inventories data
Crude prices were steady as they hold within the consolidation pattern printed since the start of June. WTI for August was holding around the $38 marker after the EIA inventories rose 1.2m barrels, vs expectations for a draw.
This matched the API data (+3.9m) and suggests there are more supply-side pressures at present, but OPEC data indicated demand not falling as much as previously expected in the second half of the year. Meanwhile it seems Iraq is working its way towards complying with OPEC+ cuts.
BlondeMoney Bank of England rate decision preview
BlondeMoney CEO Helen Thomas explains what to watch out for from the upcoming Bank of England policy decision.
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