Morning Brew July 27 2021

Good Morning

Wednesdays trading in equities appeared lackluster but volumes were actually decent at 11.16 bio bs the 20 day average of 10.52.

Indexes closed lower and fell further over night on weak Asian PMIs and an order by the US Government that bans Nvidia from exporting certain chips to China. After an already low close at 150, the stock fell to 141 in late trading.

The Yen is the most interesting currency, at a 24 year low and near levels that are uncomfortable for Japan. The high of USDJPY was 139.67 and we are currently at 139.40.

USDCHF has risen back to 0.98 from below 0.94 mid-August, Cable fell below 1.17 and seems to be on the way to test the Brexit-panic-lows near 1.1485

EURUSD is little moved at 1.0013. Gold and Silver are trading even lower with Gold defending the 1700 and Silver below the 18 at 17.70.

The European Union announced an emergency energy meeting will be held on 9 September in Brussels  as the 1 year out electricity prices are dropping and almost halved in the last week.

Driver of the nervousness at the moment are not near term data points it seems but longer term projections. The longer term inflation expectation remains high and also the Central Bank rate for July remains at 3.86 and does not indicate a rate cut. Traders have a hard time to digest that.

For now the focus seems to be on the fact that higher rates hurt equities and do not see stocks as inflation protection. The same is the case with precious metals.

Today we will be looking at international PMI , UK House prices and German Retail sales. The non-farm payroll tomorrow is perceived as  more important – it is a part of the FOMC decision for September 22.  If the fed were to hike only 50 bps in September, the forward expectation would likely also shift but right now, a 75 basis point hike is priced in with 75% probability.

Economic Data:

Thursday: IT, FR, DE and EU PMI, EU Unemployment Rate, US Initial Jobless claims, PMI

Friday: US Nonfarm Payrolls

Expiries

        Physically Settled Futures:

RBOB Gasoline (RBU2) will expire 31 Aug at 15:00 GMT

Random Length Lumber (LBU2) will expire 1st Sep at 15:00 GMT

Milling Wheat (EBMU2) will expire 2^nd Sep at 14:00 GMT