What is our trading focus?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – with US yields still low, the US services in decent shape, and strong earnings there is not much that can hold back equities. Nasdaq 100 futures pushed higher yesterday closing only 0.3% from the all-time high close but is struggling a bit this morning to push higher. With a lot of European earnings out today the needed momentum might come from the European equity session.
EURUSD pushing lower with 1.1800 in sight as yesterday’s strong ISM Services and Clarida’s speech lifted outlook for the US economy both in terms of inflation but also rates. These two events have pulled EURUSD into an accelerated decline mode with the 1.1800 level as the next obvious target for target.
Crude oil has steadied following a three-day slump driven by demand worries posed by the delta virus variant. In addition, we saw general commodity weakness yesterday as the dollar rose on comments from Fed’s Clarida suggesting the bank was on course to begin raising rates by 2023. The weekly EIA stock report was initially seen as bearish following a jump in US crude stockpiles, but other data suggested a more balanced picture. Current focus on China, the world's biggest importer where the spreading of the virus, albeit so far in very low numbers, has led to strong measures that may impact the short-term demand outlook.
Gold (XAUUSD) rose strongly yesterday on weak ADP data only to give back all its gains after the strong ISM Services print and hawkish comments from Fed’s vice-chair Clarida helped send the dollar higher while ten-year real yields bounced from a record low. The risk of a cycle low in yields may add short-term downside risks to gold with the market wondering whether the yellow metal may be resistant to rising yields just like it ignored the recent slump. A fourth unsuccessful attempt to crack resistance above $1830 has left gold exposed to a test of support, currently at $1792. Just like gold, silver (XAGUSD) also saw a sharp reversal thereby raising the risk of another round of long liquidation. Focus now firmly on Friday’s job report.
US Govt Bonds (SHY:xnas, TLT:xnas, IEF:xnas) - The US 10-year yield is pushing higher today touching almost 1.2% driven by the much better than expected ISM Services print yesterday hinting that maybe the bottom has been found although one could argue that the much weaker than expected ADP figure yesterday is an argument for lower yields. The main question for US yields is to what degree investors will continue to accept negative real yields if inflationary pressures remain a bit stickier than expected.
Ethereum (ETHEREUM_XBTE:xome) - A major upgrade to the Ethereum network is soon being rolled out and is expected to occur today around lunchtime - the London hard fork. It aims to make fees more flexible and predictionable, as well as making Ethereum less inflationary by burning a part of the transaction fees. Check out post on the upgrade here.
What is going on?
The Eurozone grows at fastest rate since June 2006. After accounting for seasonal factors, the Eurozone PMI composite output index rose to 60.2 in July – slightly below the preliminary estimate of 60.6. Among the main Eurozone economies, the quickest rise was in Germany and in Italy while Spain and France registered softer increases in output.
U.S. unemployment claims are out today. The consensus expects jobless claims to decline slightly to 384K for the week ended 31 July versus 400k the previous week. The U.S. labour market continues recovering. But there are still concerns regarding the spread of the Delta variant, a shortage of available workers and continuing supply-chains constraints.
Earnings in early European hours. Banks are having a good time both in the US and Europe with lower loan losses than expected a year ago adding to the net income in 2021. Credit Agricole reporting this morning shows Q2 net income of €1.97bn vs est. €1.22bn. Adidas has also reported before European trading starts with Q2 revenue at €5.08bn vs est. €4.97bn and operating profit at €543mn vs est. €441mn; the German sports brand is also raising its margin forecast slightly. Glencore is also delivering earnings this morning hitting the high estimates and announcing both a shares buyback and a special dividend which is an indication of their confidence in the outlook for commodities.
US earnings after yesterday’s close. Uber failed to follow Lyft into profitability in Q2 with adjusted EBITDA loss of $509mn vs est. loss of $325mn and forecasting negative EBITDA in Q3 as well. On the positive side for Uber the forecast for Q3 gross bookings was higher than expectations; shares were down 4% in extended trading. Roku and Etsy delivered against expectations, but the two high-flying stocks were both down heavily in extended trading.
What are we watching next?
Gas shortage fears this winter in Europe continue to send prices soaring with the Dutch TTF benchmark trading above €40 per megawatt-hour for the first time. Driven by a perfect storm of very high demand at a time of reduced flows from top supplier Russia and lack of cargoes of LNG as competition from Asia remains strong. Gas reserves in Europe are at their lowest level in more than a decade for this time of year with time running out to rebuild before winter demand picks up. With gas prices this high, utilities have turned to coal to make up for the short fall, thereby increasing pollution while boosting the cost of emissions contracts. Southern Europe is feeling the impact with electricity prices surging at a time of strong demand given the recent extreme heatwave across the region.
BoE meeting – Expect status quo on policy. Given increased risks to the outlook associated with the third wave of the pandemic, we don’t see any firmer clues on an early end to QE purchases or on future rate hikes at today’s meeting. For the time being, the BoE is likely to follow the same playbook which paid off recently by signaling «significant» progress is required before Covid-19 monetary policy stimulus is removed.
US initial jobless claims. With the big miss in the July ADP Employment report yesterday the growth concerns have yet again got some fuel although the ISM Services print in the session gave evidence of the services sector comeback. As everything since the pandemic, the noise in economic data is still very high and investors should not overreact to data. Today’s initial and continuing claims are still the best real-time indicator we have on labour market conditions in the US and thus can help interpret the temperature in the US economy.
Earnings to watch this week. We have several earnings releases already in pre-market European trading which we cover in the ‘What’s going on’ section above. Today’s main earnings outside the ones that have been published are Siemens, Novo Nordisk, Zalando and Regeneron Pharmaceuticals.
- Today: Zoetis, Siemens, Merck, Deutsche Post, Becton Dickinson, Cigna, Duke Energy, Square, Illumina, Novo Nordisk, Moderna, Adidas, Credit Agricole, Zalando, Continental, Semiconductor Manufacturing, Nintendo, Glencore, Regeneron Pharmaceuticals, Cloudflare
- Friday: Allianz, NTT, AP Moller – Maersk,
- Saturday: Berkshire Hathaway
Economic calendar highlights for today (times GMT)
- 0600 – Germany Factory Orders Jun
- 0645 – France Industrial Production Jun
- 0900 - UN FAO's Food Price Index
- 1100 – Bank of England Rate Decision
- 1230 – US Trade Balance Jun
- 1230 – US Initial Jobless Claims
- 1430 - EIA's Weekly Natural Gas Storage Change
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