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Futures Ramp As Reddit Rally Routed; Italy Soars On “Prime Mario”

Courtesy of ZeroHedge View original post here.

World shares and US equity futures rose on Wednesday as volatility caused by a retail trading frenzy on Wall Street subsided on expectations of tougher regulation, while optimism about U.S. fiscal stimulus and the appointment of former ECB-head as Italy's PM – i.e., Prime Mario – also supported sentiment.

At 7:30 a.m. ET, Dow E-minis were down 16 points, or 0.1% S&P 500 E-minis were up 12.25 points, or 0.32%. Nasdaq 100 E-minis were up 73 points, or 0.55%. The MSCI world equity index was up 0.3% by 1119 GMT, inching closer to its record peak following gains in Asia overnight and a positive open in Europe. Shares are back in rally mode as the speculative short squeeze trades popular with Reddit crowds crumble, easing fears that they could lead to destabilizing swings in the stock market as funds are forced to deleverage. Janet Yellen summoned financial regulators to discuss the recent market turmoil (more below) while GameStop and AMC remained volatile, swinging from losses to gains in pre-market trading.

“Equity markets are fading the retail scare … an indication that this still has a long way to run. And run we shall with two beats on earnings from mega-caps Alphabet and Amazon,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.

Wall Street finished sharply higher for a second straight day on Tuesday in a broad-based rally as market participants digested talks over the next round of stimulus. US index futures again rose overnight into Wednesday buoyed by blockbuster results from heavyweights $1+ trillion giants Alphabet and Amazon, ahead of today's ADP data that is likely to show a rebound in monthly private payrolls. Alphabet Inc jumped 7% in premarket trading as it benefited from lockdowns that drove retail and other advertisers online. edged 0.4% higher as its founder Jeff Bezos would step down as CEO and become executive chairman. The retail giant also reported quarterly sales above $100 billion for the first time. Chipotle dropped about 4% after the burrito chain missed Wall Street estimates for quarterly profit, hurt by costs related to keeping its business running during the COVID-19 pandemic.

The meme rollertcoaster continued, as GameStop and AMC Entertainment initially tumbled double digits before rising 9% and 6%, respectively.

In Europe, the Stoxx 600 Index climbed 0.7%, with most sectors in the green as corporate results rolled in. Italian stocks and bonds surged after Mario Draghi, the former European Central Bank president, was tapped to be the country’s next prime minister. Italy’s 10-year bond yield fell more than 10 basis points to around 0.55%, its lowest in almost two weeks. It was set for its biggest one-day fall since mid-January. Italian stocks rose 2.7%, lifted by banks.

“A Draghi-led government with a clear mandate and a wider majority is likely to be seen by investors and European partners as the most credible option to face Italy’s policy challenges,” said UBS analysts and economist led by Giovanni Montalti. “A technocratic government represents the upside case scenario,” they added. It was unclear, however, if there would be enough political support for a Draghi cabinet.

Earlier in the session, Asian stocks rose for a third consecutive day, with stocks in Vietnam and Japan leading advances among national benchmarks. Consumer discretionary and financial stocks accounted for the biggest subgauge boosts to the MSCI Asia Pacific Index. Toyota Motor was the biggest driver of gains in Japan’s Topix after several of its affiliates raised their profit forecasts ahead of the automaker’s earnings results due out next week. Hong Kong-listed tech giant Tencent and Meituan extended this week’s strong surges. The two stocks helped the Hang Seng Index recoup intraday losses and finish the day higher

In FX, In foreign exchange markets, the euro hit a fresh 2-month low against the dollar, as investors looked to a widening disparity between the strength of U.S. and European pandemic recoveries. The pound slipped ahead of Thursday’s Bank of England meeting; the yield on 10-year gilts rose to the highest since November. The kiwi pared gains in the European session to trade little changed versus the greenback; it rose to a session high at the outset of the Asian session after data showed New Zealand’s fourth-quarter jobless rate fell to 4.9% from 5.3%, driving a repricing of rate expectations.

In rates, Treasuries resumed weakness with long-end yield cheaper by up to 2.5bp amid focus on refunding supply and corporate issuance. Treasury 10-year yields around 1.117%, cheaper by 2bp vs. Tuesday close; long-end led losses steepens 5s30s curve, although remains inside Tuesday wides. Italian bonds significantly outperform as Mario Draghi gets tapped to form a new government. In Europe, Italian bonds outperform Treasuries by 10bp across 10s while German, U.K. also trade ~1bp better in the sector

Going back to equity markets, so far more than 80% of reports from S&P 500 companies have surpassed analysts’ earnings expectations, with 97% of reports from technology companies beating, and yet the responses have been "perverse" with "beaters" unexpectedly underperforming the market on the next trading day. 

On the political front, Treasury yields edged up after Senate Democrats put President Joe Biden’s $1.9 trillion stimulus plan on a fast track to passage. Democrats in the U.S. Congress on Tuesday voted along the party lines to open debate on a fiscal 2021 budget resolution with coronavirus aid spending instructions, their first steps toward advancing President Joe Biden’s proposed $1.9 trillion package without Republican support. An advisor to President Biden speculated the final stimulus size could be USD 1.3trln, according to Politico.

Treasury Secretary Janet Yellen is calling a meeting of top officials, including from the Securities and Exchange Commission and the Federal Reserve, this week to discuss market volatility. Despite that her generous sponsor Citadel will be a key target of conversation, and despite her pledge to recuse herself of all matters involving Citadel, Yellen got an "ethics waiver" to lead the talks after all. And just like that Citadel now runs the country.

“Regulators have acknowledged the tumult,” Deutsche Bank strategists led by Jim Reid said in a note. What he didn't say is because Yellen is now in Citadel's pocket, absolutely nothing will change.

In cryptos bitcoin soared in the past few days amid growing popular acceptance, while Ethereum hit a new all time high above $1500. Elsewhere in commodities, spot silver, which briefly surged on Monday as small traders bought up the metal, rose 1% to $27.04 an ounce. That was a minor rebound from an 8% tumble on Tuesday, and analysts said the retail trader-driven rally to a near eight-year peak in the previous session had faded. Spot gold fell 0.1% to $1,835.1 per ounce.

Oil prices continued their upswing, supported by an unexpected draw in U.S. crude stockpiles and a producer estimate of a global oil market deficit this year. Brent crude futures hit an 11-month high and were last up 0.8% at $57.94 a barrel, while WTI climbed 0.6% to $55.1 a barrel, just shy of a one-year high.

Looking at the day ahead, highlights include US Markit PMIs (final), US ADP, ISM services, DoEs, OPEC+ JMMC, Fed's Kashkari, Bullard, Harker, Mester, Evans, Kaplan, US quarterly refunding announcement

Earnings from AbbVie, Qualcomm, eBay, GSK

Market Snapshot

  • S&P 500 futures up 0.3% to 3,830.25
  • Stoxx Europe 600 up 0.6%
  • MXAP up 0.9%
  • MXAPJ up 0.6%
  • Nikkei up 1%
  • Topix up 1.3%
  • Hang Seng Index up 0.2%
  • Shanghai Composite down 0.5%
  • Sensex up 0.8%
  • Australia S&P/ASX 200 up 0.9%
  • Kospi up 1.1%
  • German 10Y yield up 2 bps to -0.47%
  • Euro weakens 0.2% to $1.202
  • Italian 10Y yield fell 4.1 bps to -0.510%
  • Spanish 10Y yield rose 12.6 bps to 0.107%
  • Brent futures up 0.9% to $58.00/bbl
  • Gold spot down 0.2% to $1,834.61
  • U.S. Dollar Index little changed at 91.22

Top Overnight News

  • The Bloomberg Dollar Spot Index was little changed and the greenback advanced against most of its Group-of-10 peers
  • Italian bonds and stocks surged after Mario Draghi, the former ECB president who helped to bring calm to one of the region’s most volatile debt markets, was tapped to be the country’s next prime minister
  • Short-term sentiment in euro options may get a lift from the news
  • The pound slipped ahead of Thursday’s Bank of England meeting; the yield on 10-year gilts rose to the highest since November
  • The kiwi pared gains in the European session to trade little changed versus the greenback; it rose to a session high at the outset of the Asian session after data showed New Zealand’s fourth-quarter jobless rate fell to 4.9% from 5.3%, driving a repricing of rate expectations
  • Silver gained after the biggest loss since August, with markets calming following a buying frenzy that sent prices to an eight-year high

Quick look at global markets courtesy Newsquawk

Asian equity markets traded mostly higher as the region took impetus from global peers including the advances on Wall St. where Reddit concerns continued to subside and amid vaccination progress, while after-market earnings also provided encouragement after tech giants Google and Amazon both beat on top and bottom lines. ASX 200 (+0.9%) was led higher by the property sector and financials following the RBA’s recent QE extension and with Governor Lowe reiterating the central bank’s dovish tone at the National Press Club of Australia Conference where he stated the cash rate will be kept at 0.10% for as long as necessary and it will be some years before inflation and unemployment goals are achieved which they do not expect to occur before 2024 and possibly later. Nikkei 225 (+1.0%) climbed above the 28,500 level despite the state of emergency extension which had been widely telegraphed beforehand, with focus in Japan centred on earnings results including Panasonic which was boosted by an upgrade to its FY net forecasts, while the KOSPI (+0.8%) was driven by its largest automakers Hyundai Motor and affiliate Kia Motors amid reports that Apple is to invest KRW 4tln in the latter for an EV joint venture. Conversely, Hang Seng (+0.2%) and Shanghai Comp. (-0.5%) were subdued after the PBoC drained liquidity and with local media noting the central bank’s recent open market operations pattern shows it is aiming to keep liquidity tightly balanced to avert risks from over leveraging, while PMI data added to the headwinds after Chinese Caixin Services PMI missed expectations to print its lowest since April 2020 and Caixin Composite PMI data also slowed from the prior month. Finally, 10yr JGBs were lacklustre after the bear-steepening in USTs and with haven demand sapped by the mostly positive risk tone, while the BoJ’s presence in the market also failed to support prices as the central bank reduced purchase amounts of 1yr-3yr and 3yr-5yr JGBs as it had flagged when it announced this month’s buying intentions.

Top Asian News

  • Morgan Stanley Says Emerging Stocks May Have Already Peaked
  • Kuwait Cashes Out of Key Assets to Stave Off Liquidity Crunch
  • China Drains Funds From Banking System as Cash Crunch Eases

European equities kicked off the mid-week session higher across the board, but the momentum has since abated (Euro Stoxx 50 +0.7%), albeit the region holds onto gains despite a somewhat mixed APAC lead. US equity futures meanwhile see mixed trade thus far, with the NQ (+0.7%) narrowly outpacing peers whilst the RTY (-0.2%) struggled to stay positive – with the former aided by Alphabet (+7%) post-earnings after it reported a strong Q4 with Cloud and YouTube ads revenues rising Y/Y. Back to Europe, Italy markedly outperforms the region as the FTSE MIB (+2.6%) cheers reports that former ECB President Draghi has been tapped to take the Prime Minister position in a bid to end the political limbo and enhance the economic recovery. As such Italian banks populate the top of the index with favourable BTP price action also underpinning that domestic lenders. The DAX (+0.6%) is reinforced by one of its largest members Siemens (+2%) following stellar earnings. Siemens has a 9% weighting in the German bourse. Sectors in Europe are mostly higher but fail to provide a clean risk profile. Energy underperforms as crude prices hover in a tight range, whilst Telecoms reside on the other end of the spectrum – with Vodafone (+4%) propping up the sector despite lacklustre earnings as sources suggested the group could IPO its EUR 3bln Vantage Towers in March this year. Elsewhere, Healthcare is supported by one of its largest constituents AstraZeneca (+0.7%) as a medical paper noted that the Oxford/AstraZeneca vaccine shows sustained protection of 76% during 3-month interval until 2nd dose. In terms of individual movers, Daimler (+2.5%) gains impetus from source reports that the Co. is approaching a decision on the potential IPO of its truck unit and a minority stake IPO could occur as soon as H2 2021, which could be worth around EUR 29bln if valued along the same lines as Volvo AB according to Deutsche Bank.

Top European News

  • EU Faces 100 Billion-Euro Price Tag for Bungled Vaccine Push
  • Santander’s Resilient Earnings Help Investors Look Past Charges
  • Daimler Is Said to Near Decision on Pursuing Truck Unit IPO

In FX,more positives for the Kiwi to lean on and provide a buffer when overall risk sentiment and other external impulses are less favourable, as NZ Q4 labour data blitzed expectations in terms of the employment count and jobless rate. Indeed, Nzd/Usd is pivoting 0.7200 and Aud/Nzd has been under 1.5500 even though the Aussie has regained some poise post-RBA and grips on the 0.7600 handle vs its US counterpart irrespective of Governor Lowe reiterating dovish rate guidance overnight (cash rate to stay at 0.1% until 2024, and perhaps longer). Conversely, ANZ has now retracted its call for the RBNZ to ease by another 15 bp in May and all remaining rate cut bets for 2021 have been erased from money market pricing in NZ.

  • USD – Aside from the defiance down under, G10 rivals are struggling to stop the rot against the Buck as the DXY maintains its recovery momentum and seeks to extend beyond the 91.000 mark off a shallower base. The index retreated from 91.283 amidst knock-on gains across most APAC equity bourses overnight following a strong close on Wall Street, but quickly regrouped EU indices pared back and weakness in certain currencies due to specific factors resumed. However, Tuesday’s best has not quite been surpassed within a 91.263-90.988 range ahead of a much busier US agenda including ADP, final Markit services and composite PMIs, ISM non-manufacturing and an array of Fed speakers.
  • CHF/EUR/GBP/JPY – All hovering near recent lows vs the Dollar, with the Franc still on the cusp of 0.8900, Euro hovering midway between 1.2050-10 with little reaction broadly better than expected Eurozone PMIs or stronger than forecast inflation, and the Pound pivoting 1.3650 after upward tweaks to the final UK services and composite PMIs that still left both well below the key 50.0 level. Similarly, the Yen is floundering south of 105.00 and gleaned little in the way of traction via moderately less contractionary Japanese services and composite PMIs.
  • CAD/NOK – The Loonie and Norwegian Krona are holding up a tad better than others alongside oil prices around Usd 55/brl for WTI and Usd 58/brl in Brent, with Usd/Cad capped into 1.2900 and Eur/Nok straddling 10.3500.
  • SEK/EM – No sign of an acceleration in Sweden’s services PMI helping the Swedish Crown to capitalise on Euro underperformance elsewhere as the cross hovers near the top of a 10.1415-10.1025 band, but the Turkish Lira has been given another boost from stronger than consensus CPI that should resonate with the CBRT hot on the heels of hawkish commentary yesterday (underscoring intention to return inflation to target and front-load tightening if warranted). Hence, Usd/Try is back down from circa 7.2000 and probing towards 7.1250.

In commodities, WTI and Brent front month futures remain contained in early European hours as the complex piggy-backs on the risk tone across the markets, whilst the JMMC later today is expected to be uneventful – but, the lack of hawkish language out of yesterday’s JTC could be acting as an underlying force keeping prices elevated alongside another surprise drawdown in private inventories (-4.3mln bbl vs exp. +0.4mln). Traders will now be eyeing the weekly EIA data as the next scheduled catalyst – which is also expected to show a build of some 0.44mln bbls in spite of the recent streak of surprise drawdowns . WTI probes USD 55/bbl (vs low 54.80/bbl) whilst its Brent counterpart paused after eclipsing USD 58/bbl to the upside (vs low USD 57/50/bbl). Analysts and ING expect further upside in oil prices over H2 2021, “there are still plenty of demand risks floating around, while on the supply side, there is the issue of Iran, and when we will see Iranian supply growing”, the bank caveats. Elsewhere precious metals are relatively flat amid a lack of fresh catalysts and with upside hampered by a firmer Buck – with spot gold contained sub-1850/oz and spot silver caged on either side of USD 27/oz, whilst the US Mint yesterday stated it cannot meet the rising demand for the precious metals as plant capacity issues poses problems. Elsewhere, LME copper nursed earlier losses after Shanghai copper fell as much as 1.3% at one point to an eight-week low amid a dampened demand outlook heading into the Chinese Spring Festival. Meanwhile, Dalian iron ore futures were pressured to a similar extend as the base metal also tackles with the rising shipments of the base metal from Brazil.

US Event Calendar

  • 7am: MBA Mortgage Applications
  • 8:15am: ADP Employment Change
  • 9:45am: Markit US Composite PMI
  • 9:45am: Markit US Services PMI

DB"s Jim Reid concludes the overnight wrap

Global risk assets surged once again yesterday as investors remained optimistic on the prospects of US fiscal stimulus and a raft of earnings reports came through, with the S&P 500 ending the session up a further +1.39% to achieve its biggest 2-day advance since early November, in the days just after the US election. Once again it was a broad-based advance, with 22 of 24 industry group as well as 403 companies in the index rising on the day, though the index had pared back its gains by the close, having earlier achieved an intraday high of +1.83%. Other indices such as the NASDAQ (+1.56%), as well as Europe’s STOXX 600 (+1.29%) saw similarly strong gains, as the VIX index of volatility fell back -4.7pts as it continued to subside from its surge last week.

This morning US equity futures are pointing even higher following those earnings reports after the US close, where the most notable news came from Amazon as the company announced that CEO Jeff Bezos will step down from his role to become executive chairman later this year and will be replaced by the head of Amazon Web Services, Andy Jassy. The move highlights how important the division is for the online retailer, and investors seemed unperturbed by the development with shares rising in after-market trading. The company reported 4Q sales grew by 44% to $125.6bn, well above the $119.7bn estimate by analysts, though their guidance for the upcoming quarter lagged Wall Street expectations. Google’s parents company, Alphabet, was the other Mega-cap tech company to report yesterday, with the company’s shares rising +6.7% in after-market trading as they beat expectations on digital ad sales during the holiday period. Elsewhere, Exxon Mobil announced prior to yesterday’s session and recorded its first annual loss in at least 40 years, after recording its lowest yearly production since the 1999 merger between Exxon and Mobil. Regardless, the company’s shares rose +1.58% as the largest US oil company ensured investors of its financial health and pledged to maintain their dividend payout – currently the third largest in the S&P 500.

One area that didn’t share in yesterday’s rally were the Reddit-fuelled trades of last week, with numerous companies that saw astonishing rallies plummeting once again. Indeed by the close, GameStop had shed more than half its value, with a -59.91% decline, which comes on the back of its -30.77% decline on Monday, while others such as AMC Entertainment Holdings (-41.04%), Express (-32.40%), Blackberry (-20.98%) and Nokia (-7.57%) also lost significant value. Gamestop shares are now -81.3% from their intraday highs, while AMC is -61.5% below its high water mark. This reversal was also evident in the price of silver, which shed -8.12% to more than erase the previous day’s gains, suffering its worst daily performance since August. Regulators have acknowledged the tumult, and a statement from the US Treasury department yesterday said that Secretary Yellen had called a meeting with the SEC, the Federal Reserve Board, the Federal Reserve Bank of New York, as well as the Commodity Futures Trading Commission. The statement said that Yellen has asked “whether recent activities are consistent with investor protection and fair and efficient markets”.

Yesterday’s risk appetite helped a number of other assets too, including oil prices, which surged to their highest levels since the pandemic began yesterday – a key factor for strength among energy sector stocks yesterday. However safe havens didn’t do so well, and investors moved out of sovereign bonds on both sides of the Atlantic. Yields on 10yr US treasuries were up +1.7bps to 1.096%, as Senate Democrats moved to open debate on a budget resolution for the 2021 fiscal year, something which would enable President Biden’s stimulus plan to pass with just a simple majority. And over in Europe, yields on bunds (+2.7bps), OATs (+2.7bps) and BTPs (+3.0bps) also moved higher. This move out of safe havens didn’t hurt the US dollar however, which strengthened a further +0.24% yesterday to its highest level in 2 month, though it’s since eased back this morning.

In Italy, there was a major development on the political situation last night, with the news Bloomberg) that former ECB President Mario Draghi is due to meet Italian President Mattarella for discussions on forming a new government, with Draghi now the frontrunner to become Italy’s next Prime Minister. It follows the collapse of the existing coalition led by incumbent PM Conte, which was triggered by the decision from former PM Renzi to withdraw his Italia Viva party from the coalition. Markets reacted positively to Draghi news, with the former ECB President having been credited with saving the single currency during the sovereign debt crisis with his pledge to do “whatever it takes”, and the euro strengthened after the reports came through. That said, there are still questions on how easy it’ll be to actually forge a new cross-party majority, and a number of opposition parties still favour early elections.

Overnight in Asia, the global equity rally has extended into a third day for the most part, with the Nikkei (+0.81%), the Shanghai Comp (+0.15%), the Kospi (+0.89%) and the ASX (+0.92%) all moving higher, albeit as the Hang Seng (-0.32%) has lost ground this morning. S&P 500 futures have also extended their gains in the US, and are up +0.37%. The moves have come as we’ve begun to get the services and composite PMIs from Asia this morning, ahead of the European and US releases later. China’s January Caixin services PMI slowed down to 52.0 (vs. 55.0 expected) while Japan’s final services PMI came in at 46.1 (vs. flash 45.7).

On the pandemic, there was some positive news yesterday as the UK’s strategy of delaying the second dose of the vaccine in order to give more people a first dose received vindication from some Oxford academics in a pre-print paper. They found that the Oxford/AstraZeneca vaccine had 76% efficacy after a single dose of the vaccine from day 22 to day 90 after vaccination, and that protection did not wane during this initial 3-month period. Furthermore, they found that those who had the second dose with a longer gap after the first actually were more protected, with efficacy at 82.4% for those with 12 or more weeks to the second dose, compared to 54.9% for those where the booster was given within 6 weeks. However, Public Health England also reported that the UK variant of the coronavirus had developed further mutations, with 11 cases detected of the UK variant having the E484k mutation that’s present in the South African and Brazilian variants. In spite of that however, the number of confirmed daily cases in the UK fell to its lowest number yesterday in nearly 2 months, at 16,840. The news came as health officials in France, Sweden and the Netherlands all reported new cases of the UK variant, and the Netherlands accompanied their announcement with news that the nation’s lockdowns would remain in place for another month, as the PM Rutte said that British mutation is “two-thirds of all new infections.” In France, President Macron said that a vaccine would be offered to all adults who wanted one by the end of the summer, though nursing home residents could all get the shot by early March. In the US, there was news that the federal government will test a program to provide vaccines directly to pharmacies in a bid to speed up inoculations.

In Jim’s chart of the day yesterday (link here) we looked at reports from Israel based on actual vaccinations, which showed that of the more than 700k over-60s who took 2 doses of the Pfizer/BioNTech vaccine, only 0.07% tested positive for Covid-19, and only 0.005% were hospitalised for it. Although the group didn’t have a control and the current lockdowns will have helped, these extraordinary low numbers of hospitalisations in both the trials and the actual numbers for Israelis over 60 should provide some hope that the world can look a lot different in just a few months’ time.

In terms of yesterday’s data, the main news was that the Euro Area economy contracted by a smaller-than-expected -0.7% qoq in Q4 (vs. -0.9% expected), confirming the impressive resilience of the economy in spite of the second wave and resulting restrictions. That said, we also got the Italian GDP number yesterday, which unlike France and Spain did not deliver an upside surprise relative to the consensus, with a -2.0% contraction as expected.

To the day ahead now, and the main data highlight will be the release of the January services and composite PMIs from around the world. Otherwise, there’s the flash Euro Area CPI reading for January, the ISM services index from the US, along with the ADP’s private payrolls report from the US for January. Central bank speakers include the Fed’s Kashkari, Bullard, Harker, Mester and Evans, whilst earnings releases include PayPal, AbbVie, Qualcomm and Biogen.

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