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Futures Slide As Yield Drop Accelerates

Courtesy of ZeroHedge View original post here.

S&P futures dropped, trading near session lows and sliding along Europe shares and Treasury yields, as investors assessed a growth slowdown in China and dovish comments from Federal Reserve Chair Jerome Powell. The drop in yields helped push the Nasdaq higher with mega-cap technology stocks leading gains ahead of today's initial unemployment claims report that will allow investors to gauge the strength of the labor market. At 7:00 a.m. ET, Dow e-minis were down 189 points, or 0.54% and S&P 500 e-minis were down 141.00 points, or 0.32%, and Nasdaq 100 e-minis were up 12.5 points, or 0.08%, with FAAMG heavyweights all gaining between 0.1% and 0.4%. The dollar weakened against haven currencies and bitcoin slumped back under $32,000; the British pound rose after a Bank of England policy maker said withdrawing stimulus may be appropriate soon.

Netflix jumped 2.5% in premarket trading after announcing plans to expand into video games. It hired a former Electronic Arts Inc. and Facebook Inc. executive to lead the effort. Advanced Micro Devices rose 1.5% after Citigroup upgraded the chipmaker’s stock to “neutral” from “sell”. Other notable premarket movers include:

  • American International Group (AIG) shares jump 4% after agreeing to sell a 9.9% equity stake in its life and retirement business as well as affordable-housing assets to Blackstone for $7.3 billion in cash.
  • Cinedigm Corp. (CIDM) rises 21% after the entertainment company posted preliminary 4Q revenue that increased from a year ago.
  • GameStop (GME) dips 6% after Netflix hired a former Electronic Arts and Facebook effort to lead its expansion into video games.
  • Morgan Stanley (MS) dips 1.5% after posting FICC sales & trading revenue for the second quarter that missed the average analyst estimate.
  • Netflix (NFLX) gains 1.6% after Bloomberg News reported that the video-streaming company is planning to expand into video games.
  • Datasea (DTSS) shares gain 27% after a subsidiary of the China- based software company signed agreements to provide 5G messaging products and services in China.
  • Verb Technology (VERB) rises 15%, one of several meme stocks seeing gains on Thursday.
  • Other stocks favored among retail traders also advance with Sgoco Group (SGOC) climbing 3.9% and Exela Technologies (XELA) gaining 4%.

Futures dropped even though second-quarter earnings season started on a strong note this week, with the four largest U.S. lenders – Wells Fargo, Bank of America, Citigroup and JPMorgan Chase – posting a combined $33 billion in profits, buoyed by the release of $9 billion in reserves they had put aside last year to absorb feared pandemic losses. Their shares were down between 0.7% and 0.8% in premarket trading, while Morgan Stanley edged 0.8% lower ahead of its results before the bell on Thursday.

The key overnight news came out of China, where second-quarter growth slowed to 7.9%, just missing expectations of 8.0%, even as a pick-up in consumer spending suggested a more balanced recovery.

In the U.S., Powell said it was still too soon to scale back monetary support even though inflation has risen faster than expected. Powell said he is confident recent price hikes are associated with the country’s post-pandemic reopening and will fade, and that the central bank should stay focused on getting as many people back to work as possible. The “powerful support” pledge assuaged some concerns over price pressures, helping the S&P 500 and the Dow end a choppy session with small gains. With central banks from New Zealand to Canada and the U.K. turning hawkish, traders continue to debate how far the Fed can hold back on tapering.

”U.S. stock indexes are going from one record to the next, although there are visible and quite serious signals of noticeable weaker growth in the U.S. economy,” Norbert Frey, the head of asset management at Fuerst Fugger Privatbank, wrote in a message to Bloomberg. “If inflation doesn’t go back on its own, the Fed must act. Then the markets could get bumpy.”

In Europe, the Stoxx Europe 600 fell 0.4%, dropping for a second day, with energy and retail shares leading losses among sectors; Eurostoxx 50 was 0.5% lower with Germany's DAX off 0.7%. FTSE MIB and IBEX lag. The Stoxx Europe 600 Energy sector index fell as much as 3.3%, the most among 20 groups in the region’s benchmark and heading for the third consecutive session of decline. Oil majors also decline under pressure from lower oil prices after U.S. gasoline stockpiles unexpectedly expanded. Here are some of the biggest European movers today:

  • Avast shares rose as much as 17%, the most since March 2020, after the cyber security firm said it was “advanced talks” on a possible merger with NortonLifeLock.
  • Glanbia shares surged as much as 7.6%, the most since October 2020, after the Irish food company said its trading in 1H was ahead of expectations.
  • Experian shares gained as much as 6.1%, hitting the highest since May 2020, after beating expectations and boosting its revenue estimates, with analysts upbeat about the credit services firm’s outlook.
  • EON shares rose as much as 3%, hitting the highest since May 19, after JPMorgan upgraded the German utility to overweight from neutral with regulatory risk now lower and a positive outlook for its U.K. operations.
  • Siemens Gamesa Renewable Energy shares dropped as much as 17% after cutting financial guidance for this year.  Siemens Energy shares down as much as 11%, the most on record, after it said its 3Q results will likely miss estimates owing to the guidance cut from Gamesa. Peer Vestas Wind Systems down as much as 7.4%, Nordex 7.8% ??????
  • Galapagos shares plunged as much as 14%, biggest intraday decline since Feb. 10. Readouts from its patient studies show there is work to be done to adequately de-risk and differentiate its drugs, RBC said in a note.
  • Orkla shares dropped as much as 6.8% after its earnings. Handelsbanken said it was a “weaker-than expected” report from the company and notes more cautious outlook comments from the group.
  • MorphoSys shares fell as much as 8.2%, to the lowest since August 2017, after the purchase of about 89% of outstanding shares of Constellation Pharmaceuticals, with the merger expected to complete before the start of U.S. trading today.
  • Asos shares slumped as much as 17%, most intraday since Nov. 9, after the online fashion retailer said sales started to soften, particularly in Britain, at the tail end of the third quarter as a result of poor weather, supply chain pressures and continued uncertainty over Covid-19. Analysts called the stock move an overreaction, recommending investors to buy on weakness.

Earlier in the session, Asian stocks crept higher after data from China showed its economic recovery steadied in the second quarter, while retail sales expanded more in June than analysts expected. The MSCI Asia Pacific Index rose as much as 0.3%, reversing an earlier decline of 0.2%, while the benchmark for emerging-market equities, however, rose to a one-week high, aided by the technology sector on a report of possible cooperation between Alibaba Group Holding Ltd. and Tencent Holdings Ltd.

Information-technology and finance sectors advanced, while peers in healthcare and industrials fell. A gauge of mainland- and Hong Kong-listed financial companies climbed 2.5%, the most since May 25, after China rolled over 100 billion yuan ($15.4 billion) of medium-term policy loans. “The data was good without being stellar,” said Kyle Rodda, an analyst at IG Markets in Melbourne. “But the sense is now that more stimulatory policy will be coming down the line at some point soon, and clearer signaling of that from policymakers will be crucial to a pick-up in Asian stock markets and probably the global economic outlook too.” The Asian stock benchmark is on course for its best weekly performance since February following a rally earlier this week. China’s central bank said last week that it would cut the amount of cash most lenders must hold in reserve, bolstering sentiment toward equities. China was the region’s best performer, with the CSI 300 and the liquidity-sensitive ChiNext both gaining more than 1%. The country’s stocks advanced while bonds declined as fears of a deep economic slowdown were allayed by the latest data. Meanwhile, benchmarks in Japan and the Philippines fell.

Japan’s stocks fell as a strengthening yen and Tokyo’s biggest jump in Covid-19 infections since January damped investor demand. The Topix index declined 1.2% to 1,939.61 in Tokyo, while the Nikkei 225 closed 1.2% lower at 28,279.09. Sony Group Corp. contributed the most to the Topix’s drop, decreasing 1.7%. Today, 1,836 of 2,187 shares fell, while 278 rose; 32 of 33 sectors were lower, led by electric appliances stocks. The yen headed for a two-day advance of 0.7% against the dollar. Takashi Ito, an equity market strategist at Nomura Securities, said stock investors were also concerned about the resurgence of Covid-19 cases. Tokyo confirmed 1,149 new infections Wednesday, the most since January, as the city prepares for the delayed Olympics that’s set to start in less than two weeks. The capital entered its fourth state of emergency on Monday. U.S. stock index futures were little changed during Asia trading hours. On Wednesday, Megacap tech stocks led the S&P 500 marginally higher and bond yields fell as investors turned to defensive favorites with Federal Reserve Chairman Jerome Powell making the case for maintaining economic stimulus. “Powell’s comments didn’t have that much impact on the markets. It’s more of Japanese stocks taking a breather after rebounding from last week,” said Hajime Sakai, the chief fund manager at Mito Securities Co. “There’s not that much material to trade off of, and investors are going to get into a wait-and-see mode ahead of the earnings season.”

In rates, Treasuries added to Wednesday’s curve-flattening gains, aided by a large purchase of 10-year note futures via a block trade in early U.S. session.  Yields are lower by ~2bp across long-end of the curve, 10-year by ~1.5bp at 1.33%, outperforming gilts by ~4bp while bunds keep pace; 5s30s is flatter by less than 1bp, 2s10s by ~2bp. Gilts lag following hawkish comments from Bank of England’s Saunders. Fed’s Powell returns to Congress for a second day of testimony on the economy and monetary policy, this time before Senate Banking panel. Bund and gilt curves steadily bull flatten with long-end Germany underperforming at the margin. Peripheral spreads widen, semi-core holds steady after relatively well received auctions from Spain and France.

In FX, the Bloomberg Dollar Spot Index rebounded sharply after sliding lower and was last trading at session highs alongside a pocket of weakness in futures, though most moves were confined to tight ranges; the Swiss franc and the yen rose for a second day against the dollar amid haven demand while risk-sensitive Antipodean and Scandinavian currencies inched lower. The euro edged up to trade at around $1.1850; the common currency’s term structure has inverted as central bank meetings set the tone, with emphasis on the Federal Reserve. CHF and JPY are the best G-10 performers with broader risk appetite dwindling. GBP, AUD and NZD are the weakest, albeit in choppy trade.

BOE’s monetary policy committee member Michael Saunders said that if economic activity and inflation remained in line with current trends, it may become appropriate “fairly soon” to withdraw some of the stimulus. The speech, released on the bank’s website, pushed gilts to erase gains.

In commodities,  West Texas Intermediate crude futures tumbled below $73 a barrel on expanding U.S. fuel inventories and a potential OPEC+ agreement to increase supply before recovering off the lows. Brent bounces back above $74. Spot gold grinds higher, pushing through Wednesday’s best levels to trade near $1,832/oz. Base metals push higher: LME copper gains as much as 1.25%.

To the day ahead now, and the highlight will once again likely be Fed Chair Powell’s testimony, as he appears before the Senate Banking Committee. Other speakers include the Fed’s Evans and the BoE’s Saunders. Separately, data highlights include June data on industrial production and the weekly initial jobless claims, whilst in Europe there’s also UK unemployment data for May. Earnings releases include UnitedHealth Group, Morgan Stanley, US Bancorp and BNY Mellon. Finally, US President Biden will be meeting German Chancellor Merkel at the White House.

Market Snapshot

  • S&P 500 futures little changed at 4,368.50
  • STOXX Europe 600 down 0.44% to 458.58
  • MXAP up 0.3% to 206.16
  • MXAPJ up 0.8% to 689.18
  • Nikkei down 1.2% to 28,279.09
  • Topix down 1.2% to 1,939.61
  • Hang Seng Index up 0.8% to 27,996.27
  • Shanghai Composite up 1.0% to 3,564.59
  • Sensex up 0.6% to 53,232.70
  • Australia S&P/ASX 200 down 0.3% to 7,335.92
  • Kospi up 0.7% to 3,286.22
  • Brent Futures down 0.8% to $74.13/bbl
  • Gold spot up 0.2% to $1,831.53
  • U.S. Dollar Index down 0.10% to 92.32
  • German 10Y yield fell 2.0 bps to -0.340%
  • Euro little changed at $1.1846

Top Overnight News from Bloomberg

  • China’s economic rebound steadied in the second quarter and showed more balance as consumer spending picked up, providing support to a global recovery being shaken by resurging coronavirus cases. Gross domestic product in the world’s second- largest economy expanded 7.9% from a year earlier
  • Bank of England Governor Andrew Bailey said he won’t rush to make judgments about inflation even after consumer prices leaped more than expected in June. The remarks, in an interview with the Business Live website yesterday and published on Thursday, were a reaction to inflation rising 2.5%, more than the BOE’s 2% target
  • U.K. companies added payrolls at a record pace in June as the reopening of the economy triggered an unprecedentedscramble for staff. The number of employees on company books climbed by 356,000, the Office for National Statistics said Thursday. Demand for staff rose, with vacancies in June alone increasing to a record 962,000, up 7% from May
  • ECB Governing Council member Ignazio Visco says “we have to avoid tapering before the time comes that we’re really confident we’re back where we should”

Quick look at global markets courtesy of Newsquawk

Asian stocks lacked firm direction as participants digested mixed Chinese GDP data – which partially offset the slight positive bias from the US following Fed Chair Powell's dovish reiterations in Congress. Powell stated it is still appropriate that monetary policy remains highly accommodative and that the jobs market is still a ways off from progress needed to begin tapering. The ASX 200 (-0.3%) was indecisive, with strength in most mining-related sectors and utilities counterbalanced by underperformance in tech and energy names. In addition, the latest jobs data was somewhat inconclusive and failed to spur price action with headline Employment Change slightly below forecasts despite a faster than expected decline to the Unemployment Rate. The Nikkei 225 (-1.2%) was pressured by recent flows into the domestic currency and cautiousness as the BoJ kick-started its two-day policy meeting where the Bank is touted to reduce its economic growth forecast for the current fiscal year. The KOSPI (+0.7%) remained afloat following an unsurprising BoK announcement to keep policy rates steady. The Hang Seng (+0.8%) and Shanghai Comp. (+1.0%) were varied with the former boosted by its tech giants Alibaba and Tencent amid reports they are considering opening up their ecosystems to each other and with Hong Kong also said to lift travel restrictions. Conversely, the mainland was choppy after mixed Chinese GDP data, which showed China's economic growth Y/Y slowed to 7.9% vs exp. 8.1% (prev. 18.3%), although GDP Q/Q beat expectations at 1.3% vs exp. 1.2% (prev. 0.6%) and both Industrial Production and Retail Sales figures also topped forecasts, while the PBoC only rolled over CNY 100bln in MLF loans vs CNY 400bln maturing this month. The PBoC also maintained the 1-Year MLF rate at 2.95%, which dampens prospects of a cut to the Loan Prime Rate next week, although China Securities Journal noted that China might reduce the Loan Prime Rate but not cut the policy rate. Finally, 10yr JGBs were uneventful and failed to benefit from the strength in USTs, which were inspired by Fed Chair Powell's continued dovishness and despite the underperformance seen in Japanese stocks, while slightly increased demand at the enhanced liquidity auction did little to spur prices with participants sidelined as the BoJ began its latest conclave.

Top Asian News

  • Chinese Stocks Rally, Bonds Decline as Data Allay Growth Fears
  • Blockbuster IPO Memes Reveal Emotion Amid India’s Unicorn Frenzy
  • Singapore Finds 42 Virus Cases With Most From Karaoke Cluster
  • TSMC Is Considering Building a Chip Plant in Japan, CEO Says

Stocks in Europe clambered off the losses seen shortly after the cash open, although this mild reprieve did not last long and and Europe holds onto a negative bias (Euro Stoxx -1.0%). This follows from a mixed APAC handover, which saw an overall firm performance in China following the nation topping expectations in Q/Q Q2 GDP alongside June Industrial Production and Retail Sales. US equity futures vary with the NQ (+0.2%) the outperformer as the tech-laden index future benefits from declining yields, whilst the RTY (-0.8%) lags and the YM (-0.4%) and ES (-0.2%) trade in more contained parameters. Back to Europe, the FTSE 100 (-0.9%) initially narrowly outperformed regional peers amid favourable currency dynamics at the time. However, the index was hit (alongside general sentiment) after BoE's Saunders struck a hawkish tone – suggesting that "it may become appropriate fairly soon to withdraw some of the current monetary stimulus." Sectors remain primarily in the red, with Oil & Gas the marked underperformer as crude prices ease. Overall, sectors have more of a defensive bias, with Food & Beverages, Personal & Household Goods and Healthcare towards the top of the pack. In terms of individual movers, Daimler (-0.5%) initially opened with gains following a stellar earnings report, with traders citing the broader downside in autos to the chip crunch squeeze expected to last into next year – as reiterated by chip-giant TSMC after their earnings. Sticking with earnings, TomTom (-15.7%) shares continue to decline after the group cut its outlook as a by-effect of the chip shortage. Meanwhile, Siemens Energy (-8.2%) ditched its margin guidance after the wind power division Siemens Gamesa (-13%) was hit by higher-than-expected raw material costs and product ramp-up expenses. Airbus (+0.3%) and UBS (Unch) have trimmed the earlier gains seen in the wake of positive broker moves.

Top European News

  • Poland Revokes EU Court Powers, Testing Bloc’s Legal Order
  • Ireland Determined to Push For 12.5% Corporate Tax Rate: Donohoe
  • Abrdn CIO to Retire in Shakeup at $740 Billion Money Manager
  • BOE’s Bailey Says He Won’t Rush to Judgment About Inflation

In FX, the Greenback is trying to find a footing after retreating to fresh lows in wake of Fed chair Powell’s testimony to the House that reinforced dovish policy guidance on the premise that higher inflation will prove to be a temporary phenomenon rather than persistent or permanent feature, while he also reiterated that reaching the goal of maximum employment remains a long way off. Using the DXY as a proxy, the index pared declines briefly to touch 92.500, but then faded fairly fast to trade down at 92.272 amidst greater demand for safer-havens, like the Yen, Franc and Gold due to a bout of risk aversion that is keeping global bond yields depressed and curves compressed. However, the Dollar will be looking for more evidence of substantial progress from a raft of US data and surveys before Powell returns to Congress and addresses the Senate in advance of comments from Evans.

  • JPY/CHF/XAU – As noted above, the Yen, Franc and Gold are bucking the general trend and consolidating their comeback from recent lows within a 110.03-109.75 range for the former ahead of the BoJ tomorrow and with decent option expiry interest between the round number and 110.13 (1.25 bn) capping the headline pair. Meanwhile, the Usd/Chf has reversed through 0.9150, with Eur/Chf edging closer to 1.0800 and spot bullion has climbed into a higher band above Usd 1800/oz and gathering stronger technical momentum following its close beyond the 200 DMA.
  • EUR – Notwithstanding, the aforementioned depreciation in Franc cross terms, the Euro has established a firmer base vs the Buck on the 1.1800 handle to retest half round number resistance and clear option expiries at 1.1800-05 (1 bn), but Eur/Usd faces more from the big figure above (1.15 bn between 1.1900-10 to be precise) and may be hampered by dovish ECB commentary from Visco.
  • NZD/GBP/AUD/CAD – All unable to capitalise on their US rival’s relative fragility on risk-off grounds, and with the Kiwi also unwinding some of its post-RBNZ outperformance in the run up to NZ Q2 CPI having topped out circa 0.7044 twice and failing to advance through 1.0600 against the Aussie. Moreover, Aud/Usd is holding above 0.7450 in wake of largely encouraging jobs data as a counterweight to more worrying COVID-19 developments as Melbourne, Victoria heads into a 5 day snap lockdown. Elsewhere, the Pound was back-pedalling across the board following a mixed UK labour report with Cable back beneath 1.3850 and Eur/Gbp rebounding sharply from almost 0.8500 to 0.8550+ before very hawkish remarks from BoE's Saunders sent Sterling up again (Cable to circa 1.3900 and Eur/Gbp under 0.8515).

In commodities, WTI and Brent front month futures have extended on the losses seen during APAC hours, with the former around 72.50/bbl (vs 71.68-72.96/bbl range) whilst the latter meanders just under USD 74.50/bbl (vs 73.50-74.59/bbl range). However, the complex rebounded off worst levels despite a distinct lack of newsflow at the time. That being said, several factors are currently at play for the crude market. Firstly, on the demand side, COVID cases have been rising across the globe, fuelled by the more potent COVID Delta variant. This, in turn, has prompted the reintroduction of some targeted lockdowns (Australia's Victoria State overnight) whilst international travel becomes more restrictive – with Japan also set to tighten border control. However, the summer picture is expected to be rosy, with hopes that mass vaccinations and summer weather permit more activity. Over to the supply side, although the UAE and Saudi reportedly struck a deal involving a higher base level to conduct the cuts from, Iraq has joined the call for its reference rate to be raised. As a reminder, during the early July talks, the UAE, Kazakhstan, and Iraq all asked for higher baselines. Thus, it will not be too surprising if more producers join the call for a higher base under the strain of balancing fiscal books. Furthermore, reports noted that the UAE's increased base would only be in effect after April 2022, when the original pact expires. Hence, a deal could be brokered whereby all those wanting to raise their baselines do so after April 2022, for the sake of a deal now – with any deal likely to be tweaked in the future depending on market conditions. It is also worth noting that Iraq asking for a baseline hike reintroduces the threat of a no-deal at the next meeting as unanimity is needed for an accord. The Iranian nuclear deal meanwhile has taken the backseat for now as sources suggested talks are not likely to resume until mid-August. Elsewhere spot gold and silver meander further above USD 1,800/oz and USD 26/oz, respectively, amid the weaker Dollar. LME copper is also on a firmer footing following the Chinese data overnight, but the contract remains below USD 9,500/oz.

US Event Calendar

  • 8:30am: June Import Price Index YoY, est. 11.1%, prior 11.3%; MoM, est. 1.1%, prior 1.1%
  • 8:30am: July Initial Jobless Claims, est. 350,000, prior 373,000; Continuing Claims, est. 3.3m, prior 3.34m
  • 8:30am: June Export Price Index MoM, est. 1.4%, prior 2.2%; YoY, est. 16.3%, prior 17.4%
  • 8:30am: July Philadelphia Fed Business Outl, est. 28.0, prior 30.7
  • 8:30am: July Empire Manufacturing, est. 18.0, prior 17.4
  • 9:15am: June Industrial Production MoM, est. 0.6%, prior 0.8%; Manufacturing (SIC) Production, est. 0.2%, prior 0.9%; Capacity Utilization, est. 75.6%, prior 75.2%

DB's Jim Reid concludes the overnight wrap

Risk markets continued to meander around record highs as reassuring remarks from Fed Chair Powell in his congressional testimony yesterday caused Treasuries to end their three-day selloff, with yields moving lower throughout the day. In terms of the main headlines from his remarks, Powell indicated that the FOMC still views the US economy as “still a ways off” from the standard of having made the ‘substantial further progress’ in order to cut down asset purchases. He also made clear that the FOMC will be discussing tapering at the next meeting in two weeks, and that the Fed will give the market ample warning before adjusting asset purchases. Chair Powell, who was speaking before members of the House Financial Services Committee, also noted that the inflation data so far has been “higher than expected and hoped for” but he still sees much of the pressures as transitory. He cited the price action of lumber, which is now trading at 8-month lows after rallying +200% at one point in that time, as what could happen to many of the transitory factors.

In terms of the specific market reaction, US Treasuries had already put in a decent performance in advance of Powell speaking, particularly after the release of his testimony and the “still a ways off” comment. 10yr yields were down -7.1bps at 1.346% by the close, with lower real rates (-4.7bps) and inflation expectations (-2.4bps) contributing to the decline. 10yr real yields themselves closed at their lowest level since mid-February. This move lower for Treasury yields came in spite of the fact that we actually received yet another upside inflation surprise from US producer prices. They came in at an above-expected +7.3% year-on-year in June (vs. +6.7% expected), while the measure that excludes food and energy also came in above expectations with a +5.6% increase (vs. +5.1% expected).

In fact, yesterday was notable as a number of countries in addition to the US seemed to be either seeing inflationary pressures or taking action to head them off. Here in the UK, the CPI reading for June came in at +2.5% (vs. +2.2% expected), which is the fastest inflation has been in nearly 3 years. That release saw gilts underperform other European sovereign bonds as investors brought forward the timing of a potential BoE rate hike, with yields on 10yr gilts closing -0.5bps lower on the day. Meanwhile in Canada, the central bank announced that they would be adjusting their QE programme to a new target pace of C$2bn per week, having been at C$3bn previously, as their statement pointed to “continued progress towards recovery and the Bank’s increased confidence in the strength of the Canadian economic outlook.” And as mentioned in yesterday’s edition, the Reserve Bank of New Zealand announced they would be ending QE this month, which meant that the New Zealand dollar (+1.22% vs USD) was the best-performing G10 currency yesterday.

Overnight in Asia, the main story is the release of China’s Q2 GDP reading, which showed year-on-year growth stood at +7.9% (vs. +8.0% expected). That said, data for June specifically surprised to the upside, with retail sales coming in at a year-on-year growth rate of +12.1% (vs. +10.8% expected), while industrial production was up +8.3% (vs. +7.9% expected), so that should help to alleviate concern among investors that there’s a slowdown in growth taking place. We also had some monetary policy action overnight, with the PBoC rolling over RMB100bn of loans from its medium-term lending facility and leaving borrowing rates unchanged at 2.95%. Separately, the Bank of Korea left its key interest rate at 0.5%, and Governor Lee Ju-yeol said he thought that it would be appropriate to begin a discussion about adjusting policy from the next meeting.

Asian markets have seen a divergent performance this morning, with the Shanghai Comp (+0.23%), the Hang Seng (+1.23) and the Kospi (+0.50%) advancing, whereas the Nikkei (-0.88%) has lost ground overnight. Futures on US equities are also pointing slightly lower, with those on the S&P 500 down -0.06%, while yields on 10yr US Treasuries are down a further -1.3bps.

Looking at other markets yesterday, equities were fairly subdued as they hovered around their record highs, with the S&P 500 (+0.12%) and Europe’s STOXX 600 (-0.09%) both within 0.25% of their all-time highs. Covid-sensitive stocks were one area that continued to struggle amidst the global spread of the delta variant, with the STOXX 600 travel and leisure index falling a further -0.99% yesterday to remain on track for a 3rd consecutive monthly decline. Elsewhere, cyclical sectors in the US all fell back as materials (-0.19%), banks (-0.25%), and energy (-2.94%) shares all declined. Energy companies saw larger declines as WTI oil prices (-2.82%) came down from their post-pandemic high on Tuesday, closing at $73.13/bbl, following news that the OPEC+ group is moving towards a new agreement that would allow the UAE to increase its output limit next year and allow the entire group to increase supply this summer.

Outside of that, commodity prices more broadly continued their ascent yesterday, with the Bloomberg Commodity Spot Index (+0.48%) rising for a 4th consecutive session. Precious metals were among the beneficiaries as gold prices (+1.09%) hit their highest level since the Fed meeting in June against this backdrop of intensifying concerns over inflation once again. Silver (+1.01%) and platinum (+2.15%) were also among the winners, whilst agricultural prices including corn (+0.89%), wheat (+2.58%) and soybeans (+2.07%) saw solid advances.

Turning to the US stimulus talks, Senators Jon Tester of Montana and Joe Manchin of West (both Democratic moderates) yesterday announced they are not yet signed on to the Democrats’ $3.5 trillion budget reconciliation bill, with both indicating they need further details and would like to see the majority or totality of the package paid for. Democratic leadership has signaled that the $3.5 trillion price tag is just the starting point, with Senate Majority Leader Schumer saying “there’s a long road ahead of us.” Following a lunch with congressional Democrats, President Biden said he was optimistic on a deal getting done that both moderate and progressive Democrats could sign onto, though a timetable is currently uncertain with the majority of the time before the August recess likely devoted to the bipartisan infrastructure package.

On the pandemic, the UK reported a further 42,302 new Covid-19 cases yesterday, marking the highest daily total since January 15. However, there was also some brighter news in that the UK government successfully hit its target of fully vaccinating two-thirds of the adult population by July 19, with 66.7% having now received both doses. One theme that’ll be increasingly prominent in the coming weeks will be at what point do countries struggle to vaccinate more people, as increasing numbers get close to the point where pretty much everyone who wants a vaccine has been offered one.

There wasn’t much in the way of other data, though Euro Area industrial production fell by a larger-than-expected -1.0% in May (vs. -0.3% expected), whilst the previous month’s growth was also revised down two-tenths.

To the day ahead now, and the highlight will once again likely be Fed Chair Powell’s testimony, as he appears before the Senate Banking Committee. Other speakers include the Fed’s Evans and the BoE’s Saunders. Separately, data highlights from the US include June data on industrial production and the weekly initial jobless claims, whilst in Europe there’s also UK unemployment data for May. Earnings releases include UnitedHealth Group, Morgan Stanley, US Bancorp and BNY Mellon. Finally, US President Biden will be meeting German Chancellor Merkel at the White House.

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