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Risk Off: Futures, Oil And Yields Slide, Hong Kong In Bear Market; Dollar Surges

Courtesy of ZeroHedge View original post here.

Another ugly day for risk assets with US equity-index futures dropping alongside global stocks, as faltering growth and China’s regulatory curbs compounded risks before the Federal Reserve’s Jackson Hole symposium next week. Fears about economy-linked sectors put the Dow and the S&P 500 on course for their worst week since mid-June. The dollar extended its rally to a fresh 10 month high, oil slumped and bitcoin surged after Coinbase announced it bought $500 million in crypto would reinvest some of its profits in digital currencies. At 745 a.m. ET, Dow e-minis were down 125 points, or 0.36%, S&P 500 e-minis were down 15 points, or 0.34%, and Nasdaq 100 e-minis were down 19 points, or 0.13%.

For the week, the Dow and the S&P 500 are down about 1.7% and 1.4% respectively, while the Nasdaq has fallen 1.9%, its worst since mid-May. FAAMG stocks slid between 0.2% and 0.7% despite a continued decline in bond yields. Deere rose 1% after it beat Wall Street estimates for third-quarter revenue and lifted its full-year earnings forecast on strong demand for farm and construction equipment. The biggest pain again was spread among the oil majors as Chevron and Exxon Mobil slipped another 0.8% each, tracking steep losses in crude prices. The S&P 500 energy sector is down about 7.6% this week, the most among all the 11 major S&P sectors.

Moderna fell after The Washington Post reported that health officials were investigating reports the company’s vaccine may be linked to higher risk of a heart condition than previously thought. Ross Stores Inc. slid 4.4% after its guidance disappointed Wall Street. Here are some of the other biggest U.S. movers today:

  • Blend Labs (BLND) falls 14% after the provider of cloud-based banking software reported second-quarter revenue that missed the lowest analyst estimate.
  • Deere & Co. (DE) gains 2% after raising its full-year fiscal outlook as surging crop prices boosted farmers’ demand for new equipment.
  • FibroGen (FGEN) rises 6% after Raymond James upgraded the stock to market perform as the EU approval of roxadustat removes any remaining regulatory risk.
  • Foot Locker (FL) shares rise 7% after the athletic footwear and apparel retailer reported second-quarter results that topped the highest analyst estimates.
  • GeoVax Labs (GOVX) rallies 76% after the biotech company presented data on its Covid vaccine candidate.
  • Mudrick Capital Acquisition Corporation II (MUDS) falls 2% after saying the the merger pact with Topps Intermediate Holdco and Tornante-MDP Joe Holding has been terminated by mutual agreement.
  • Naked Brand Group (NAKD) soars 13% as message volume on the intimate apparel company increases on Stocktwits.
  • Ross Stores (ROST) shares fall 4% after the off- price retailer’s guidance disappointed Wall Street.
  • Tesla (TSLA) shares are up 1.8% after the company on Thursday said it planned to build a humanoid robot, and expects to make a prototype sometime next year.

In a now daily event, there were fireworks out of China where the passage of a new privacy law sent tech names plunging to record lows and sent Hong Kong's Hang Seng index into a bear market.

Internet bellwether Alibaba’s shares hit a record low in Hong Kong this week and Tencent Holdings Ltd. warned the industry to prepare for more regulations including substantial changes to how companies use data for advertising. The Golden Dragon China ETF was set for its eighth straight weekly loss - its longest losing streak in a decade - on concerns over China’s widening crackdown on sectors ranging from technology to luxury goods makers. E-commerce giant Alibaba Holdings has lost about $76 billion of its market value in the past four days and is headed for its worst week ever.

Investors remained concerned about Covid: "The Delta variant remains the biggest worry for investors right now, and along with the question of waning vaccine efficacy has made the risks to the outlook much more pronounced relative to just a few months ago," Deutsche Bank analyst Henry Allen said in a note to clients. "However, nervousness about possible tapering by the Fed ahead of next week’s Jackson Hole speech by Chair (Jerome) Powell, along with a potential Chinese growth slowdown have further played on investors’ minds, and brought the narrative a long way from the reflation hopes many had back in Q1."

With virus cases surging around the world, there’s speculation that economic growth could lose momentum just as central banks pare back their support measures. U.K. retail sales fell unexpectedly last month and major employers are delaying plans to bring workers back into the office.

“The delta variant of Covid is significantly more serious than anyone is really even pricing into the market,” Hilary Kramer, chief investment officer at Kramer Capital Research, said on Bloomberg Television. “We know that tapering is coming. We know that the market is getting tired.”

The Fed also looms: minutes from the Federal Reserve’s last policy meeting showed officials largely expect to reduce the central bank’s emergency monthly purchases of $120 billion of Treasury bonds and mortgage-backed securities later this year, amid a recovery in the jobs market. Focus is now on the Fed’s annual research conference in Jackson Hole, Wyoming, next week for any read about the central bank’s next steps.

Investors are bracing for an eventual phase-out of Fed stimulus that has driven record stock prices, according to Swissquote analyst Ipek Ozkardeskaya. But the worsening of the pandemic and soft economic data could ease tapering expectations in the coming months, she said by email.  “The threat of a taper tantrum is real and will likely keep the Fed reasonably dovish when it comes to a concrete action,” Ozkardeskaya wrote.

Despite the market weakness, Mark Dowding, chief investment officer at BlueBay Asset Management, said abundant liquidity meant there was "plenty of cash that can buy the dip, so we doubt any correction in risk assets will run too far. Once we can look beyond the crest of the Delta wave, there may be calmer waters ahead and so this seems like a good time to be building and holding positions, with an eye towards the medium-term rather than playing for the vagaries of shorter-term price action."

The MSCI World Index was last down 0.3%, on course for its biggest weekly fall since February.

Europe’s Stoxx 600 Index slid 0.1%, with retailers and utilities being the only industry groups with meaningful gains. Marks & Spencer surged 11% after the British retailer improved its profit forecast. Europe is on track for the biggest weekly loss since February. European auto stocks extended declines, following a fall on Thursday, as Japan’s Toyota continued to drop after it announced it would cut September production by 40% owing to the global chip shortage. The Stoxx 600 Automobiles & Parts index fell as much as 1.4%, having closed 2.8% lower on Thursday. Volkswagen, BMW and Stellantis the biggest drags on the sub-index; all stocks in the red in the sub-group. Here are some of the biggest European movers today:

  • Marks & Spencer shares jump as much as 12% with analysts saying the U.K. retailer’s raised guidance is welcome and that the progress it is making on its strategic turnaround is positive.
  • Wm Morrison shares rise as much as 4.8%, surpassing the raised takeover bid pricefor the U.K. grocer from private equity firm CD&R. Analysts say it’s possible that rival bidder Fortress may come back with a higher offer.
  • Norway Royal Salmon shares jump as much as 15% after fisheries peer SalMar launched a rival offer for the company to the one made by NTS. Kepler said SalMar is a better fit for Norway Royal Salmon. SalMar shares rose as much as 3.4%.
  • Kingspan shares rose as much as 4.2%, hitting a record high, with analysts saying the Irish insulation supplier’s results look “solid” and it’s working well to offset higher raw material costs.
  • Dino Polska shares drop as much as 7.5% after the Polish supermarket operator’c, with analysts saying pressure on its margins is likely to drive some profit-taking.
  • Remy Cointreau shares fall as much as 3.3% and distilling peer Pernod Ricard slips as much as 2.7% amid signs of a potential regulatory crackdown on the liquor industry in China.

Asian stocks declined, heading for their worst week since February, as ongoing concerns over the delta virus and China’s regulatory clampdown hurt sentiment. The MSCI Asia Pacific Index fell as much as 1.3%, with Alibaba and Toyota leading a selloff in consumer shares. Hong Kong’s benchmark stock index entered a technical bear market, amid a deepening rout triggered by investor concerns over China’s regulatory crackdown across a swathe of industries, after dropping about 20% from a February peak.  Asia’s stock benchmark is down more than 4% this week as investors face a range of issues including the impact of the pandemic’s resurgence on growth, the outlook for tapering at the Federal Reserve and Beijing’s continued crackdown on private industry. The S&P 500 Index and Stoxx 600 Europe Index have both fallen less than 2.5%.  “The Chinese authorities aren’t looking to regulate everything all of sudden, but rather following the policy in accordance to the push for ‘common prosperity’,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management in Tokyo. “That said, it’s hard for investors to see what actions the government will actually take. It may discourage foreign investors away from Chinese equities for some time.”  Vietnam’s VN Index was the worst performer in the region, dropping as much as 4.2% on concerns of stricter restrictions as the government tackles the country’s worst outbreak. Philippine stocks also declined for the first time in five sessions, even as the government eased a lockdown in the capital region.

Japanese stocks slid, as automakers weighed on the Topix which capped its worst weekly drop since July 2020, after a report that Toyota is set to slash its output due to the chip shortage and the spread of the delta variant. Electronics makers and trading houses were also among the biggest drags on benchmark, which fell 0.9% Friday, pushing its weekly loss to 3.9%. SoftBank Group and Fast Retailing were the largest contributors to a 1% slide in the Nikkei 225, which closed at a fresh low for the year. Japan’s inflation slid for a 12th month in July, extending the longest losing streak in a decade after data revisions showed weakness during the pandemic was worse than previously reported

In Australia, the S&P/ASX 200 index gave back early gains to slip 0.1% to 7,460.90 at the close, pulled lower by miners as commodities headed for their worst week in two months. The benchmark lost 2.2% this week, the most since Jan. 29. Sentiment remained weak as a lockdown in Sydney was extended until the end of September.  On Friday, the best performing stock was Redbubble after it was raised to add at Morgans. Cochlear was the worst performer after analysts said the company’s FY22 guidance missed expectations. In New Zealand, the S&P/NZX 50 index fell 0.1% to 12,940.49. The government announced its nationwide lockdown would last until at least Tuesday.

In rates, Treasuries held small gains led by the long end, flattening the 5s30s curve for a fourth straight day as traders look ahead to next week’s auctions and month-end index rebalancing. Yields were are lower across the curve led by the 10 Year, down 1.5bp at 1.228% and 4.8bp lower on the week; 30-year is 7.2bp lower on the week, including 1.5bp Friday. Ten- and 30-year yields have declined every day this week, and 5s30s spread breached 110bp, approaching lowest level in nearly a year.  5s30s at ~110bp is flatter for a third straight week; it collapsed to under 110bp from ~140bp over four days in June after hawkish changes in the Fed’s dot plot led traders to price in a more aggressive path of rate hikes. German bunds rose for a sixth day, the longest run of gains since October

In FX, the Bloomberg Dollar Spot Index advanced a fifth consecutive day as the greenback gained against all of its Group-of-10 peers apart from the franc and the yen. The Dollar DXY index rose, hitting the highest level since November.

Commodity currencies extended their slide, led by the Canadian dollar and Norwegian krone, while the euro hovered around the weakest level this year. The pound fell to its lowest level against the dollar in a month and wasn’t helped by U.K. retail sales falling unexpectedly at the sharpest pace since the economy was in lockdown in January. Japanese government bond futures edged higher as uncertainties about the global outlook fueled demand for havens; the 10-year yield hovered above zero.

Crude oil declined, with West Texas Intermediate futures heading for the longest losing streak since 2019, as concerns mounted about global demand. Bitcoin rose above $47,000.

To the day ahead now, and it’s a fairly quiet one on the calendar with data releases including German PPI and UK retail sales for July. Otherwise, Dallas Fed President Kaplan will be speaking, and there’s an earnings release from Deere & Co.

Market Snapshot

  • S&P 500 futures down 0.5% to 4,378.25
  • STOXX Europe 600 down 0.3% to 465.74
  • MXAP down 1.0% to 190.83
  • MXAPJ down 1.2% to 623.86
  • Nikkei down 1.0% to 27,013.25
  • Topix down 0.9% to 1,880.68
  • Hang Seng Index down 1.8% to 24,849.72
  • Shanghai Composite down 1.1% to 3,427.33
  • Sensex down 0.5% to 55,344.86
  • Australia S&P/ASX 200 little changed at 7,460.87
  • Kospi down 1.2% to 3,060.51
  • German 10Y yield down 0.4 bps to -0.493%
  • Euro little changed at $1.1673
  • Brent Futures down 0.1% to $66.37/bbl
  • Gold spot up 0.2% to $1,784.31
  • U.S. Dollar Index little changed at 93.65

Top Overnight News from Bloomberg

  • Reserve Bank of Australia board member Ian Harper said he expects the jobless rate to climb back above 5% and to see a “much bigger” fall in participation as renewed lockdowns along the nation’s east coast flow through to the labor market
  • Money managers who scooped up an unprecedented amount of Japanese government bonds in July appear to be well placed for a surge in risk aversion this month
  • Germany’s financial markets watchdog says tough regulations it’s preparing to prevent greenwashing in investment funds will help shape the next chapter of Europe’s efforts to make capitalism more sustainable
  • China’s rolling regulatory crackdown on unfair markets found more targets Friday among liquor makers, cosmetics firms and online pharmacies
  • Norway’s economy returned to its pre-pandemic level in the second quarter as the reopening of the richest Nordic nation triggered a surge in consumption

A more detailed breakdown of global markets courtesy of Newsquawk

The mood in Asia was mostly subdued following on from the losses in European bourses and indecision stateside where energy was the worst performing sector once again as oil retreated for a 6th consecutive day and cyclicals lagged. Nonetheless, ASX 200 (-0.1%) weathered the risk aversion despite the extension of the Sydney lockdown to end-September and curfew announcement, with participants digesting another influx of earnings results and as strength in defensives kept the index afloat. Nikkei 225 (-1.0%) retreated towards the 27k level amid a choppy currency and with notable losses seen in automakers after Toyota announced to reduce domestic capacity by 40% as the worsening COVID-19 situation in the region impacts auto parts supplies. Hang Seng (-1.8%) and Shanghai Comp. (-1.1%) were pressured by Beijing’s tightening regulatory grip on the private sector with the market regulator to hold discussions with relevant enterprises today regarding the spirit industry and China's legislature passed personal information protection law, while the PBoC provided no surprises on its benchmark rates in which it maintained the 1-Year and 5-Year Loan Prime Rates at 3.85% and 4.65%, respectively. Finally, the gains in JGBs were only minimal despite the risk aversion with prices subdued after the whipsawing in T-notes and with the BoJ also refraining from JGB purchases, while Aussie yields were slightly softer following relatively firm demand at the Australian government 2025 bond auction.

Top Asian News

  • Hong Kong’s Benchmark Stock Index Slumps Into Bear Market
  • Asian Stocks Extend This Week’s Rout on Growth, China Tech Woes
  • China’s Slow Bond Sales Will Delay Infrastructure Boost
  • Record Binge on Japanese Bonds Looks Prescient in Risk-Off Lurch

After a relatively flat open, European equities (Stoxx 600 Unch) have initially drifted lower in quiet trade with the Stoxx 600 on track to close the week out with losses of around 1.8%, however the mild losses diminished in the run-up to the US entrance. The Asia-Pac handover was a negative one once again with notable losses in Chinese bourses after China's legislature passed its Personal Information Protection Law and reports noted that the domestic market regulator is to hold discussions with relevant enterprises today regarding the spirit industry. Futures in the US are also succumbing to the selling pressure with the ES showing losses of 0.2%. From a regional perspective in Europe, French and Italian equities have been downgraded to underweight versus neutral at UBS. Sectoral performance is mostly softer with Retail the only outlier to the upside with Inditex (+1.5%) the largest contributor to the gains. Autos are lagging once again as investors digest the continued fallout from chip shortages which saw Toyota announce that it will have to cut production at several plants next month. Marks & Spencer (+11.4%) sit at the top of the FTSE 100 with the Co. now expecting profits to be at the upper end of its prior GBP 300-500mln range following encouraging trading. Morrisons (+4.4%) is another notable gainer after CD&R boosted its offer for the Co. to GBP 2.85/shr from 2.30/shr; Morrisons said CD&R's offer has been recommended unanimously by the board.

Top European News

  • Marks & Spencer Surges as Lockdown Rebound Lifts Profit Forecast
  • Kingspan Jumps to Record; Morgan Stanley Notes ‘Solid Update’
  • U-Blox Falls Most Since March; Analysts Flag 1H Earnings Miss
  • Genel Says KRG Plans to Terminate Bina Bawi, Miran Contracts

In FX, the index continues to extend on the upside seen post-FOMC as the risk tone remains tilted towards caution/risk aversion. Overnight, the DXY found a floor at 93.500 before rising to 93.684 at best as sentiment in Europe is tainted in early trade. From a technical standpoint, the index eyes resistance around the 93.900 mark – which acted as a ceiling on several occasions during Q3 and Q4 2020. Above that, a breach of the psychological 94.000 mark could open the door to resistance around 94.300 (4th Nov 2020 high), 94.500 and thereafter the 100 and 200 WMAs at 94.650 and 94.807 – although these are still some way off. To the downside, yesterday’s low was at 93.214, the psychological 93.000, whilst the 21 DMA (92.674) and the 50 DMA (92.377) reside just below. Ahead, an empty state-side calendar but price action will likely be dictated by the risk tone. As a side note Fed Chair Powell is to speak on the economic outlook at the Jackson Hole Symposium on August 27th at 15:00BST/10:00EDT.

  • AUD, CAD, NZD – The non-US high betas are again at the bottom of the bunch in early European trade – subdued by the overall risk tone. The Loonie is the notable laggard – but seemingly more so on technical as opposed to crude dynamics. USD/CAD found support at 1.2800 overnight and tests 1.2900 to the upside at the time of writing, following the CAD's crude-drive demise during the week. As a reminder, SocGen earlier this week suggested that USD/CAD above its 200 DMA (1.2560) opens the door for a rise closer towards 1.3000 – with the CAD-WTI correlation also strengthening over the past month to 0.5 from 0.25. Participants look ahead to today's Canadian Retail Sales for an impulse. If the pair mounts 1.3000, then the 100 and 200 WMAs overlapping around 1.3077. Meanwhile, the AUD and NZD are pressured by the worsening domestic cases prompting an extension of the Kiwi nationwide lockdown alongside Australia's Sydney's curbs extended until the end of September. NZD/USD threatens a breach of 0.6800 to the downside from a 0.6852 overnight high. The AUD/USD similarly threatens a downside breach of 0.7100 after finding a current base close to the psychological level. Meanwhile, the AUD/NZD cross remains in favour of the Kiwi – likely on the RBA/RBNZ differential, with the latter still on course aggressively tighten before the former.
  • JPY, CHF – The safe-havens FX trade flat/firmer amid the cautious risk tone and amid a lack of fresh catalysts. USD/JPY remains sandwiched between its 21 DMA (109.84) and 100 DMA (109.63), with the next downside level being interim support around 109.47 (Wed and Thu lows). USD/CHF is similarly contained just under 0.9200 but north of its 50 DMA (0.9160).
  • EUR, GBP – The European majors are relatively uneventful, but the EUR has been drifting lower in recent trade against the Buck and Sterling. EUR/USD trades within a tight 1.1670-89 range, with 1.1650 the next real support point. It's worth noting that the pair sees some EUR 1.1bln in OpEx between strikes 1.1700-1.1710 for today's NY cut. Sterling, meanwhile, was unreactive to sub-par July retail sales – amid the dissipating effects from the Euro 2020 Championship. GBP/USD trades just off session lows in its current 1.3610-48 parameter. A breach of 1.3600 could open the door to support at 1.3589 and 1.3570 (21st and 20th July lows). EUR/GBP trades in a current 0.8556-82 band, with the 100 DMA seen at 0.8591.

In commodities, WTI and Brent front-month futures are once again on a softer footing amid the continuing COVID concerns coupled with the cautious tone around the market. On the former, the overnight session saw an extension of the Kiwi nationwide lockdown alongside Australia's Sydney's curbs extended until the end of September. Aside from that news flow has been quiet for the complex and the market in general – with sentiment and Delta woes likely to take precedence in the absence of catalysts. WTI makes its way back towards UD 63/bbl (vs high 64.04/bbl) and Brent towards USD 66/bbl (vs 66.93 high). Elsewhere, spot gold and silver vary but remain flat in the grander scheme above USD 1,775/oz and north of USD 23/oz respectively. Base metals meanwhile see a mild rebound from yesterday's violent selloff, but benchmark LME copper remains sub-9,000/t after finding a ceiling at the mark.

US Event Calendar

  • Nothing major scheduled

DB's Jim Reid concludes the overnight wrap

I’ve never been a massive TV watcher, but I’m worried I’m stuck in one of those science fiction time loops writing the EMR this week. I almost feel like a broken record. Every day (broadly speaking) it’s been equities down, commodities down, 10yr Treasury yields down, US dollar up. At this rate, perhaps I should start writing Monday’s edition already.

Anyway, if you hadn’t worked out this week’s script by now, risk appetite continued to evaporate in yesterday’s session as an array of concerns gathered pace, which served to reinforce the moves we’d already seen this week. The delta variant remains the biggest worry for investors right now, and along with the question of waning vaccine efficacy has made the risks to the outlook much more pronounced relative to just a few months ago. However, nervousness about possible tapering by the Fed ahead of next week’s Jackson Hole speech by Chair Powell, along with a potential Chinese growth slowdown have further played on investors’ minds, and brought the narrative a long way from the reflation hopes many had back in Q1.

Looking at yesterday’s moves in more depth, the selloff gathered pace as European markets opened, with the STOXX 600 falling -1.51% in its worst performance for a month. Energy stocks were among the biggest underperformers against the backdrop of continued falls in oil prices, but luxury goods stocks slumped as well, which follows a speech from Chinese President Xi earlier in the week about growing wealth inequality. That’s prompted concerns about whether the super-rich could have to pay higher taxes, and saw brands such as LVMH (-6.38%) and Kering (-9.47%) lose significant ground, meaning that the CAC 40 (-2.43%) noticeably underperformed other European indices. In the US, the S&P 500 (+0.13%) did manage to pare back its earlier losses to move into positive territory by the close, but other indices including the Dow Jones (-0.19%) and the small-cap Russell 2000 (-1.22%) similarly moved lower on the day. In fact, the small-cap index has underperformed all week as cyclicals have lagged behind, down -4.08%.

That selloff in equity markets was also witnessed among commodities, with Bloomberg’s Commodity Spot Index (-1.69%) seeing its biggest decline in a month as investors moved to price in the more negative outlook. Oil prices continued their slump, with WTI (-2.70%) and Brent Crude (-2.61%) having fallen for 6 successive days now, which is the longest run of declines for both in over a year. That said, even with the recent poor run for oil, it’s worth noting that they’re still one of the best-performing major assets on a YTD basis, with WTI up +31.27%. But that’s also a far cry from its closing peak last month when it’d been up +55.1% on a YTD basis.

On the plus side, core sovereign bonds continued to do well amidst the flight to safety, with yields on 10yr Treasuries (-1.5bps) and bunds (-0.7bps) declining further, whilst the 30yr bund yield (-1.7bps) fell to its lowest level in 6 months. Gold (-0.42%) did move lower, though that was a relative outperformance compared to other commodities, whilst the dollar index (+0.46%) strengthened to its highest level since last November.

Overnight in Asia, concerns about the outlook have accelerated, particularly in New Zealand where a further 11 community cases were reported, which brings the total in this outbreak to 31. In turn, that’s seen Prime Minister Ardern extend the national lockdown by a further 4 days to August 24. But given what occurred in Australia, where lockdowns were designed around a similar zero tolerance policy framework, there remains a very real risk that the lockdowns could be extended much further, for weeks if not months. Nevertheless, RBNZ Governor Adrian Orr said that policy makers planned to raise the official cash rate at their next meeting, even if there are still cases of Covid-19 in the community. He said “What we’ve learned through time is that incomes remain strong, demand bounces back very quickly, and that these rolling lockdowns will continue for a while,” and added, we cannot lose focus on inflation so “Of course October is a live meeting.”

As well as New Zealand, there’s been bad news on Covid from elsewhere in the Asia-Pacific region over the last 24 hours. In Australia, New South Wales reported a further 642 cases, whilst Victoria state reported 57, and has Sydney’s lockdown is now set to last until the end of September. Furthermore, New South Wales is set to make mask wearing compulsory outdoors except when exercising, and a curfew will be placed on areas of western Sydney hardest hit by the outbreak. Separately in Japan, the country reported a record number of new daily cases, at 25,156, which is a tenfold rise in the daily count relative to a month earlier.

Against this backdrop, markets in Asia have taken yet another leg lower overnight, with the Nikkei (-0.79%), Hang Seng (-2.28%), Shanghai Comp (-1.66%) and Kospi (-0.69%) all losing ground this morning, and futures on the S&P 500 are down -0.15%. On the data side, Japan’s CPI reading for July came in slightly weaker than expected at -0.3% yoy (vs. -0.4% expected), although the previous month’s reading was revised sharply lower to -0.5% (vs. +0.2% previously).

Elsewhere on the pandemic, cases are continuing to rise rapidly in the US with schools remaining in focus. A stark divide is forming between states led by Democratic and Republican Governors, with some of the former – namely Washington, New Jersey, and Oregon – enacting mask mandates and calling all on teachers and school personnel to be vaccinated. On the other hand, Florida and Georgia have seen their Governors speak out against mask and vaccine mandates both in schools and to enter indoor social settings. Otherwise, daily vaccinations in the US rose above 1 million for the first time since 3 July yesterday. The number receiving jabs have been picking up for the past few weeks now as the delta variant spreads and state and local governments push new incentives and restrictions for the unvaccinated. Separately in the UK, the ONS estimated that 94% of the adult population in England would have tested positive for Covid antibodies in the week commencing July 26, which is the highest number yet. That said, on the topic of waning immunity, the weekly data show that there’s been a small but noticeable decline among antibody rates among the elderly, albeit they’re still above 90%.

In Germany, it’s only 5 weeks on Sunday until they hold their federal election, and another couple of polls out yesterday showed the centre-left SPD moving ahead of the Greens into second place, which suggests this shift is more than just an outlier poll. The first from Kantar showed the top 3 parties within an incredibly tight 3 percentage points of each other, with the CDU/CSU on 22%, the SPD on 21% and the Greens on 19%. But another from Allensbach for the FAZ newspaper yesterday gave Chancellor Merkel’s CDU/CSU bloc a more decisive lead, with 27.5% of the vote, ahead of the SPD on 19.5% and the Greens on 17.5%, which would put them in a much stronger position in the next Bundestag and in coalition negotiations.

On the data front, the weekly initial jobless claims from the US for the week through August 14 fell to a post-pandemic low of 348k (vs. 364k expected), whilst the 4-week moving average was also at a post-pandemic low. That said, the Philadelphia Fed’s manufacturing business outlook survey saw the diffusion index for current activity fall to 19.4 (vs. 23.1 expected), marking a 4th consecutive decline. Furthermore, the current prices received index rose to 53.9, which was its highest level since May 1974.

To the day ahead now, and it’s a fairly quiet one on the calendar with data releases including German PPI and UK retail sales for July. Otherwise, Dallas Fed President Kaplan will be speaking, and there’s an earnings release from Deere & Co.


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