Futures Flat As Yields, Dollar Slide On Speculation Demo-Dove Brainard Will Replace PowellZeroHedge News

Futures Flat As Yields, Dollar Slide On Speculation Demo-Dove Brainard Will Replace Powell

For the second session in a row, S&P 500 futures reversed earlier losses and traded flat after falling as much as 0.3% earlier in the run-up to today’s PPI report – the first of a couple of readings on inflation this week – as investors weighed the Federal Reserve’s warning that stock prices are “vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall.” US Treasury yields fell and the dollar index slipped for a third consecutive day following a late Monday report that Joe Biden interviewed uber-dove and Hillary Clinton fan Lael Brainard for the central bank’s top job, although prediction markets were not impressed. European stocks advanced for a ninth day, the longest streak since June while Asian shares drifted.

Some more stats from DB’s Jim Reid

There wasn’t an awful lot of newsflow for investors yesterday as they looked forward to tomorrow’s US CPI release, but the astonishing equity advance showed no signs of relenting just yet, with the S&P 500 (+0.09%) up for an 8th consecutive session to another record high. For reference, that’s the longest winning streak since April 2019, and if we get a 9th day in the green today, that would mark the longest run of consecutive gains since November 2004, back when George W. Bush had just beaten John Kerry to win a second term. It’s also 17 out of 19 days up, which hasn’t happened since December 1971.

At 715am S&P futures were up 1 point or 0.02% to 4,965. If, or rather when, the S&P closes green today, it will be up 9 consecutive sessions, the longest such streak since Nov 2004. Nasdaq futures rose another 33.25 points; If the nasdaq index is up today, it will be 12 days in a row, a feat it last achieved in 2009 and which hasn’t been topped since 1992.

“U.S. indexes continue flirting with all-time high levels following a surprise NFP read, the approval of Biden’s $550 billion spending bill and the discovery of an oral Covid treatment from Pfizer,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “But inflation worries come to overshadow the Monday optimism.”

Sysco and DoorDash are among companies reporting earnings. Rivian Automotive is scheduled to price its initial public offering, seeking to raise as much as $10 billion in a listing that could give the producer of electric trucks a fully diluted valuation of more than $70 billion. “The company is seen as the most serious competitor to Tesla in the EV race,” Ozkardeskaya said. “The company will be worth more than Honda and Ferrari.”

Paypal Holdings fell 4.5% in U.S. premarket trading with analysts saying the payments firm’s full-year guidance was a disappointment and that the shares are likely to remain under pressure near-term despite announcing a new Venmo deal with Amazon, while General Electric surged 11.6% in premarket after the U.S. conglomerate said it would split itself into three companies focused on aviation, healthcare and power.

Tesla Inc shares rose 1.4%, rebounding from a nearly 5% fall on Monday after Chief Executive Elon Musk’s Twitter poll proposing to sell a tenth of his holdings garnered 57.9% vote in favor of the sale. The proposal also raised questions about whether Musk may have violated his settlement with the U.S. securities regulator again. Zynga Inc jumped 6.6% after the “FarmVille” creator beat quarterly net bookings estimates, while Tripadvisor Inc fell 7.4% after reporting downbeat quarterly earnings and announcing the departure of Chief Executive Stephen Kaufer. Here are some of the other notable premarket movers today:

TripAdvisor (TRIP US) shares fall as much as 7% in U.S. premarket trading with analysts saying the company’s 3Q results and outlook are a disappointment given the travel recovery being seen across the board.
Cryptocurrency-exposed stocks rise in U.S. premarket trading on Tuesday, set to extend Monday’s gains after the global crypto market hit the $3 trillion milestone
Roblox (RBLX US) shares jump as much as 27% in U.S. premarket trading after the video-game platform firm’s quarterly bookings topped estimates even after the easing of Covid restrictions
Naked Brand (NAKD US) shares rise as much as 45% in U.S. premarket trading, after the company said it will acquire commercial EV technology company Cenntro Automotive in a stock-for-stock deal
Robinhood Markets (HOOD US) slides 3% in premarket trading after it said personal information of millions of customers was compromised in a data breach last week and that the culprit demanded a payment.
Arrival (ARVL US) plunged 19% in extended trading after the electric-vehicle maker says previous long-term forecasts from the merger with the CIIG special purpose acquisition company should no longer be relied upon
SmileDirectClub (SDC US) slumps 21% in U.S. premarket trading after its 3Q revenue and 4Q forecast missed the lowest analyst estimates
Aterian (ATER US) shares jumped 24% in postmarket trading on Monday, after third-quarter revenue and gross margin topped analysts’ estimates
Five9 (FIVN US) shares rose 8.8% in extended trading on Monday, after the software company reported third-quarter results that beat expectations
RealReal (REAL US) shares jumped 5.5% in Monday extended trading, after the online marketplace reported third- quarter revenue that beat expectations
Invitae (NVTA US) shares tumbled 14% postmarket after the genetics company cut its full- year revenue forecast
3D Systems (DDD US) fell 8.5% postmarket after reporting third-quarter results. The 3D printing firm narrowed its 2021 adjusted gross margin guidance to 41% to 43% from an earlier range of 40% to 44%

Data from the Labor Department due at 8:30 a.m. ET is expected to show that its producer price index for final demand rose 0.6% in October, with accelerating inflation and tighter monetary policy becoming a bigger concern for investors than the COVID-19 pandemic.

Global equities hovered near all-time highs as investors weigh strong earnings, easing travel curbs and U.S. infrastructure spending against the risk of persistent inflation that may lead to tighter monetary policy.  A better-than-expected earnings season, positive developments around COVID-19 antiviral pills and the loosening of travel curbs have recently helped the market continue its record run.

European equities faded small opening losses in otherwise quiet trade, with Euro Stoxx 50 little changed and other major indexes adding ~0.2%. Retailers traded well, insurance and financial services are under pressure but ranges are relatively narrow. Bayer jumped 3% after the German producer of healthcare and agricultural products raised its earnings forecast. In the latest positive development in uranium, Rolls-Royce surged 4.9% after the British engineering company raised an equivalent $617 million to fund the development of small modular nuclear reactors.

Investor sentiment in Germany rose unexpectedly in November on expectations that price pressures will ease at the start of next year and growth will pick up in Europe’s largest economy, a survey showed on Tuesday. The ZEW economic research institute said its economic sentiment index increased to 31.7 from 22.3 points in October. A Reuters poll had forecast a fall to 20.0.

“Financial market experts are more optimistic about the coming six months,” ZEW President Achim Wambach said in a statement. “For the first quarter of 2022, they expect growth to pick up again and inflation to fall both in Germany and the euro zone,” Wambach added.

A fall in a current conditions index to 12.5 from 21.6 – compared with a consensus forecast for 18.0 – showed investors expected that supply bottlenecks and inflationary pressures would hold back the economy in the current quarter, he said. Supply bottlenecks for raw and preliminary materials have weighed down industrial production here in Germany. Exports fell here for a second consecutive month in September.

Asian equities were mixed, struggling to follow a positive lead from Wall Street as traders weighed economic optimism and Covid treatments against virus outbreaks across China. The MSCI Asia Pacific Index was up 0.1% on Tuesday, trimming an earlier 0.4% gain. SoftBank surged 11% after the company said it would buy back as much as 1 trillion yen ($8.8 billion) of its own stock. Wuxi Biologics rebounded from the previous day’s tumble, after the U.K. government said it will add some of China’s shots to approved vaccines for visitors.  Taiwan and the Philippines had the region’s top-performing benchmarks, with those in Japan and Malaysia slipping. While Asian markets attempted to follow increases seen on Wall Street overnight, “paring back of initial gains suggest that several factors including China’s Covid-19 situation and its property sector remain of concern,” said Jun Rong Yeap, market strategist with IG Asia Pte. in Singapore.  Investors are also awaiting news from China on the Communist Party’s meeting this week, its first major convention in more than a year. “The sixth plenum will quite possibly be a manifesto from Xi Jinping as he adopts the mantle of effective leader for life,” said Kyle Rodda, an analyst at IG Markets Ltd. “His agenda and rhetoric will be important, with investors nervous about what comes out about China’s strategic and economic direction.” 

Over in Japan, a morning rally in Japanese stocks gave way to profit-taking for a second day, even as SoftBank Group surged on its latest buyback announcement. Electronics and chemical makers were the biggest drags on the Topix, which fell 0.8%, reversing an early 0.7% gain. Fast Retailing was the biggest contributor to a 0.8% decline in the Nikkei 225. The yen was up 0.4% against the dollar, in its forth day of advance. SoftBank jumped more than 10% after it said it will repurchase as much as 1 trillion yen ($8.8 billion) of its stock. Its climb helped drive Japanesestocks higher in early trading, after the S&P 500 rose to a new record high. “Futures were sold after the open as investors moved to book profits with the Nikkei 225 approaching 30,000,” said Hideyuki Ishiguro, a strategist at Nomura Asset Management in Tokyo. “There is a lack of catalysts for further gains, and the stronger yen is also limiting the upside.”

Australian stocks edged lower, weighed down by bank. The S&P/ASX 200 index fell 0.2% to close at 7,434.20, with banks contributing the most to its drop. Eight of the benchmark’s 11 subgauges declined, while miners rallied. Inghams tumbled to its lowest price since May 27. Chalice Mining surgend after reporting its maiden Mineral Resource Estimate for the Gonneville Deposit at Julimar. In New Zealand, the S&P/NZX 50 index rose 0.4% to 13,090.58.

In rates, USTs bull steepened, returning to Asia’s richest levels after speculation about a dovish change in leadership at the Fed. Treasuries advance across the curve, following wider gains across bunds; a bull-flattening move during Europe session was extended after Netherlands 2038 auction. Gilts long-end also well bid, adding support for Treasuries. Focal points for U.S. session include Fed’s Powell speaking at 9am ET, 10-year note auction at 1pm. Treasury yields were richer by 2bp-3bp across the curve, with curve spreads broadly within 1bp of Monday’s close; bunds outperform by ~1bp in the 10-year sector while long-end gilt yields are ~5bp lower on the day. Long-end Germany outperforms gilts and USTs, richening ~4bps. Peripheral spreads tighten with 10y Bund/BTP near 112bps.

In FX, the Bloomberg Dollar Spot Index fell to its lowest level this month and Treasuries rallied following the report that Federal Reserve Governor Lael Brainard was interviewed for the top job at the central bank, with speculation that a Brainard-led Fed would be more dovish than that of current Chair Jerome Powell. The dollar was weaker against most of its Group-of-10 peers while the yen was among the top performers as traders wound back bets on higher global central- bank interest rates; the euro briefly rose above the $1.16 level before erasing gains. JPY tops the leaderboard with USD/JPY remaining sub-113. Cable briefly regains a 1.36-handle.

In commodities, Crude futures push higher after a subdued Asia session. WTI adds 0.9% to trade near $82.60, Brent regains a $84-handle. Spot gold is range bound near $1,825/oz. Base metals hold modest gains with LME zinc the marginal outperformer

Looking at the day ahead now, and data releases includethe US PPI reading for October, along with that month’s NFIB small business optimism index. Over in Germany, there’s also the ZEW survey for November and the trade balance for September. Central bank speakers include Fed Chair Powell, ECB President Lagarde, BoE Governor Bailey and PBoC Governor Yi Gang, along with the ECB’s Panetta, Rehn, Knot and Schnabel, the Fed’s Bullard, Daly and Kashkari, and BoE Deputy Governor Broadbent.

Market Snapshot

S&P 500 futures little changed at 4,693.50
STOXX Europe 600 up 0.1% to 484.28
MXAP little changed at 198.97
MXAPJ up 0.3% to 649.50
Nikkei down 0.8% to 29,285.46
Topix down 0.8% to 2,018.77
Hang Seng Index up 0.2% to 24,813.13
Shanghai Composite up 0.2% to 3,507.00
Sensex down 0.3% to 60,381.61
Australia S&P/ASX 200 down 0.2% to 7,434.20
Kospi little changed at 2,962.46
German 10Y yield little changed at -0.26%
Euro little changed at $1.1588
Brent Futures up 0.7% to $83.99/bbl
Gold spot up 0.0% to $1,824.68
U.S. Dollar Index little changed at 93.96

Top Overnight News from Bloomberg

Just weeks ago, Wall Street analysts and central bankers were quick to assure investors that a collapse by China Evergrande Group wouldn’t be a Lehman moment. Regulators in Beijing said that the crisis would be “contained.” Now that a bond selloff has spread to China’s entire real estate sector and beyond, concern is growing about the potential risk to the global financial system
The Federal Reserve warned that fragility in China’s commercial real-estate sector could spread to the U.S. if it deteriorates dramatically, as investor focus turns to China Evergrande Group’s next bond payment deadlines
Japan ruling Liberal Democratic Party and coalition partner Komeito agree to give 50,000 yen in cash and 50,000 yen in coupons for every child 18 or younger, Kyodo reports, without attribution
Boris Johnson is struggling to repress the U.K. backlash over his defense of a ruling party lawmaker who broke lobbying rules, as his government was openly accused of corruption in Parliament and even typically friendly newspapers took aim at his ruling Conservative Party
Bitcoin jumped past $68,000 for the first time to a new all-time high, part of a wider recent rally in the cryptocurrency sector. The climb in cryptocurrencies overall has taken their combined value above $3 trillion. Bitcoin hit its October record following the launch of the first Bitcoin-linked exchange-traded fund for U.S. investors

A more detailed look at global markets from Newsquawk

Asia-Pac stocks traded indecisively as focus centred on earnings and despite the positive handover from Wall St where the S&P 500 notched an 8th consecutive record close amid a lack of catalysts to derail the momentum in stocks. ASX 200 (-0.2%) began marginally higher amid strength in the tech and mining sectors but with upside eventually reversed by losses in the top-weighted financial industry as NAB shares declined despite posting a 77% jump in FY cash earnings and its FY net more than doubled to AUD 6.4bln, although this was still short of some analysts’ forecasts and the Co. also noted that competitive pressures are expected to continue in FY22. Nikkei 225 (-0.7%) was choppy amid a slew of earnings releases with outperformance in SoftBank following its H1 results in which net income declined by more than 80%, but revenue increased and it confirmed a JPY 1tln share buyback. It was also reported that PM Kishida instructed COVID measures to be compiled this week and economic measures by next Friday, while a government panel recommended tax breaks for companies that increase wages, although Tokyo stocks have failed to benefit with early momentum offset by recent flows into the JPY. Hang Seng (-0.1%) and Shanghai Comp. (+0.2%) lacked firm direction amid mixed developer related headlines with Kaisa Group said to be taking several measures to solve liquidity issues and have pleaded for more time and patience from investors, while China Evergrande reportedly scraped together more cash by offloading a 5.7% stake in HengTen Networks for USD 145mln. Furthermore, the PBoC continued with its liquidity efforts but recent source reports noted that chances of a PBoC rate cut looks slim and that the PBoC is expected to be cautious in easing monetary policy amid stagflation concerns. Finally, 10yr JGBs were flat amid the indecisive mood in stocks and was only briefly supported from the improvement across most metrics at the latest 30yr JGB auction.

Top Asian News

Gold Rally Pauses as Focus Turns to Upcoming Inflation Data
Indonesia Bonds Risk Losing Key Support as Outflows Surge
Nissan Raises Profit Outlook Despite Supply Disruptions
Fed Warns of Woes Spreading as Deadline Looms: Evergrande Update

After a soft open, European equities trade in close proximity to the unchanged mark (Eurostoxx 50 +0.1%) with incremental newsflow relatively light thus far with a mixed German ZEW report unable to shift the dial. The handover from the Asia-Pac session was a mixed one with the region unable to benefit from the positive tailwinds on Wall St. Stateside, futures are near-enough unchanged with participants tentative ahead of tomorrow’s US CPI release which is expected to see Y/Y CPI rise to 5.8% from 5.4%. For the Stoxx 600, UBS’ announced today that its end-2022 target is at 520 which would mark around 8% of upside from current levels. In terms of a regional breakdown, UBS upgraded Italy to overweight from underweight whilst holding Germany and the UK as overweight. Sectors in Europe are a mixed bag with Autos outperforming peers as Renault (+4.6%) sits at the top of the CAC in the wake of Nissan earnings, which the Co. says will have a positive impact on its Q3 earnings. Basic Resources, Retail and Media names are also faring well. To the downside, Insurance names are on a softer footing following earnings from Munich Re (-3.4%) with the Co. warning of further COVID-related losses, whilst results have also hampered the performance of Direct Line (-2.6%). Bayer (+2.6%) is one of the better performers in Germany after beating revenue and EBITDA expectations and guiding FY EPS higher. Associated British Foods (+6.5%) is the best performer in the Stoxx 600 after announcing a special dividend alongside results. Finally, other strong stocks in the UK include Rolls Royce (+5.4%) after confirming it has received funding for small modular nuclear reactors, whilst BT (+2.9%) is seen higher after being upgraded to buy from hold at Berenberg.

Top European News

UniCredit to Take $1.9 Billion Charge From Yapi Kredi Sale
Russia’s Gazprom Says Gas Will Flow Into EU Storage This Month
European Gas Prices Slide on Some Signs of Higher Russian Flows
Polish Key Rate Hikes Past 1.5% May Be Needed, MPC’s Sura Says

In FX, the Yen and Dollar are locked around the 113.00 mark after the former extended its mainly technical rally to around 112.73 before running out of steam, and this has given the Greenback in general some breathing space as the index claws back declines from a slightly deeper 93.872 post-NFP low to retest resistance at the psychological 94.000 level. However, Usd/Jpy and Yen crosses are still trending lower following clear breaches of several key chart supports that will now form upside barriers, such as Fibs in the headline pair spanning 113.20-30, while the Buck and DXY retain a bearish tone following their sharp retracement from a new y-t-d high in the case of the former last Friday. Ahead, US PPI data provides a timely inflation gauge for CPI on Wednesday, while there is another array of Fed speakers and more supply to absorb as Usd 39 bn 10 year notes are up for auction.

GBP – Sterling continues to regroup in wake of the BoE shock, with Cable cresting 1.3600 and even Eur/Gbp unwinding gains towards 0.8520 amidst ongoing Brexit angst that could reach another critical stage by the end of this week given reports that the EU is formulating a package of short/medium-term retaliatory measures which might be presented by Sefcovic to Frost on Friday, to dissuade the UK from triggering Article 16, according to Eurasia Group’s Rahman. Note, however, the cross may be underpinned by decent option expiry interest at the 0.8500 strike (1 bn), if not mere sentimentality.
AUD/NZD – Some reasons for the Aussie to reverse recent underperformance vs the Kiwi down under, as NAB business confidence and conditions both improved markedly in October, while consumer sentiment ticked up as a counterweight to an acceleration in NZ electronic card consumption, with Aud/Usd firmly back on the 0.7400 handle, Aud/Nzd rebounding from sub-1.0350 and Nzd/Usd hovering midway between 0.7148-74 parameters.
CAD/EUR/CHF – All narrowly divergent vs their US counterpart, as the Loonie gleans traction from a Usd 1/brl rebound in WTI to bounce through 1.2450 and away from 1.1 bn option expiries at 1.2460 in advance of another speech from BoC Governor Macklem, while the Euro is weighing up a mixed ZEW survey against expectations in close proximity to 1.1600 and also ‘comfortably’ above 1.8 bn expiry interest down at 1.1550. Elsewhere, the Franc is keeping its head afloat of 0.9150 and 1.0600 vs the Euro awaiting remarks from the SNB via Maechler and Moser about the changing FX market and implications for the Swiss Central Bank on Thursday.

In commodities, WTI and Brent are firmer this morning though the benchmarks have drifted off earlier highs as we approach the entrance of US participants. At best, Brent has surpassed the USD 84.00/bbl mark, a figure which eluded it yesterday, and WTI has been within reach of the USD 83.00/bbl mark. Fresh newsflow explicitly for the complex has been slim but we are, more so than usual, looking to the EIA STEO due at 17:00GMT/12:00EST today. Heightened attention on this stems from US Energy Secretary Granholm commenting earlier in the week that President Biden may make an announcement in relation to crude and the SPR this week; as such, administration officials will be scrutinising the STEO report. For reference, the OPEC+ MOMR and IEA OMR are due on November 11th and 16th respectively. October’s STEO upgraded world 2021 oil demand growth forecasts by 90k but cut the 2022 view by 150k while highlighting that US crude output is to fall 260k vs prev. 200k fall in 2021. As usual, we do have the Private Inventory report due today as well with expectations set for a headline build of 1.9mln. Moving to metals, spot gold and silver are once again lacklustre and remain comfortably within overnight ranges and the upside seen in the metals at the tail-end of last week means we are circa, for spot gold, USD 30/oz from a cluster of DMAs. Elsewhere, base metals are firmer given the support for industrial names on the US infrastructure bill, but the likes of LME copper remain within familiar ranges.

US Event Calendar

8:30am: Oct. PPI Ex Food, Energy, Trade MoM, est. 0.3%, prior 0.1%
8:30am: Oct. PPI Ex Food, Energy, Trade YoY, est. 6.2%, prior 5.9%
8:30am: Oct. PPI Ex Food and Energy YoY, est. 6.8%, prior 6.8%
8:30am: Oct. PPI Final Demand YoY, est. 8.6%, prior 8.6%
8:30am: Oct. PPI Ex Food and Energy MoM, est. 0.5%, prior 0.2%
8:30am: Oct. PPI Final Demand MoM, est. 0.6%, prior 0.5%

Central Banks

7:50am: Fed’s Bullard Takes Part in Virtual Event
9am: Powell to Speak at Joint Fed, ECB and BoC Diversity Conference
9am: ECB’s Knot, Fed’s Bullard on UBS Panel
11:35am: Fed’s Daly Speaks at NABE Conference
1:30pm: Fed’s Kashkari Takes Part in Moderated Discussion

DB’s Jim Reid concludes the overnight wrap

Thanks for all your well wishes yesterday. It was very kind to have a few hundred take the time to email. If you missed it, see yesterday’s EMR to understand why my responsibilities have mounted this week. The latest is that I’ve now got two perfect night’s sleep while my wife who is sleeping by my daughter’s side at hospital on a camp bed all week got hardly any the first night. Nurses coming in every hour, lots of machines beeping, it being too hot and no privacy. A look at my WhatsApp this morning shows she was last seen at 3.58am, so I’m worried I’m going to hear about a repeat. Although I will want to know who she’s whatsApping at that time of the night!

There wasn’t an awful lot of newsflow for investors yesterday as they looked forward to tomorrow’s US CPI release, but the astonishing equity advance showed no signs of relenting just yet, with the S&P 500 (+0.09%) up for an 8th consecutive session to another record high. For reference, that’s the longest winning streak since April 2019, and if we get a 9th day in the green today, that would mark the longest run of consecutive gains since November 2004, back when George W. Bush had just beaten John Kerry to win a second term. It’s also 17 out of 19 days up, which hasn’t happened since December 1971.

All these records for various equity indices might seem jarring when you consider that there are still strong inflationary pressures in the pipeline, and with them the prospect of a renewed hawkish shift by central banks. However, the prevalent view among economists (which continues to influence investors) remains that those pressures will prove transitory and we’ll see price pressures diminish as we move through next year, hence enabling a steady lift-off in rates from central banks. Obviously it remains to be seen if that proves correct, but that’s still the prevailing view. And even though Covid-19 cases have begun to rise again in many countries, not least in Europe, the positive news from both Merck and Pfizer about a new pill that reduces hospitalisations and deaths offers societies another tool alongside vaccines to help prevent the overwhelming of healthcare systems going forward. And on top of all that, we’ve had a further dose of optimism from the latest payrolls data on Friday, which saw an above-consensus print along with positive revisions to previous months.

With that in mind, it was another day of records across the board yesterday, with the NASDAQ (+0.07%), the Dow Jones (+0.29%), and Europe’s STOXX 600 (+0.04%) all ascending to fresh highs of their own. Cyclicals tended to outperform, and the small-cap Russell 2000 (+0.23%) was yet another index that hit an all-time high. Not even Tesla declining -4.84% after Elon Musk’s weekend Twitter poll over whether he should sell 10% of his stake was enough to derail things. Materials led the pack (+1.23%) with energy (+0.88%) close behind thanks to a fresh boost in commodity prices. By the close of trade, Brent Crude was up another +0.83% to $83.43/bbl, so still beneath its peak from a couple of weeks ago, but very much remaining in the range above $80/bbl that we’ve seen since the start of October.

For sovereign bonds, however, the rally from late last week reversed, 5yr US Treasuries increased +6.1bps, bringing them back above last Thursday’s close, while yields on 10yr US Treasuries were up +3.8bps to 1.49%. Both were entirely driven by higher inflation breakevens, as 5yr and 10yr breakevens both increased +7.1bps. 10yr real yields sank -3.4bps to -1.13%, putting them less than 10bps away from their intraday low back in August of -1.220%. Over in Europe, it was much the same story of higher nominal yields thanks to rising inflation expectations, with yields on 10yr bunds (+3.7bps), OATs (+3.6bps) and BTPs (+1.7bps) all ending the session higher.

Overnight in Asia stocks are trading in the red with the Shanghai Composite (-0.02%), Hang Seng (-0.07%), CSI (-0.30%), KOSPI (-0.29%) and the Nikkei (-0.66%) all down. In Japan, wages grew at +0.2% year-on-year in September (vs +0.6% consensus) and real wages actually fell -0.6% as prices rose faster. The new Prime Minister Kishida is expected to announce a stimulus package to boost Japan’s recovery in an effort to shore up wages. Staying in Asia, strains on global supply chains continue with Bangladeshi truckers continuing their strike from Friday over a 23% hike in diesel prices. Protests are intensifying as diesel shortages have already sent prices upwards of 64% this year. Futures are indicating that the winning streak in the US and Europe might be under threat with S&P 500 futures (-0.25%) and DAX futures (-0.28%) both down.

With all eyes on when we might get some news about the various Fed positions, another place opened up on the Board yesterday after Randal Quarles said that he would be resigning his position as a Governor at the end of December. Quarles had also been Vice Chair for Supervision, though his four-year term for that post came to an end last month. Quarles’ departure from the Fed Board means that there’s now another position at the Fed for President Biden to fill, with Jay Powell’s term as chair concluding in February, Vice Chair Clarida’s position on the board concluding at the end of January, and an additional vacant post on the Board on top of those.

Staying on the Fed, yesterday we had the latest Survey of Consumer Expectations from the new York Fed, which showed that one-year inflation expectations hit a series high of 5.7%, while the 3-year inflation expectations remained at a joint-series high of 4.2%. Separately, we also heard from Vice Chair Clarida, who reiterated his belief that the necessary conditions “for raising the target range for the federal funds rate will have been met by year-end 2022.”

The Fed also released its bi-annual Financial Stability Report after the closing bell last night. Timely, considering the record run equities have been on, the report noted that “asset prices remain vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall.” Other key risks the report mentions include stablecoins, retail-fuelled volatility, and structural vulnerabilities in money market funds. While on structural vulnerabilities, the Inter-Agency Working Group, five key US regulators, also released a progress report on potential Treasury market reforms. There are a number of reforms being considered; what is ultimately adopted will have a sizable impact on the shape of the Treasury market and demand for Treasury securities.

To the day ahead now, and data releases includethe US PPI reading for October, along with that month’s NFIB small business optimism index. Over in Germany, there’s also the ZEW survey for November and the trade balance for September. Central bank speakers include Fed Chair Powell, ECB President Lagarde, BoE Governor Bailey and PBoC Governor Yi Gang, along with the ECB’s Panetta, Rehn, Knot and Schnabel, the Fed’s Bullard, Daly and Kashkari, and BoE Deputy Governor Broadbent.

Tyler Durden
Tue, 11/09/2021 – 08:08Read More

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