Futures Slide, Dollar Spikes Ahead Of Jobless Claims

S&P futures slumped on Thursday alongside European stocks as investors weighed the latest reports about fresh outbreaks of the coronavirus in China and America ahead of a weekly jobless claims report. A resurgence in coronavirus cases has upended bets of a swift post-pandemic economic recovery, with the S&P .SPX and the Dow snapping a three-day winning streak on Wednesday.

Carnival fell 3.6% in premarket trading after reporting a quarterly net loss of $4.4 billion and projecting a loss for the rest of the year after the pandemic brought its cruise business to an effective standstill. Royal Caribbean Cruises and Norwegian Cruise Line Holdings dropped 2.2% and 3.2%, respectively. Despite a surge in new infections in several U.S. states including Texas, Florida and Oklahoma, Trump said late on Wednesday that the United States would not close businesses again.

At the same time, in an attempt to ease fears over a second wave in China, the chief epidemiologist of China’s Center for Diseases Prevention and Control said Beijing’s latest coronavirus outbreak had been brought under control, helping futures briefly turn green.

On the economic front, after the latest data showed a record rise in U.S. retail sales and a surprise addition in jobs in May, investors will now look to the Labor Department’s weekly jobless claims report, for confirmation of continued improvement in the economy. The number of Americans filing for state unemployment benefits is likely to fall for the eleventh straight week, but still remain elevated following mass furloughs and layoffs during the nationwide lockdowns.

Politics is back in the picture too, after newspapers published leaked summaries of a John Bolton book critical of President Donald Trump.

In Europe, the Stoxx Europe 600 ticked lower, with German payments firm Wirecard AG slumping as much as 67% after it delayed publication of annual financial results for the fourth time because $2.1 billion was missing.

In Asia, stocks also edged modestly lower, with communications rising and materials falling, after rising in the last session. Markets in the region were mixed, with Jakarta Composite and Australia’s S&P/ASX 200 falling, and India’s S&P BSE Sensex Index and Taiwan’s Taiex Index rising. The Topix declined 0.3%, with Furukawa Battery and NTN falling the most. The Shanghai Composite Index rose 0.1%, with Chongqing Iron & Steel and Tianjin Tianyao Pharmaceutical posting the biggest advances

In rates, Treasuries came off highs and the dollar spiked around 8am without a clear cause.

Elsewhere in FX, the pound held most of its decline after the Bank of England expanded its quantitative easing program. Norway’s krone rose against all G-10 peers and rallied to a one-week high versus the euro after Norges Bank raised projections for growth and inflation for this year, and lifted its rate path by up to 65bps through the end of 2023, from earlier path which was flat at zero. The Swiss franc barely budged even after the Swiss National Bank pushed back against currency appreciation caused by the coronavirus pandemic, saying aggressive foreign exchange interventions remain its main tool; demand for the franc still rose in the options market. Australian and New Zealand dollars recovered as risk sentiment improved in the European session; the Aussie earlier slipped and sovereign curve flattened after disappointing jobs data while the Kiwi earlier fell after 1Q GDP contracted, sending the country into its first recession in 10 years.

In commodities, WTI and Brent crude futures recouped overnight losses heading into the OPEC+ JMMC meeting later today after yesterday’s JTC which reportedly made no recommendations for further cuts. Eyes will nonetheless remain on compliance and any enforcement mechanisms touted to ensure 100% or more compliance.

Today’s data highlights include the weekly initial jobless claims, along with June’s Philadelphia Fed business outlook and the leading index for May.

Market Snapshot

• S&P 500 futures up 0.2% to 3,123.00
• STOXX Europe 600 up 0.1% to 366.53
• MXAP down 0.01% to 158.86
• MXAPJ up 0.02% to 511.64
• Nikkei down 0.5% to 22,355.46
• Topix down 0.3% to 1,583.09
• Hang Seng Index down 0.07% to 24,464.94
• Shanghai Composite up 0.1% to 2,939.32
• Sensex up 1.3% to 33,950.44
• Australia S&P/ASX 200 down 0.9% to 5,936.47
• Kospi down 0.4% to 2,133.48
• German 10Y yield rose 0.2 bps to -0.39%
• Euro up 0.05% to $1.1250
• Italian 10Y yield rose 1.8 bps to 1.287%
• Spanish 10Y yield unchanged at 0.559%
• Brent futures up 0.4% to $40.89/bbl
• Gold spot up 0.6% to $1,736.71
• U.S. Dollar Index down 0.1% to 97.04

Top Overnight News

• Boris Johnson and Emmanuel Macron will meet Thursday, the U.K. prime minister’s first bilateral with a European leader since calling for fresh momentum to secure a post-Brexit trade deal with the EU
• A coronavirus outbreak in Beijing that has swelled to more than 150 cases has been contained, a top Chinese expert said
• The ECB reached another trillion-euro milestone in its fight to bolster economies damaged by the coronavirus pandemic. An offer for its ultra-cheap, three-year loans was taken up by 742 banks for a total of 1.31 trillion euros on Thursday. That’s in line with predictions of 1.2 trillion to 1.5 trillion euros
• Figures due Friday are forecast to show the U.K. budget deficit jumped about 50 billion pounds ($63 billion) in May as the government continued its extraordinary interventions to support the economy through the coronavirus pandemic. That would take the total for Britain’s finance minister Rishi Sunak’s first full three months to well in excess of 125 billion pounds
• Sweden’s Finance Minister Magdalena Andersson now expects GDP to contract by 6% this year compared to a previous forecast of about 7% amid signs of a recovery following the country’s softer lockdown approach

Asian stocks traded mostly negative with investor sentiment dampened by concerns regarding a resurgence of coronavirus cases stateside and as participants digested the latest bout of weak data from the region, as well as ongoing US-China tensions. ASX 200 (-0.9%) and Nikkei 225 (-0.4%) were lower with Australia pressured by losses in nearly all sectors including early underperformance in the top-weighted financials and with disappointing employment data adding to the soured mood, while exporters in Japan buckled under the strain of a firmer currency. Elsewhere, Hang Seng (U/C) and Shanghai Comp. (+0.1%) were both subdued amid ongoing US-China tensions as China responded to President Trump’s recent signing of the Uighur human rights legislation which it firmly opposed and warned the US to correct its mistakes or it will resolutely respond with the US to bear the consequences. However, losses were cushioned in the mainland after the PBoC conducted open market operations to inject liquidity in which it utilized 14-day reverse repos for the first time since February and lowered the respective rate by 20bps to 2.35%, while JD.com was among today’s success stories in which the Co. shares rose about 6% at the open of its Hong Kong debut. Finally, 10yr JGBs were higher with prices underpinned in tandem with upside in T-notes and amid the broad negative risk tone in the region, although some of the gains were retraced after weaker results at the 5yr JGB auction.

Top Asian News

• G-7 Warns China’s Moves in Hong Kong Jeopardize City’s Success
• India Stocks Advance as Reliance Industries Leads Gain
• Indonesia Cuts Rates, Signals More Easing as Growth Weakens

European equities kicked the session off in an uninspiring manner but kept grinding higher in earlier trade before received further impetus on headlines that Beijing has controlled the second outbreak in the city. Stocks have since given up some of its recent gains and meander around the unchanged mark with a better performance seen in UK’s FTSE 100 (+0.1%) as exporters benefit from a softer Sterling ahead of the BoE policy decision. Broader sectors are mixed with no clear risk-reading to be derived as cyclicals and defensives remain a broken compass. The sectoral breakdown however trade saw a more cyclical bias early trade as Healthcare lost its earlier top-spot and traded at the bottom of the pile, whilst Travel & Leisure clawed its way from the bottom to one of the top performers, alongside Insurance, Chemicals, Banks and Tech, albeit the picture has turned more mixed since early morning with Oil & Gas now the laggard. Individual stock focus has been on DAX-listed Wirecard (-46%), who’s shares tanked over 60% at one point as expectations for a results being released today were again dashed due to indications of presentation of spurious balance confirmations. The group said it will announce a revised date for the release in due time but if certified annual and consolidated financial statements cannot be made available until June 19, 2020, loans made to Wirecard AG amounting to approximately EUR 2 billion can be terminated. Elsewhere, Carnival (-2.4%) shares failed to catch tailwind from the recovery in the broader Travel & Leisure amid a broker downgrade at Berenberg, althought the group’s earnings, which were released during the session, provided little by way of share price action despite missing on both top and bottom line. UBS (+1.0%) and Credit Suisse (+0.6%) were buoyed by the SNB stating the banks are robust enough to weather the pandemic.

Top European News

• Norges Bank Signals Crisis Rates May Be Lifted in Two Years
• SNB Warns Markets It’ll Keep Up Fight Against Franc Strength
• Sweden Raises Forecast for Economy as Recovery Starts to Pick Up
• German Move to Counter Foreign Takeovers Set for Final Approval

In FX, it’s 2 down and 1 to go in terms of today’s EU Central Bank bonanza, with the SNB and Norges Bank both sticking to the script by leaving benchmark rates on hold at -0.75% and zero respectively. However, the former formally upgraded its assessment of the Franc to highly valued from even more highly valued in March in acknowledgement of its softening since the previous quarterly policy review, while the latter delivered a more upbeat economic outlook based on a faster recovery than envisaged at its prior meeting in May. In response, Usd/Chf and Eur/Chf remain largely rangebound around 0.9500 and sub-1.0700, but Eur/Nok has fallen sharply towards 10.6250 from circa 10.7500 highs also in recognition of the revised depo rate path flagging a rise after 2022. Conversely, the Pound has been apprehensive and under pressure awaiting the BoE at noon amidst expectations of at least Gbp 100 bn additional QE, but no change in the Bank rate, with Cable testing stops through Wednesday’s low (1.2510) and Eur/Gbp back up near 0.9000 from 0.8950 at one stage. Note, a full preview of the MPC policy decision and minutes can be found in the Research Suite or via the Headline Feed.

• USD – Beyond the divergent moves noted above, the Dollar and major counterparts are still relatively restrained between recent/familiar boundaries and exemplified by the DXY hardly deviating from 97.000 and not even tempted to stray far on a knee-jerk rise in broad risk sentiment amidst reports that Beijing has managed to get the latest COVID-19 outbreak under control. Ahead, US weekly claims alongside Philly Fed may prompt a bit more price action.
• CAD/EUR/JPY/AUD/NZD – All narrowly mixed vs the Greenback, as the Loonie pares losses from sub-1.3600 towards 1.3520 in the run up to Canadian new house price and wholesale trade data before a speech by BoC’s Schembri, while the Euro is holding off yesterday’s lows and close to decent option expiry interest between 1.1245-60 (1.3 bn) after little reaction to the latest ECB monthly bulletin or TLTRO take-up near the upper end of the forecast range. Elsewhere, the Yen is meandering from 106.71-107.07 following a modest climb overnight when markets were somewhat more jittery, but still marginally outperforming the Kiwi and Aussie that have both been hampered by disappointing data (GDP and jobs). Indeed, Nzd/Usd and Aud/Usd have retreated from circa 0.6900 and 0.6480 respectively, albeit off worst levels under 0.6840 and 0.6425.

In commodities, WTI and Brent crude futures have recouped overnight losses heading into the OPEC+ JMMC meeting later today after yesterday’s JTC which reportedly made no recommendations for further cuts. Eyes will nonetheless remain on compliance and any enforcement mechanisms touted to ensure 100% or more compliance. On that front, sources stated Iraq, Kazakhstan to present plan for oil production cuts and compensation for overproduction at the meeting. Saudi and Russia will lead a presser after the meeting, although leaks are anticipated (Full Primer available here). Futures were also bolstered higher in early trade amid comments from a Chinese CDC expert who deemed the Beijing outbreak contained – providing impetus to overall risk appetite and pushing WTI July north of USD 38/bbl (vs. low 37.11/bbl) and Brent August above USD 41/bbl (vs. low 40.06/bbl). Meanwhile, spot gold piggy-backed on the softer USD and built on gains above USD 1730/oz having had an uneventful overnight session. Copper prices meanwhile remain little changed on the day despite the rise in stocks whilst iron ore prices fell below USD 100/t after Vale was given the green light to reopen its Itabira complex following coronavirus measures.

US Event Calendar

• 8:30am: Philadelphia Fed Business Outlook, est. -21.3, prior -43.1
• 8:30am: Initial Jobless Claims, est. 1.29m, prior 1.54m; Continuing Claims, est. 19.9m, prior 20.9m
• 10am: Leading Index, est. 2.4%, prior -4.4%

DB’s Jim Reid concludes the overnight wrap

The best news I’ve had over the last 24 hours is that after 6 days, someone at Chill Acoustic reset their system and we’re back to normal. Expect my productivity to rocket. Actually a client did a very nice thing for me and tracked down the founder and got in contact with him. He was a bit nonplussed by the attention and just said he’ll switch servers. Thanks also to all those who spotted what the picture was in my WFH setup in our new video series ( link here straight to the video again). There were a number of honest scholars who got it right and quite a few that I suspect used “Google lens”, which I only learnt about yesterday after an honest client informed me. It allows you to identify pretty much everything from a photo/your camera. My wife has been dying to know what flowers were in our garden from the previous owner and I was able to impress her last night by informing her. I didn’t tell her how but she was very impressed. That’s our little secret now.

Unfortunately Google Lens couldn’t tell me which way markets are going next so I’ll have to continue with the lucky coin I have. Yesterday was a duller day in comparison with the action-packed Tuesday. S&P 500 volumes can attest to that after being roughly 17% below the one-month average. The same themes dominated though as we weighed the importance of the rising caseloads across US states versus the continued huge liquidity in markets.

By the end of the session, the S&P 500 had snapped a run of 3 successive gains since last Thursday’s large drop to close down -0.36%, as energy stocks dragged the index lower on the back of lower oil prices. Fed Chair Powell’s second day testimony was a bit of a non-event but we’ll detail more about it below. Outside of Energy (-3.28%), Banks (-2.69%) and Autos (-1.97%) were the worst performers as cyclicals lagged behind. The overall index traded in a roughly 30pt range all day, tighter than over the last week or so, and finished at the bottom of that range. Volatility also remained elevated, even with the VIX index closing down -0.2pts at 33.5pts. This is still above the vol levels in the second half of May when the narrative turned more positive. Tech stocks outperformed, however, with a +0.15% rise for the NASDAQ, which was its 8th increase in the last 9 sessions. European equities did well too, with the STOXX 600 up +0.74%, with the DAX, CAC 40 and FTSE 100 all advancing as well.

Elsewhere, yields on 10yr US Treasuries fell by -1.5bps to 0.738%, while peripheral bonds slightly tightened with BTPs (-1.6bps), Spanish (-0.9bps) and Greek (-0.1bps) all gaining late in the session. Similar to equities, Brent crude also ended a run of 3 successive increases, with a -0.61% decline to $40.71/bbl yesterday, while WTI also fell -1.09% to $37.96/bbl.

In terms of the latest on the coronavirus, there was a continued divergence in the health metrics between different US states yesterday. On the positive side, New York reported only 17 deaths yesterday, down from 25 the day before, while the number of patients hospitalised fell below 1,500. Indeed, Governor Cuomo said that New York City was on track to enter the second phase of reopening on Monday, while the rest of the state will be in phase 3. The picture wasn’t so good elsewhere though, with Texas seeing the number of hospitalisations rise by 11% in the last 24 hours, while Florida saw the number of cases rise by 3.3% yesterday, compared with an average of 2.8% over the previous 7 days. The other worrying metric out of Florida is that the positive test rate rose to 10.3% yesterday from 7.4% at the start of the week. It has been over 2 months since the rate was that high. Cases in California rose by 3.4%, higher than the 7-day average of 2.1% as the state continues to struggle suppressing its overall case growth. We have highlighted how discriminative Covid-19 is based on age, and Nate Silver (famously of fivethirtyeight.com) brought attention to how different the coronavirus spread has been in NYC and Texas, “In NYC, 24% of known cases are among people 65+, while in Texas, it’s 16%”. It could be that the elderly in Texas have been able to separate themselves better than in NY, which may limit the damage of risking case numbers.

Over in Europe, which has pursued a much harsher lockdown in general, a meatpacking plant in Germany was shut after hundreds of workers were found to have tested positive for the coronavirus. Now we officially know what helped cause case numbers on Tuesday to jump by 570, the largest one-day rise in the country since May 29 on both an absolute and percentage basis. The 0.3% rise was relatively significant given the 7-day average of 0.1%. Cases rose by 0.2% (352 in absolute terms) yesterday, but we will need to see how cases develop over the next week to see if that event has ripple effects. There were also worrying signs of a deterioration in Iran again, which was one of the earliest affected countries, as the number of deaths rose for a 4th day running to 120, the highest number in over 2 months. See “view report” at the top for the usual case and fatality tables from around the world and the main US high profile states.

Back to markets, and a fairly non-eventful overnight session has seen most bourses in Asia post modest losses, albeit off their lows for the session. Indeed the Nikkei (-0.32%), Hang Seng (-0.22%), ASX (-0.80%) and Kospi (-0.13%) are all down while Chinese bourses are trading flattish. Meanwhile, yields on 10y USTs are down a further 3bps and futures on the S&P 500 are down -0.63%. The outperformance for China may reflect a Bloomberg report suggesting that the country will reduce the reserve requirement ratio and use its relending policy to keep liquidity ample citing a State Council meeting chaired by Premier Li Keqiang.

Yesterday Fed Chair Powell gave a testimony before the House Financial Services Committee after speaking in front of the Senate’s counterpart the day before. He stuck to the same general talking points. We highlighted the Fed Chair’s statements on the Secondary Market Corporate Credit Facility yesterday and he followed it up by saying that the Fed will eventually move away from ETF purchases and focus on buying bonds primarily. As Craig mentioned yesterday the risk to credit is perhaps that the Fed is pulling back from using anywhere near as much firepower as was thought. If so Powell is perhaps concluding that there is no pressing need to over commit in a market that’s functioning. However, how much of that market functioning is down to expectations that the Fed was going to buy significantly more than it is perhaps signalling to now? An interesting one to follow.

In terms of geopolitical updates, matters calmed down somewhat yesterday following the clashes between Indian and Chinese troops, with the two countries’ foreign ministers and senior military commanders talking by phone to de-escalate tensions. Over on the Korean peninsula, however, following North Korea blowing up a liaison office on their side of the border earlier in the week, they said yesterday that they would be sending troops to border areas, from where the two sides had previously agreed to remove troops. So certainly worth keeping an eye on escalating tensions there.

Attention today will turn to the Bank of England, who’ll be announcing their latest monetary policy decision later. In terms of what to expect, our economists are forecasting that the BoE will join the ECB in announcing a further expansion to their post-pandemic QE program, with a £125bn expansion, though the risks to this are tilted to the upside as the MPC could surprise with a stronger response. The decision today will follow yet another drop in CPI inflation, with data yesterday showing it fell to +0.5% in May as expected, the slowest annual inflation rate since June 2016, and some way below the BoE’s 2% target. Core inflation was stronger, though even that fell to +1.2% (vs. +1.3% expected).

Yesterday’s housing data from the US underwhelmed somewhat, with the number of housing starts in May coming in at 974k on an annualised basis (vs. 1.1m expected). That said, it does mark a rebound from April’s upwardly-revised 934k reading. Building permits also underperformed, rising to 1.220m (vs. 1.245m expected), though again this was a rebound from April’s 1.066m reading. Over in Europe, there was something of a rebound in EU27 new car registrations. They were “only” down -52.3% on the previous year, compared with -76.3% in April.

To the day ahead now, and central banks will be on the agenda today as monetary policy decisions come from the Bank of England, the Swiss National Bank, the Norges Bank and Bank Indonesia. In addition, the ECB will be publishing their Economic Bulletin, while the Fed’s Mester and the BoE’s Broadbent and Tenreyro will be speaking. Data highlights include the weekly initial jobless claims from the US, along with June’s Philadelphia Fed business outlook and the leading index for May.