Month: June 2021

By Michael Every of Rabobank

Faulty Towers

With G7 finance ministers ensconced at a British sea-side hotel over the weekend, I thought of two things: a classic 1970’s sitcom, and impractical intellectual isolation – or ‘Faulty Towers’.

I imagine the hotel owner –as cloying as in S01E01 of said sitcom (“A Touch of Class”)– apologizing for the food and service; but post Brexit, and with the current pinch in finding service-sector workers, far less likely to be saying “I’m so sorry. He’s from Barcelona.” There was also no sign of recognition from US Treasury Secretary Yellen that the again-disappointing US payrolls report (559K, vs. 675K estimates and the 1,000K needed to get us back to where we were pre-Covid) was in any way related to the unemployment benefits that pay 80% of wages in many cases – and which will be around until September in most cases. Enjoy the summer, everyone, including the US Treasury market, as 10-year yields dipped to 1.55% – the labor market recovery may only really begin in the fall/autumn, when the tourists have all gone home. (Although one also has to laugh at the Wall Street voices decrying extra unemployment benefits when they benefit from $120bn in QE every month.)  

Overshadowing this was the announcement of a G7 agreement on a 15% minimum global tax rate for the largest firms – where we get to the faulty ivory towers:

• Does the G7 set fiscal policy for the other 186 states and territories? In the US, Congress needs to approve it, and in the EU the process is going to be even trickier when one thinks of Ireland, as just one example of a low-tax economy. At this stage, it seems only declaratory;

• Large firms (not defined) with a profit margin of more than 10% (over an undefined period) will now pay 20% tax on anything above that margin where they operate. But 10% profit margins exclude Amazon, who in 2020 saw 6.3%, and so naturally backs this decision as a “welcome step forward”. Indeed, a low-margin-to-build-a-global-monopolist-or-monopsonist-position-and-then-get-real-power approach slips under the G7’s radar, despite there being an awful lot of this about; and

• This doesn’t provide anywhere near enough tax revenue to fund the activity of S01E02 (“The Builders”) – or in this case “The Builders Back Better”.

While focusing on tax, one could almost hear the assembled financial ministers urging “Don’t mention the war!”, as in S01E06 (“The Germans”), which was harder given yesterday was the anniversary of D-Day. (Eliciting a yawn from a young generation ironically addicted to first-person-shooter video games.) Also, because there is a bit of a Cold War on, if you hadn’t noticed.

Russian President Putin answered “I won’t say” when asked if he would use military jets to force an airliner flying over Russian airspace to land if the passenger-list contained someone he wished to arrest. The Russian journalist who asked the question later gave his own interpretation of that ambiguity on TV: “This is a signal. Not to me, it shouldn’t tell me anything. This is the signal to those residents of London, which reads ‘worry’. Do worry, guys. Do fly, but fly with sweaty hands.” Many in the travel and logistics industries should have sweaty hands at the thought that flying over certain airspace is going to be politically difficult, making journeys far slower and more expensive. Will this come up at the looming Biden-Putin summit; or Ukraine, which has been geostrategically weakened by White House approval of the Nord Stream 2 pipeline? (Though Germany gets cheap gas, which is nice for it.)

On China, the Wall Street Journal has an op-ed stating: “The Science Suggests a Wuhan Lab Leak”, and asks “’Do We Need to Be in Hong Kong?’ Global Companies Are Eying the Exits”, while saying this doesn’t apply to banks (“Because markets”); US Secretary of State Blinken stated the White House is determined to “get to the bottom” of COVID-19’s origins, and that the US will hold China accountable; three US Senators just visited Taiwan; and the US is supplying it with Covid-19 vaccines. All of this will do marvels for US-China relations, even if the White House is saying “I mentioned the Cold War once, but I think I got away with it.”

And on China and matters fiscal/financial, Bloomberg has an op-ed about the digital Renminbi (e-CNY) that suggests it might be soft launched with the 2022 Winter Olympics; and that it may operate more like the Hong Kong Dollar than a Central Bank Digital Coin, in that the liability may sit on the commercial issuer’s balance sheet, fully backed by CNY reserves. This obviously won’t make it very attractive to banks, businesses, or consumers happy with current e-payment systems. As the op-ed notes, one would then have to *compel* them to use it via “the state’s coercive power.” For example, paying civil servants in e-CNY; or, more importantly, demanding tax payment in e-CNY to force people to earn them, so creating a natural demand.

This echoes a long-held, oft-repeated realpolitik view here of how money actually works outside faulty ivory tower economic (and crypto) thinking. One therefore wonders if this currency/tech element is also going to be involved in the G7 tax structure – or rather, how long until it has to be. In that light, consider that if e-CNY is used as above in Hong Kong too, the role of the Hong Kong Dollar would surely come into question as domestic demand for it falls away sharply – even as Hong Kong’s international gateway role for capital to enter a closed-capital-account China remains the same. How does this all work out? Only one of two ways. Like anything digital, it’s binary.

On a related front, Elon Musk has a new series of crypto-related tweets so not-safe-for-work the media decided not to cover them. (And there’s an awful lot of that about as well.) Suffice to say, crypto remains under pressure – despite the president of El Salvador, a poverty-stricken country where the vast majority of the population don’t have a bank account, proposing his country officially embrace Bitcoin. The G7 tax people will be watching (again) if so.

Nigeria has meanwhile banned Twitter entirely, which is a different way to go on Big Tech: and Twitter responds that this is a denial of Nigerians’ human rights…which doesn’t apply to those whom Twitter decides to ban.

For now, we can see that the Fed will be staying where it is now for longer, yet the real world pressures outside their Faulty Towers continue to build. If one thinks this has an end-point with no serious volatility on any front, I am tempted to repeat what hotel owner Basil Fawlty does to a rude guest in S02E01 (“Communication Problems”): pick some fluff up from the floor, and ask “Is this a piece of your brain?”  

After last week’s disappointing yet “goldilocks” payrolls report, the big event this week is Thursday’s US CPI release. As DB’s Jim Reid writes, consensus estimates for May currently expect both the headline and core rate to rise +0.4% month-on-month which would lift the YoY rate to 4.7% and 3.4% respectively which will be the highest since late 2008 and 1993 which would be a pretty impressive feat especially on the core. “This will undoubtedly be the most watched data release this year so far”, according to Deutsche Bank.

BofA’s economists are even more aggressive, and expects an even stronger CPI report in May with core jumping 0.5% mom and headline up 0.4% mom. Coupled with positive base effects, % yoy core will jump to 3.5% from 3% and headline to 4.7% from 4.2%.

We will also pay close attention to the inflation expectations data in Friday’s University of Michigan consumer sentiment survey (89.0 vs 82.9). DB’s rates strategists feel that expectations are heading back to their 1998-2014 regime after 7 years of rock bottom levels likely due to the slump in the oil price around that time.

In turn this should be worth 3% on 10 year Treasuries. Their 2.25% YE forecast reflects a probability, rather than certainty, of this happening. Last month the 5-10 year expectation rose to a revised 3.0% with the 1yr at 4.6%.

This follows May’s employment report missing expectations. The 559k gain headline payrolls (496k private) was characterized by Cleveland Fed President Mester as “solid” but still short of “substantial further progress”. She also noted that the data are “not anywhere near a wage-price spiral”. While there was some evidence in the report that labour shortages are resulting in upward pressure on wages – high demand in the leisure & hospitality sector being the most obvious – we are clearly along way from normality in the US labour market. However things might change very quickly as the economy fully opens up this year.

Outside of US CPI the other main event of the week will be Thursday’s ECB meeting, where much attention will be on what sort of pace the Governing Council decides on for the bank’s PEPP purchases. Given the dovish tilt in the Council’s latest commentary, our economists expect the ECB to maintain the faster pace of PEPP purchases for the time being. However, they expect that after June the market focus will be on PEPP exit, as it is a pandemic policy and we expect exit to be confirmed in September or December. See here for their full note. Otherwise, the other G20 central bank policy decisions will come from Canada on Wednesday and Russia on Friday. There are no Fed governors set to speak this week as Saturday marked the start of their blackout period ahead of next week’s FOMC meeting. The rest of the data week is in the day by day calendar at the end.

Also worth noting is that ahead of this weekend’s G-7 meeting we saw an agreement in principle from the same seven countries for a minimum global corporation tax of “at least 15%” on overseas earnings. The focus will now shift to a meeting of G20 finance minister in July to see if we can get wider agreement and on long-running talks between about 140 countries at the OECD. Overall it’s been clear for the last couple of years, even before the pandemic, that a 40-year race to the bottom for corporate tax rates was coming to an end and was likely to reverse. The pandemic has accelerated this.

Turning to Germany’s state election now where Angela Merkel’s Christian Democrats are most likely to win in Saxony-Anhalt and fend off the AfD. According to projections from public broadcaster ARD, the CDU is on course to win 37%, an improvement over the 30% it received in 2016 in the state, while the far-right AfD, which was pushing for the lead in recent polls, is likely to be well back in second with 22% (24% five years ago). This was the final electoral contest before the national vote in September and will be a boost to the CDU’s Armin Laschet as he bids to succeed Merkel in the Chancellorship.

Day-by-day calendar of events, courtesy of Deutsche Bank:

Monday June 7

• Data: China May trade balance, imports, and exports, Japan preliminary June leading index, Germany April factory orders
• Central Banks: ECB Holzmann speaks

Tuesday June 8

• Data: Japan final Q1 GDP, final Q1 GDP deflator, April labor cash earnings, April BoP current account balance, Germany April industrial production and June ZEW survey expectations, France April trade balance, Italy April retail sales, Euro area final Q1 GDP and June ZEW survey expectations, US May NFIB small business optimism, April trade balance, and April JOLTS job openings

Wednesday June 9

• Data: Japan May M2 money stock and preliminary May machine tool orders, Germany April trade balance and current account balance, US weekly MBA mortgage applications, and final April wholesale inventories
• Central Banks: Bank of Canada monetary policy decision

Thursday June 10

• Data: Japan May PPI, France and Italy April industrial production, US May CPI, weekly initial claims, continuing claims and May monthly budget statement
• Central Banks: ECB monetary policy decision and ECB President Lagarde press conference, Bank of Canada Deputy Governor Lane speaks

Friday June 11

• Data: UK April industrial production, manufacturing production and trade balance, US preliminary June University of Michigan sentiment survey
• Central Banks: Russian Central Bank monetary policy decision
• Other: G-7 summit begins in Cornwall, England

Finally, focusing on just the US, Goldman writes that the key economic data releases this week are the CPI report and the jobless claims report on Thursday. There are no speaking engagements from Fed officials this week.

Monday, June 7

• There are no major economic data releases scheduled.

Tuesday, June 8

• 06:00 AM NFIB small business optimism, May (consensus 100.9, last 99.8)
• 08:30 AM Trade balance, April (GS -$68.0bn, consensus -$69.0bn, last -$74.4bn): We estimate that the trade deficit declined by $6.4bn to $68.0bn in April, reflecting the partial normalization of goods imports following their surge in March. Goods imports are now well above their pre-pandemic level, and goods exports are slightly above their pre-pandemic level. Both imports and exports of services have recovered only slightly from their 2020Q2 troughs, despite the pickup in March.
• 10:00 AM JOLTS Job Openings, April (consensus n.a., last 8,123k)

Wednesday, June 9

• 10:00 AM Wholesale inventories, April final (consensus +0.8%, last +0.8%)

Thursday, June 10

• 08:30 AM CPI (mom), May (GS +0.46%, consensus +0.4%, last +0.8%); Core CPI (mom), May (GS +0.50%, consensus +0.4%, last +0.9%); CPI (yoy), May (GS +4.74%, consensus +4.7%, last +4.2%); Core CPI (yoy), May (GS +3.55%, consensus +3.4%, last +3.0%): We estimate a 0.50% increase in May core CPI (mom sa), which would boost the year-on-year rate by six tenths to 3.55%. Our monthly core inflation forecast reflects reopening-driven strength in airfares, hotel prices, and recreation prices. Additionally, we expect strong monthly readings in used cars (+6%) and new cars (+0.5%), reflecting supply chain disruptions and microchip shortages. Given the pickup in our shelter tracker, the reversal of rent forgiveness effects, and continued strength in the housing market, we expect firming in housing rent categories (we estimate rent +0.25% and OER +0.30%). On the negative side, ARP Act aid for day care and college tuition could weigh on education CPI, and we are assuming a normalizing of alcohol prices with bars generally open. We estimate a 0.46% increase in headline CPI (mom sa), reflecting higher food prices and little change in energy prices.
• 08:30 AM Initial jobless claims, week ended June 5 (GS 355k, consensus 370k, last 385k); Continuing jobless claims, week ended May 29 (consensus 3,700k, last 3,771k): We estimate initial jobless claims decreased to 355k in the week ended June 5.

Friday, June 11

• 10:00 AM University of Michigan consumer sentiment, June preliminary (GS 86.0, consensus 84.2, last 82.9): We expect the University of Michigan consumer sentiment index increased by 3.1pt to 86.0 in the preliminary June reading.

Source: DB, Goldman, BofA

Bitcoin prices are rising  this morning after some pressure over the weekend (amid Musk and Miami’s chaos), after MicroStrategy announced it would be issuing an additional $400 million of bonds in order to acquire more bitcoins.

Full Statement:

MicroStrategy® Incorporated (Nasdaq: MSTR) (“MicroStrategy”) today announced that it intends to offer, subject to market conditions and other factors, $400 million aggregate principal amount of senior secured notes due 2028 (the “notes”) in a private offering to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) and to persons outside of the United States in compliance with Regulation S under the Securities Act.

The offering is subject to market and other conditions, and there can be no assurance as to whether, when or on what terms the offering may be completed.

The notes will be fully and unconditionally guaranteed on a senior secured basis, jointly and severally, by MicroStrategy Services Corporation, a wholly owned subsidiary of MicroStrategy, and certain subsidiaries of MicroStrategy that may be formed or acquired after the closing of the offering.

The notes and the related guarantees will be secured, on a senior secured basis with MicroStrategy’s existing and future senior indebtedness, by security interests on substantially all of MicroStrategy’s and the guarantors’ assets, including any bitcoins or other digital assets acquired on or after the closing of the offering, but excluding MicroStrategy’s existing bitcoins as well as bitcoins and digital assets acquired with the proceeds from existing bitcoins.

MicroStrategy’s existing approximately 92,079 bitcoins will be held by a newly formed subsidiary, MacroStrategy LLC.

MicroStrategy intends to use the net proceeds from the sale of the notes to acquire additional bitcoins.

MSTR CEO Michael Saylor’s main thesis remains that traditional investments lost all of their attraction and that, in real life, you can never own anything. Until Bitcoin, that is.

“For the first time in history, we can grant property rights to 7 billion people”

“I see bitcoin as the most secure, most reliable, most certain thing in the entire economic universe.”

“The reason bitcoin is going to win is because of its community’s ethos.“

It would appear Saylor is on board with Max Keiser’s view of the world…“We’re not selling! Fuck Elon!”

Authored by Isabel van Brugen via The Epoch Times,

Ukrainian President Volodymyr Zelensky on June 4 said that he is “disappointed” by U.S. President Joe Biden’s decision to lift sanctions on Russia’s Nord Stream 2 pipeline, saying that the leader of the democratic world has essentially provided Russia with “bullets” in doing so.

Ukrainian President Volodymyr Zelensky holds a press conference at the Antonov aircraft manufacturing plant in Kiev on May 20, 2021. (Sergei Supinsky/AFP via Getty Images)

“We [Ukraine] were very surprised,” Zelensky told Axios of the Biden administration’s decision last month to waive sanctions on the company and CEO overseeing the construction of Russia’s Nord Stream 2 natural gas pipeline project.

The pipeline, which is roughly 95 percent complete, would double the capacity of the existing Nord Stream duct to deliver gas from Russia to Europe via Germany under the Baltic Sea, weakening European energy security. It’s expected to be completed by this year, with Russian President Vladimir Putin announcing on June 3 that the first of the two lines is now complete and that Russia’s majority state energy company Gazprom is “ready to start filling Nord Stream 2 with gas.”

“Nord Stream 2 according to our understanding—according to the security understanding of not only Europe, I am sure, but also of the United States of America as our strategic partner—we understand that this is a weapon, a real weapon…in the hands of the Russian Federation,” Zelensky said.

“It is not very understandable, I feel, and definitely not expected, that the bullets to this weapon can possibly be provided by such a great country as the United States.”

A ship works offshore in the Baltic Sea on the natural gas pipeline Nord Stream 2 from Russia to Germany on Nov. 11, 2018. (Bernd Wuestneck/dpa via AP)

In late 2019, Congress and the Trump administration sanctioned a number of entities tied to the construction of the $10.5 billion pipeline. The sanctions were part of the National Defense Authorization Act, which had a stated goal to “minimize the ability” of Russia to use Nord Stream 2 “as a tool of coercion and political leverage” and to stop Russia from shifting energy exports from Ukraine to other countries. Russia vowed to continue the project at the time.

Russia has in the past cut fuel deliveries to Ukraine and parts of Europe in winter during pricing disputes.

In announcing the waiver of sanctions last month against Nord Stream 2 AG and its CEO, Matthias Warnig—a known ally of Putin—Secretary of State Antony Blinken said the company had engaged in sanctionable activity but that the move was in the U.S. national interest. The statement noted that although the United States will continue to oppose the project, the exemption of sanctions is in line with the commitment to rebuild relationships with European allies.

The Ukrainian president said that Biden had offered him “direct signals” that the United States was prepared to block the pipeline. The White House said as recently as January that the president believes the pipeline is a “bad deal for Europe.”

“I truly thought that when it came to Nord Stream 2, the United States remained the last standing outpost,” Zelensky said.

“We understand that only the U.S. is capable of stopping this construction.”

Zelensky told Axios that his anger upon learning of the news through a White House press briefing has now turned to disappointment.

“I learned about it through the press. I feel that… well, between strategic partners the relations should be direct,” he said.

Biden last month said that although he opposed the project from the beginning, the pipeline is now nearly finished, and cited the importance of good relations with Germany.

Zelensky said he understands the importance of the relationship between the United States and Germany but added: “How many Ukrainian lives does the relationship between the U.S. and Germany cost?”

“I believe that even if there was only one percent left [to be completed], it would still be possible to stop such a serious leverage that Russia will have in the future to influence energy security and Europe in general, including Ukraine,” Zelensky added. “Even if there was only one percent left, it just needs to be done.”

The Ukrainian president suggested that a “serious conversation, a serious roadmap” be held and laid out as part of a joint effort between the United States, the European Union, and Ukraine.

“I would like to reach a new level of relations with the United States…transparency, an understanding regarding the Membership Action Plan, regarding energy security of Ukraine…the assistance with returning our territories and defending our sovereignty,” he said.

Zelensky added:

“This is crucial for us, only because there’s a war going on, and our time is measured not in minutes but in human lives—the number of lives that we are losing at this war today.”

White House Press Secretary Jen Psaki said Biden and Russian President Vladimir Putin are set to meet in Geneva, Switzerland, on June 16 to “discuss the full range of pressing issues, as we seek to restore predictability and stability to the U.S.-Russia relationship.”

Zelensky, meanwhile, has offered to meet Biden “at any moment and at any spot on the planet” to discuss the issue before the meeting as “the guarantor of the Constitution of Ukraine.”

“I myself am ready to defend Ukraine at any moment,” he said.

Tesla shares started the week off down slightly after the company announced it was going to be cancelling its Model S Plaid+ vehicle and delivery data out of China corroborated our past reports on a slowdown in April. 

CEO Elon Musk said that the company was going to be calling off the longer-range Plaid+ because the company’s current Plaid model was “just so good”. 

Delivery data out of China over the weekend likely won’t help the automaker’s start to the week. The company “delivered 25,845 China-made vehicles in April, including 14,174 units shipped to overseas buyers,” according to China’s Passenger Car Association. 

Retail passenger vehicle sales were up 12.4% y/y to 1.64m units in April, Bloomberg noted Monday morning, but on a month-to-month basis, sales dropped 8.6%.

This happened against the ongoing backdrop of the semiconductor chip shortage and NEV sales in China booming. NEV passenger vehicle retail sales were up an astounding 192.8% y/y to 163,000 units, the report said. 

We noted just days ago that Tesla’s Global EV market share had slipped to just 11% in April, from 29% in March. It marked Tesla’s lowest monthly global market share since January 2019. The “greater than usual drop” came between the last month in Q1 and the end of the first month of Q2. 

The company’s market share in the world’s largest auto market – China – collapsed to 8% in April from 19% in March. That drop should be no surprise given the collapse in sales numbers we reported for Tesla in China last month. “GM remained the share leader in China in April, with a 20% share, driven by continued volume traction of the low cost Wuling HongGuang Mini,” Levy’s note, summarized by Bloomberg, pointed out.

 

Recall, in mid-May we noted that sales data coming out of China for April looked like it had dropped sharply. At that time, data from April showed that just 11,949 Tesla vehicles were registered in the country, down sharply from the 34,714 registrations in March, according to Bloomberg.

In addition to that data from China Automotive Information Net, additional data from China’s Passenger Car Association out last week showed that the company sold 25,845 Chinese-made vehicles in April, down from 35,478 in March. Separately, 14,174 EVs were exported, due to demand from Europe, the report notes.

In April, the company’s growth “slowed precipitously” after weeks of controversy that started with a protest at the Shanghai Auto Show calling into question the quality of Tesla’s brakes. What followed was weeks of negative press in China, where state media decried the company as “arrogant” and urged it to focus on the quality of its vehicles. 

US equity futures rebounded from a mild dip in the overnight session, rising back to just shy of all time high at 4,228 as of 7:45 am on Monday, shaking off Yellen’s Sunday comments that the US Tsy Secretary welcomes higher rates (i.e., inflation) which would be “good for the Fed and US society.”  World shares were range bound on Monday as markets digested Friday’s disappointing yet “Goldilock” jobs report and a global tax deal between the G7 group of countries, while also looking ahead to critical CPI data due Thursday. The dollar was steady while the 10-year rate added two basis points after Janet Yellen said on Sunday a slightly higher interest-rate environment would be “a plus” for society. WTI slipped after rising to $70 per barrel as short-term demand worries continued.

Yellen set the stage for Monday trading on Sunday when she said Biden should push forward with his spending plans even if they spark inflation that persists into next year. Meanwhile, the Group of Seven rich nations secured a landmark deal that could help countries collect more taxes from big firms and enable governments to impose levies on U.S. giants such as Amazon.com Inc. and Facebook Inc.

 

Investors were wary how shares of major tech firms would react to the G7’s agreement on a minimum global corporate tax rate of at least 15%, although securing approval not to mention enforcement from the whole G20 could be a tall order. So far, the reaction was muted with Nasdaq futures down 0.4%, highlighting investor concern that a pure growth narrative may no longer be enough to support stocks. Technology shares underperformed in Europe as well, with the benchmark gauge for the sector falling from the highest level since April.

“I would assume that it (the tax deal) is not helping the market in the sense that these Internet giants are going to be taxed more….it has an impact on sentiment in equity markets, but the reality is it has already been priced in,” said Sebastien Galy, senior macro strategist at Nordea Asset Management. “So even though equity markets in the U.S. are under pressure on the futures side, I’d expect it not to last till the end of the day.”

Here are some of the biggest U.S. movers today:

• Tesla shares fall 1.3% after the electric-vehicle maker called off plans to build a Model S Plaid+
• AMC Entertainment (AMC) gained as much as 3.5% in premarket trading, halting two days of declines for the money-losing movie theater chain that’s become the new favorite of meme-stock investors.
• Cryptocurrency-related stocks like Marathon Digital (MARA) and Riot Blockchain (RIOT) edge lower in U.S. premarkettrading following a dip for Bitcoin and other tokens over the weekend.
• Evofem Biosciences (EVFM) shares rise 10% in premarket trading after Morgan Stanley reported a stake in the biotech and amid touts for the stock on Reddit
• Liminal BioSciences (LMNL) soars 44%, extending a postmarket rally on Friday, after the U.S. FDA approved Ryplazim for the treatment of patients with plasminogen deficiency type 1 (hypoplasminogenia).
• Meme stocks including Sundial (SNDL) and Naked Brand (NAKD) advance in premarket, while AMC shares edge higher, reversing earlier drop

While resurgent inflation has sparked a debate about when the Fed will start tapering monetary accommodation, Bloomberg notes that recent data including the May nonfarm payrolls report on Friday seemed to vindicate the central bank’s dovish stance. Investors are trying to strike a balance between preparing for higher rates and riding a risk-on rally supported by Fed stimulus and a $4 trillion spending plan by President Joe Biden, which however is facing significant headwinds and may end up being substantially diluted before it passes. Traders await the U.S. consumer-price index report Thursday for more clues.

“The slightly softer-than-expected rise in U.S. payroll employment in May probably won’t change the Fed’s thinking, but another pickup in CPI inflation likely to be reported on Thursday will further spur the taper talk,” Shane Oliver, head of investment strategy and chief economist at AMP Capital, wrote in a note.

MSCI’s All-Country World index traded just below record highs and was flat on the day after the start of European trading.

European shares opened lower, easing from all-time highs with commodity shares leading declines as sentiment soured after weaker-than-expected China trade data and worries about inflation. Autos was the best performing sub-group in Stoxx 600 benchmark YTD, along with banks (+31%). The Stoxx 600 Automobiles & Parts index was poised to hit a record high, rising as much as 0.9% on Monday and with the sub-index up 31% YTD. So far in 2021, German automaker Volkswagen (+57%) and its controlling shareholder Porsche SE (+78%), and Daimler (+38%) are the top performers in the index.

Here are some of the biggest European movers today:

• Tessi SA shares rose as much as 35%, biggest intraday increase ever, after the business services company’s main shareholder said it planned an offer for the remaining stock at EU172 a share.
• Edenred gained as much as 3.5% in Paris after Deutsche Bank upgraded the stock, saying the French employee voucher company’s earnings may be surprisingly strong as economies reopen.
• S4 Capital jumped as much as 6.5% to a record after an AGM statement with Jefferies noting that the company raised its guidance again given accelerating growth so far in the second quarter.
• UniCredit advanced as much as 3% after Jefferies upgraded the stock to buy from hold and said brighter loan volume trends can support revenue at southern European banks, as the Italian lender has stronger gearing to a lending recovery.
• Elekta AB gained as much as 3.1% to the highest since November 2019 after the firm and Royal Philips agreed to deepen a strategic partnership.
• IWG slumped as much as 18% to the lowest since late January after the company warned 2021 earnings would be “well below” the previous year’s.
• Argenx fell as much as 9% after a Johnson & Johnson unit ended its collaboration and returned the rights to the anti-CD70 antibody cusatuzumab. The setback could shift sentiment on Argenx’s perfect track record of execution, KBC said in a note.
• Kinnevik dropped as much as 5.7% after Pareto downgraded to sell from buy, saying a strong performance made the stock expensive.

Asian equities swung between gains and losses as Hong Kong’s Hang Seng Index slid on the first day of trading following the start of its biggest-ever overhaul, while stocks in Singapore climbed. MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.05% and risked a fourth session of losses. Japan’s Nikkei edged up 0.3% and touched its highest in almost a month. Taiwan stocks lost 0.4% as a spike in COVID-19 cases hit three tech companies in northern Taiwan, including chip packager King Yuan Electronics.

Financials and internet giant Tencent were among the biggest drags on the MSCI Asia Pacific Index, while advances in consumer staples and healthcare shares cushioned the downside. The regional benchmark has traded sideways for the past few sessions after recovering back above its 100-day moving average. Traders continue to speculate that the U.S. recovery will be strong enough to prompt the Federal Reserve to taper asset purchases. Still, a weaker-than-expected American jobs report eased fears about the economy running too hot and lifted U.S. stocks Friday. “Last time the Fed decided to taper, in 2013, markets priced in tapering before it was certain,” SMBC Nikko strategists led by Masashi Akutsu wrote in a note. “Even if markets correct, we would not expect a sharp pullback since the May jobs report was not sufficient to force the Fed to pull future rate hikes forward.” Vietnam’s main equity benchmark tumbled more than 1%, as traders pointed to profit-taking after a recent strong rally. Markets in New Zealand and Malaysia were closed for holidays.

In key Asian eco data, China’s imports grew at their fastest pace in 10 years, although export growth missed expectations, customs data showed. China’s exports rose 27.9% yoy in May, slightly below expectations. This implies a sequential decline of 6.4% in May vs. +9.4% in April. Imports rose 51.1% yoy in May, also a slight miss to expectations, though sequentially, it fell 6.8% sa non-annualized in May (vs. +2.0% in April). Monthly trade surplus edged up to $45.5bn in May.

In FX, the greenback was still trading in follow through of Friday’s poor jobs report. While the 559,000 rise in May U.S. jobs missed forecasts it was still a relief after April’s shockingly weak report. The jobless rate at 5.8% showed there was a long way to go to reach the Federal Reserve’s goal of full employment. After Friday’s dollar tumble, the Bloomberg dollar index was steady and most Group-of-10 currencies traded in tight ranges against the greenback.

“The data was perfect for a goldilocks type outlook for risk: not too hot to bring in fears of a faster Fed taper, and not too cold to worry about the outlook for the recovery,” said NatWest Markets strategist John Briggs. “This caused a weaker USD, better stocks, reinforced the earlier bid in commodities, and boosted emerging markets.” Briggs suspected Fed officials might open the door to talking about tapering at the June policy meeting, with the start coming in early 2022 and a rate hike not until 2024.

Elsewhere, the pound led declines among Group of 10 currencies as concerns over whether the U.K. will be able to fully reopen the economy weighed on sterling. U.K. Health Secretary Matt Hancock has said it’s too early to say whether a planned easing of coronavirus restrictions on June 21 can go ahead, as ministers continue to weigh the threat of a potential fresh wave of the pandemic. The Aussie was little changed while Australian sovereign bonds traded higher, tracking gains in Treasuries on Friday after U.S. payrolls data missed estimates; S&P Global Ratings raised the nation’s rating outlook to neutral from negative. The yen kept consolidating versus the dollar while Japan’s 30-year government bonds erased gains ahead of an auction on Tuesday; benchmark 10- year bonds weren’t traded.

In rates, Yields on U.S. 10-year notes were a fraction higher at 1.58%, after diving 7 basis points on Friday and back to the bottom of the trading range of the last three months. Treasuries futures were near lows of the day as U.S. session begins, amid focus on this week’s Treasury supply following Friday’s squeeze higher after jobs report. Treasury yields are cheaper by 2bp-3bp across long-end of the curve — 10-year by 2.5bp at ~1.58% — with 20-year sector underperforming; long-end-led losses steepen 5s30s by ~1bp. Both bunds and gilts outperform Treasuries slightly over early European session. IG credit issuance is expected to be heavy this week, adding to cheapening pressure on Treasury yields. May CPI report is ahead on June 10, and no Fed speakers are slated ahead of June 16 FOMC meeting.

In commodities, the pullback in the dollar helped gold steady at $1,885 an ounce, up from a low of $1,855 on Friday. Oil prices ran into profit-taking after Brent topped $72 a barrel for the first time since 2019 last week as OPEC+ supply discipline and recovering demand countered concerns about a patchy global COVID-19 vaccination rollout.  Brent slipped 0.4% to $71.61 a barrel, while WTI eased 0.4% to $69.31 after rising above $70 for the first time since October 2018. Bitcoin rebounded above $36,000 after a roller-coaster ride over the weekend.

On today’s calendar there are no major events until 3pm ET when we get the April Consumer Credit report, est. $20.5b, prior $25.8bn. Attention will then turn to the U.S. consumer price report on Thursday where the risk is of another high number, though the Fed still argues the spike is transitory.  Investors are also watching the tussle over U.S. President Joe Biden’s proposed $1.7 trillion infrastructure plan with the White House rejecting the latest Republican offer. The European Central Bank will hold its policy meeting on Thursday and is widely expected to maintain its stimulus measures with tapering a distant prospect.

Market Snapshot

• S&P 500 futures down 0.15% to 4,221.75
• STOXX Europe 600 little changed at 452.96
• MXAP little changed at 210.16
• MXAPJ little changed at 704.68
• Nikkei up 0.3% to 29,019.24
• Topix little changed at 1,960.85
• Hang Seng Index down 0.5% to 28,787.28
• Shanghai Composite up 0.2% to 3,599.54
• Sensex up 0.3% to 52,282.40
• Australia S&P/ASX 200 down 0.2% to 7,281.89
• Kospi up 0.4% to 3,252.12
• Brent Futures down 0.82% to $71.30/bbl
• Gold spot down 0.34% to $1,885.11
• U.S. Dollar Index little changed at 90.173
• German 10Y yield rose 1.3 bps to -0.200%
• Euro down 0.06% to $1.2160

Top Overnight News from Bloomberg

• Treasury Secretary Janet Yellen said President Joe Biden should push forward with his $4 trillion spending plans even if they trigger inflation that persists into next year and higher interest rates
• Armin Laschet boosted his chances of succeeding Angela Merkelas German chancellor by helping secure a decisive victory for his Christian Democratic Union in the country’s poorest state
• China’s exports continued to surge in May, although at a slower pace than the previous month, fueled by strong global demand as more economies around the world opened up. Imports soared, boosted by rising commodity prices.
• German manufacturers unexpectedly saw demand decline in April, signaling that supply shortages and higher prices are undercutting the country’s economic recovery

Quick look at global markets courtesy of Newsquawk

Asian equity markets traded cautiously as the initial tailwinds from last week’s US jobs report eventually faded amid softer than expected Chinese trade data. ASX 200 (-0.2%) was choppy as the strength in tech and mining names was offset by underperformance in financials and with NAB among the worst performers as it faces an anti-money laundering investigation by AUSTRAC for potential serious and ongoing breaches. Nikkei 225 (+0.3%) rallied at the open and reclaimed the 29k level but then wiped out most of the gains amid the recent counterproductive moves in the local currency and broad cautious tone. Hang Seng (-0.5%) and Shanghai Comp. (+0.2%) were lacklustre as participants digested the latest Chinese trade data which mostly missed expectations and following punchy rhetoric from US officials on China including Secretary of State Blinken who said the Biden administration will get to the bottom regarding the origins of COVID-19 and that the US will hold China accountable, while US Trade Representative Tai commented that the US-China trade relationship has “significant imbalance” and that the Biden administration is committed to levelling it. The declines in Hong Kong were led by casino names after reports that Macau is to block non-residents entering from Guangdong beginning June 8th, although the world’s largest pork producer WH Group is at the other end of the spectrum with firm gains following the announcement of a USD 1.93bln share buyback. Finally, 10yr JGBs held on to Friday’s after-hour gains amid a surge in T-notes following the NFP miss but with further upside in Japanese bonds capped as Japanese stocks just about remained afloat and with the absence of the BoJ’s Rinban operations today, while the Aussie 10yr yield was lower by about 6bps after it tracked recent downside in global peers and with the RBA also conducting its regular QE operations.

Top Asian News

• Flipkart Is Said in Talks for $3 Billion From SoftBank, Others
• Thailand Ramps Up Vaccine Rollout as Phuket Reopening Nears
• Evergrande Slumps to One-Year Low as Regulators Tighten Grip
• Saudi Wealth Fund, Early Alibaba Investor Back Jordanian Startup

European equities trade with no firm direction (Euro Stoxx 50 Unch.) having experienced a mild downside bias at the cash open, whilst APAC markets closed mixed after the broader NFP-induced optimism waned. US equity futures are also trundling lower with the YM (-0.1%) faring slightly better than its ES (-0.2%), NQ (-0.4%) and RTY (-0.4%) counterparts, whilst US Treasury Secretary Yellen over the weekend sounded more comfortable with the prospect of higher rates, stating that it would be a “positive” for the country. Nonetheless, the overall tone of the market is similar to tentativeness last week heading into the US open, with news flow also on the quiet side. Sectors in Europe are now mixed after opening largely in the red. Basic Resources are weighed on by the subdued base metal prices after Chinese trade data missed the mark. Autos and Banks are among the top performers whilst Tech resides among the laggards alongside Healthcare. Sectors overall do not portray a clear overarching theme. In terms of individual movers, Royal Mail (+2.6%) sits as one of the Stoxx 600 winners as the Co. takes steps to fend off competition by offering timed delivery slots from next year. Reckitt (-0.1%) failed to garner much traction despite reports that it entered an agreement to sell its infant formula and child nutrition businesses to Primavera Capital Group for an enterprise value of USD 2.2bln. IWG (-16%) meanwhile plumbs the depths after a downbeat trading update in which it now sees underlying EBITDA to be well below 2020 levels.

Top European News

• Tesco and Carrefour to End Buying Alliance and Go It Alone
• Merkel’s Heir Bolsters Bid for Chancellorship With State Win
• Oman Hires Advisers Including Citi, HSBC for Islamic Bond Sale
• Bankers Demand Clarity as Sweden Watchdog Balks at ESG Rules

In FX, a choppy start to the week for the broader Dollar and index, with the latter managing to remain above its 21 DMA (90.108) vs the 90.023 post-NFP low print. The index notched a current intraday high at 90.302, but news flow and catalysts have remained light as traders set sights on this week’s ECB and US CPI. On that note, ECB and Fed speakers also remain scarce for the week as officials observe their respective pre-meeting blackout periods.

• AUD, NZD, CAD – All vary vs the Greenbank but with the breadth narrow. The Aussie narrowly outperforms amid a rise in Chinese imports and S&P affirming its rating but upgrading the Aussie outlook. Some tailwinds could also be derived from technical factors as the pair topped its 50 and 100 DMAs (0.7723 and 0.7726 respectively) as it eyes the 0.7750 marks, coinciding with the 21DMA. NZD/USD meanwhile probes 0.7200 having had traded on either side of the mark, but with upside contained as the AUD/NZD cross eyes 1.0750 to the upside. The Loonie, meanwhile, lags as oil prices pull back after WTI briefly notched USD 70/bbl.
• EUR, GBP – Sterling sees slightly more pressure vs the EUR – possibly technical as EUR/GBP tops 0.8600, but with some tailwinds emanating from more noise surrounding the Northern Irish protocol between Britain and the EU bloc, with weekend reports suggesting that Brexit European leaders are drawing up plans to impose trade sanctions on Britain and accused UK PM Johnson of “taking them for fools” over the Northern Ireland protocol. Cable has dipped back below its 21 DMA (1.4141) from a high of 1.4170 with no follow-through from a slight beat in May Halifax House Prices, whilst EUR/USD trades on either side of 1.2150 after testing but failing to breach its 21 DMA at 1.2173.
• JPY – USD/JPY remains caged on both sides of 109.50 but still north of its 21 and 50DMA at 109.28 and 109.19 respectively, with the pair also eyeing several sizeable OpEx north of 109.50, with USD 1.25bln rolling off at the half-number.

In commodities, WTI and Brent front month futures are subdued as sentiment remains indecisive after the post-NFP optimism seen on Wall Street on Friday waned. WTI Jul however printed USD 70/bbl for the first time since 2018 before giving up gains and some more as it trades around USD 69/bbl at the time of writing. Brent Aug meanwhile resides in the low-USD 71/bbl levels after hitting a session high of USD 72.27/bbl. Oil-specific news flow has been quiet, although this week sees the trio of monthly oil market reports – with focus likely to fall on the demand picture heading into summer and risks surrounding Iranian oil returning to the market. OPEC-related commentary (i.e. production figures) will likely be stale given the monthly meetings and set quotas through July. Elsewhere, precious metals are subdued but holding onto a lion’s share of its post-NFP gains, with spot gold in a USD 10/oz range around USD 1,880/oz and spot silver just north of USD 27.50/oz as yields and the Buck dictate price action, although the former sees its 21 DMA (1,873/oz) in the vicinity. Turning to base metals, LME copper remains sub-10,00/t as China’s unwrought copper imports fell M/M in May on record-high prices, whilst BHP kicks off labour talks with workers from its largest Chilean mine, Escondida, with initial proposals for a new contract submitted on Friday – the Co. has 10 days from the receipt date to respond to the union.

US Event Calendar

• 3pm: April Consumer Credit, est. $20.5b, prior $25.8b

DB’s Jim Reid concludes the overnight wrap

The big event this week is undoubtedly Thursday’s US CPI release. Consensus estimates for May currently expect both the headline and core rate to rise +0.4% month-on-month which would lift the YoY rate to 4.7% and 3.4% respectively which will be the highest since late 2008 and 1993 which would be a pretty impressive feat especially on the core. This will undoubtedly be the most watched data release this year so far.

We will also pay close attention to the inflation expectations data in Friday’s University of Michigan consumer sentiment survey (89.0 vs 82.9). To beat a well worn drum, our rates strategists feel that expectations are heading back to their 1998-2014 regime after 7 years of rock bottom levels likely due to the slump in the oil price around that time. In turn this should be worth 3% on 10 year Treasuries. Their 2.25% YE forecast reflects a probability, rather than certainty, of this happening. Last month the 5-10 year expectation rose to a revised 3.0% with the 1yr at 4.6%.

This follows May’s employment report missing expectations. The 559k gain headline payrolls (496k private) was characterised by Cleveland Fed President Mester as “solid” but still short of “substantial further progress”. She also noted that the data are “not anywhere near a wage-price spiral”. While there was some evidence in the report that labour shortages are resulting in upward pressure on wages – high demand in the leisure & hospitality sector being the most obvious – we are clearly along way from normality in the US labour market. However things might change very quickly as the economy fully opens up this year.

Note that our US economists will be hosting a webinar with William English, Professor in the Practice, Yale School of Management and former Director of the Division of Monetary Affairs at the Federal Reserve Board, tomorrow at 09:00 EST / 14:00 BST / 15:00 CET to discuss the outlook for Fed policy (See “The outlook for Fed policy: Taper timeline and beyond” to register for the event). This is all ahead of next week’s FOMC.

Outside of US CPI the other main event of the week will be Thursday’s ECB meeting, where much attention will be on what sort of pace the Governing Council decides on for the bank’s PEPP purchases. Given the dovish tilt in the Council’s latest commentary, our economists expect the ECB to maintain the faster pace of PEPP purchases for the time being. However, they expect that after June the market focus will be on PEPP exit, as it is a pandemic policy and we expect exit to be confirmed in September or December. See here for their full note. Otherwise, the other G20 central bank policy decisions will come from Canada on Wednesday and Russia on Friday. There are no Fed governors set to speak this week as Saturday marked the start of their blackout period ahead of next week’s FOMC meeting. The rest of the data week is in the day by day calendar at the end.

In Asia, markets have started the week on a mixed footing with the Nikkei (+0.32%) and Kospi (+0.36%) up while the Hang Seng (-0.77%) and Shanghai Comp (-0.21%) are down. Meanwhile, futures on the S&P 500 are down -0.10% while those on the Stoxx 50 are also down -0.07%. In terms of overnight data releases, China’s May exports came in at +27.9% yoy (vs. +32.1% yoy expected) while imports came in at +51.1% yoy (vs. +53.5% yoy expected).

In other interesting overnight news, US treasury secretary Janet Yellen said that President Joe Biden should push forward with his $4tn spending plans and added that “If we ended up with a slightly higher interest rate environment it would actually be a plus for society’s point of view and the Fed’s point of view.” She also said that Biden’s packages would add up to roughly $400bn in spending per year and contended that it’s not enough to cause an inflation over-run. Yields on 10y USTs are up +1.6bps this morning to 1.571%.

Ahead of this weekend’s G-7 meeting we saw an agreement in principle from the same seven countries for a minimum global corporation tax of “at least 15%” on overseas earnings. The focus will now shift to a meeting of G20 finance minister in July to see if we can get wider agreement and on long-running talks between about 140 countries at the OECD. Overall it’s been clear for the last couple of years, even before the pandemic, that a 40-year race to the bottom for corporate tax rates was coming to an end and was likely to reverse. The pandemic has accelerated this.

Turning to Germany’s state election now where Angela Merkel’s Christian Democrats are most likely to win in Saxony-Anhalt and fend off the AfD. According to projections from public broadcaster ARD, the CDU is on course to win 37%, an improvement over the 30% it received in 2016 in the state, while the far-right AfD, which was pushing for the lead in recent polls, is likely to be well back in second with 22% (24% five years ago). This was the final electoral contest before the national vote in September and will be a boost to the CDU’s Armin Laschet as he bids to succeed Merkel in the Chancellorship.

Now finally to review last week. Risk assets performed well for a second straight week with equities advancing to new highs in Europe, with the STOXX 600 up +0.80% to a new record. The S&P 500 was up +0.61% to close less than 0.1% away from its record closing high from early May. Large-cap tech did particularly well with the NYFANG index posting its third straight weekly gain (+0.99%) after falling for the previous four weeks.

With inflation expectations abating, sovereign bonds gained again last week, with yields on 10yr Treasuries down -4.1bps to 1.553%, with much of that drop coming on Friday (-7.2bps) following the weaker payrolls data. This was the 7th weekly decline in yields in the last 9 weeks. The decline on Friday was driven by lower real rates (-6.1bps) however the weekly drop in yields was more driven by the drop in inflation expectations (-2.7bps). In Europe, sovereign debt also performed well, with yields on 10yr bunds seeing a -3.0bps decline. Lastly, commodity prices rose to a new high as the Bloomberg commodity spot index rose +2.00%, led in part by oil prices reaching two year highs with Brent Crude (+3.25%) and WTI (+4.98%) seeing a strong week even as copper prices (-3.17%) sagged.

On the data front, the US job report showed +559k new jobs, less than the 675k expected, with no significant upward revision to last month’s historic miss.

 

 

In a surprise announcement made via his Instagram account, Amazon founder Jeff Bezos has revealed that both he and his brother, Mark Bezos, will join the crew and passengers when the Bezos-owned Blue Origin shuttle makes its first commercial flight into space on July 20.

Bezos and his brother will be accompanied by the winner of an online auction that Blue Origin is currently hosting to determine who will join them on the flight. Right now, the winning bid stands at $2.8MM. The Blue Origin launch of its suborbital, reusable New Shepard rocket will now be responsible for another famous first: the first time a billionaire has even been launched into space. Virgin Galactic, by contrast, has flown to space multiple times with test pilots and astronauts, though the company’s founder, Sir Richard Branson, is expected to travel onboard during an upcoming trip. Elon Musk has never flown on a SpaceX launch, though he has suggested in the past that he will fly on one of his company’s vehicles at some point.

The video announcement was notably sentimental, beginning with Bezos waxing poetic about how seeing the Earth from orbit “changes you”, before going on to state that his brother is his “best friend” and that he couldn’t imagine taking the trip with anybody else.

 

 

 

 

View this post on Instagram

 

 

 

 

 

 

 

 

 

 

 

A post shared by Jeff Bezos (@jeffbezos)

As if auctioning off a seat on the vessel wasn’t novel enough, the first commercial flight carrying civilians to space will also feature the world’s richest man.

TechCrunch reminds us that Blue Origin’s New Shepard has flown many missions without a human crew, nearly all of which have been successful, except for the first flight, where the reusable booster was lost. As a reminder, the New Shepard rocket doesn’t go all the way to orbit, but instead flies to the edge of space, where passengers experience a few minutes of weightlessness and an unbeatable view of Earth through the capsule’s many windows, before returning to a parachute-assisted landing on the ground in Texas near Blue Origin’s launch site.

The identity of the auction winner will soon be known. The final phase of the auction is set for June 12. It will include live online bidding from remaining participants who will compete to bump their existing bids to match the high offer.

Dozens were killed after two express trains in southern Pakistan collided Monday morning, killing at least 32 and injuring 80 others, according to NYTimes. 

The Sir Syed Express train collided with the Millat Express in the southern Sindh Province between railway stations. The collision took place after the Millat Express derailed and the Sir Syed Express hit it afterward. It wasn’t clear why the Millat Express train derailed.

At least 30 passengers have been killed after 2 express trains collided in southern Pakistan.

Passengers are still trapped in the wreckage of the Millat Express train as authorities arrange heavy machinery to rescue those crying for help https://t.co/VZxwyzSHBF #TrainAccident pic.twitter.com/RXyTUiEEte

— Bloomberg Quicktake (@Quicktake) June 7, 2021

Prime Minister Imran Khan tweeted that he was “shocked by the horrific train accident at Ghotki early this morning leaving 30 passengers dead” and requested the “Railway Minister to reach site & ensure medical assistance to injured & support for families of the dead.” 

Khan also called for a “comprehensive investigation” into the deadly crash. 

Pakistan Railways Minister, Azam Khan Swati, released a statement that said an inquiry into the collision is underway. “It is too early to say whether the accident was due to sabotage or due to the dilapidated condition of the train track,” he said. 

Khan, who came to power in 2018, has promised to overhaul the country’s train network, which seriously needs to be modernized and better maintained.

Train accidents under Khan’s government have been all too frequent. In 2019, more than 70 passengers were killed when a train caught fire.

Some Millat Express train passengers were headed to a wedding, local media reported. It was not known if they were among the dead or wounded. In total, there were 1,100 people aboard both trains.