Month: July 2021

If you don’t look close enough, you may not notice that ARK Funds are slowly and quietly backing out of one of their hottest investments, Roku.

Ark Investment Management sold another 47,200 shares on Wednesday this week, according to Bloomberg, which brings their total number of shares sold since June 30 up to 520,000. 

The sales could just be managing the size of ARK’s position, as Roku shares are up 69% from this year’s low in May. However, Wood had been “touting” Roku just two weeks ago. Wood “told CNBC in an interview in the middle of the month that it would be a mistake to sell stay-at-home winners,” the report noted.

She made the case on CNBC that the company was well positioned coming out of the pandemic, Insider notes. 

In July, Wood said: “Roku is a very important name to us. What we believe is the coronavirus crisis changed the world dramatically and permanently, and when consumers and businesses find faster, cheaper, better, more productive, more creative – they’re not going back to the old world.”

Eric Balchunas, an ETF analyst for Bloomberg Intelligence, commented: “Wood’s process is to sell winners and buy losers in small daily doses. Roku has been the biggest contributor to ARKK’s returns this year so it would be consistent with her strategy to lock in some of those gains and buy into stocks she likes but have struggled.”

Roku is still one of ARK’s biggest holdings, making up 6.5% of the ARK Innovation ETF. The company is set to report earnings next week. 

Authored by Bill Blain via MorningPorridge.com,

“Trying to explain economics to a politician is a bit like explaining a guitar to a puppy..”

Markets and data have been posting strong numbers, but all around are warnings on future outlook problems. Politicians are keen to claim victory over the pandemic, but the science increasingly points to Covid becoming a very long-lived problem and long-term threat to global activity

It’s been a fascinating end to July. To balance the roller-coaster of uncertain Chinese policy, we’ve seen a slew of excellent US Big Tech results – leaving aside y’day’s damp-squib of the RobinHood IPO – but each with a sting-in-the-tail; warnings of more difficult conditions to come as chip shortages and other supply chain breaks.

In the UK, suddenly the buoyant housing market has spluttered post a stamp duty holiday. Despite superb economic numbers in the UK and US, predictions of record growth (and even talk again about v-shaped recovery), and businesses expansion – there are dark warnings of slower conditions to come. It’s the usual mix of uncertainties – the kind of stuff wizened old market watchers like me can warble on incessantly about..

The fly in the recovery ointment remains the Pandemic. (Conveniently brushing over any looming climate change threat…)

To be blunt – the Pandemic is not the one we expected. Films like Contagion and all the stuff we’ve read about the Black Death and the Spanish Flu had scared us and prepared us for shocking casualty rates, a decimated population and serious labour shortages. We were expecting something more brutal, more bloody and more apocalyptic than being told to wash our hands more often and being shouted at for not wearing a mask on an empty train.

We all saw the films of packed hospitals and exhausted staff, but they never were overwhelmed. The mood in the City has moved on from fear to “enough is enough, time to move forward”, but that’s a rarefied perspective. Down on the shop floor of the global economy, Covid is very much still with us, and will continue to exert its malign influence.

The critical thing is the Pandemic doesn’t need to slaughter us in hordes to create ongoing economic mayhem.

Covid works even better against our economic interests by establishing itself as a long-term break on global economic activity. Although we may be winning the opening battle versus Covid – the war is by no means over.

I read in the FT this morning there is a Goldman note out there saying economies with high vaccination rates could increasingly live with the virus, and “vaccinations have been a key factor that has kept hospitalisations low”. Across Europe there are “manageable Delta variant risks”, which all sounds very positive for 2021 growth and a strong recovery into next year.

The UK’s vaccine rollout has been extraordinarily successful. More than 70% of adults are now fully vaccinated and over 88% have had at least one dose. The numbers who are unvaccinated but have had the bug is unknown, but probably increases the underlying number who are presently immune; in other words the UK may well have reached “herd immunity”. That may prove a short-lived victory as we roll through the alphabet of variants yet to come.

Expectations of 100,000 new daily Delta infections have been turned on their head by infections actually falling for most of the last 10 days.. The scientists are baffled and at a loss to explain why their models didn’t predict slowing infections, but a good answer might be… the virus is running out of people to infect here in Blighty – in its current form.

However, while the UK’s vax rollout has succeeded, the same is not true everywhere else. Sydney is back in lockdown. In the US, Apple is insisting customers and staff mask up. The US saw 6.5% growth in Q2 and is set for 6.3% in Q3, but President’s Biden’s demand federal workers are vaxed risks further politicising the vaccine issue, and putting the nation on collision course. Some states are struggling to get vaccination rates above 40% in the face of increasing antipathy towards the programme.

Across the globe vaccine delays and refusal appear to be growing – problems range from fake news creating pushback, availability, deliberate government policy to focus on closed borders rather than rollout, logistics and the usual organisational clusterf*cks that characterise anything incompetent governments touch. Thankfully, most nations have vocationally driven and inspired health services who have done their incredible best to cope with whatever dross they’ve been thrown by those in power.

We are now at a peculiar nexus point between the Economy, Politics and the Science. It’s been a learning curve for us all. You have to give the West pretty high marks for the economic response; spending money to shore up corporates, furlough payments and support packages – unfortunately all that debt and rate distortion will have long-term consequences. Politics has danced a pretty jig between empathy for victims, aligning themselves with the medical heroes, and trying to keep economies functional.

However, it’s the science that really matters. The scientists had to play catchup – understanding the virus, anticipating how it will spread, modelling with basic information and predicting how it evolves. Now are we discovering there is a fourth component to the crisis – Time.

The virus timeline looks something like this: A new virus is detected and establishes itself. Efforts to contain it via lockdowns fail. The virus spreads and multiplies to become a global crisis. Countermeasures are established to treat (new therapies) and prevent (vaccines). But over time the virus mutates.

Over time you would expect any virus to mutate into a form that is easily transferrable, highly infectious, but low risk so that it maximises its opportunities to infect by not killing hosts. It takes time for virus evolution to occur.

At the moment it appears we are still in the early mutation phase. It has branched off into multiple variations – and that’s why we are all going to become overly familiar with schoolboy Greek – Beta and Delta being the ones we worry about today. Tomorrow it may be Lamda and Pi. The dominant virus types are those that have evolved to spread most easily – like Delta – but the virus has not evolved itself to be any less dangerous. One major success of the vaccine programmes has been to give enough immunity and prepare us for when we are infected with new variants our bodies are primed and ready to fight.

The virus is now so widespread and endemic in the population that Covid mutations are going to become increasingly random – new variants popping up everywhere and anywhere as it mutates. 99.9% of them won’t be any worse than the current variations, but the 0.1% may be more aggressive and more dangerous.

The wider spread of Covid also means it’s too late for us to contain it. If everyone was vaccinated tomorrow, we still could not stop a new variant emerging. As a result.. the war on Covid continues.. and that means booster shots, and the potential of further lockdowns.

Long-term Covid is here to stay. Long-term we will cope with it and it will mellow, but till then it’s got the potential of remaining an economic brake on activity – and I just wrote all that without even mentioning Covid will be occurring alongside long-term Climate Change…

Ouch. Indeed…

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The CDC is clearly concerned that it’s losing the PR war to convince Americans that they must mask up and get vaccinated. Because less than a week after declaring that it would revive its mask mandate, the CDC has just pulled a classic media trick: turning the fearmongering nob up to ’11’ by leaking an “internal report” that supports the official narrative (even making it look like the more moderate of two options) while laundering the source of the information by allowing a reputable news org to market the story as an “exclusive”.

A slide deck apparently shared widely inside the agency in the weeks after it first lifted the original mask mandate in May shows that the delta variant appears to cause more severe illness in younger patients, while spreading as easily as “chickenpox.” What’s more, it warns that the vaccine’s ability to spread via infecting the already vaccinated means the CDC should impose even more stringent guidance – the presentation called for “universal masking.” The document “strikes an urgent note, revealing the agency knows it must revamp its public message to emphasize vaccination as the best defense against a variant so contagious that it acts almost like a different novel virus.”

Most critically, the slide deck includes “still-unpublished data” from studies showing that even the vaccinated might be able to transmit the virus as easily as the unvaccinated.

According to the Washington Post, the material in the report was “so alarming” that it prompted the CDC to reconsider its masking guidance, and President Biden to impose his federal employee vaccination mandate (with a few notable exceptions) despite his earlier promises not to do so.

Not only does the presentation include “new science”, it also suggests “a new strategy” for communicating the urgency of the situation to the public, noting that “public trust in vaccines might be undermined” when people hear about breakthrough infections. At one point, the deck declared that “the war has changed,” describing delta as if it were a totally new virus.

Well, maybe Pfizer and the government should have thought about that before they published obviously inflated efficacy numbers of +90%.

Despite that obvious blunder, WaPo was still able to fund a talking head to praise the government’s vaccine strategy.

Matthew Seeger, a risk communication expert at Wayne State University in Detroit, said a lack of communication about breakthrough infections has proved problematic. Because public health officials had emphasized the great efficacy of the vaccines, the realization that they aren’t perfect may feel like a betrayal.

“We’ve done a great job of telling the public these are miracle vaccines,” Seeger said. “We have probably fallen a little into the trap of over-reassurance, which is one of the challenges of any crisis communication circumstance.”

Data showing the vaccines aren’t as effective against the variants isn’t exactly groundbreaking. We’ve seen similar reports from other sources, notably the Israeli Health Ministry.

The thing to remember here is that this data is already dated. The story readily admits the presentation was circulated months ago.

Former FDA head Dr. Scott Gottlieb has highlighted data suggesting that the US outbreak will follow a similar trajectory as delta-driven outbreaks in the UK and Europe. The pattern is already most obvious in states like Missouri, one of the original hotbeds for the delta outbreak.

The key to understanding this is a rate known as Rt, a representation of how many people are being infected by each new case. When it falls below 1, that means the rate of viral spread is slowing. And the data suggest that it’s already on that trajectory.

The UK Defence Ministry is confirming an overnight attack on an Israeli-managed tanker in the Arabian Sea off the Coast of Oman. Though few details have been given, or whether the incident could have been related to piracy – which is not uncommon in those waters – suspicions are on Iran given the recent history of tit-for-tat vessel attacks in Mideast waters.

London-based Zodiac Maritime, owned by Israeli billionaire Eyal Ofer, has issued a statement saying two crew members died as a result of the attack, including one Romanian and one British crew member, aboard what’s been identified as the “Mercer Street” petroleum products tanker.

Zodiac Maritime initially described the late Thursday incident as a “suspected piracy incident”. The statement indicated “At the time of the incident the vessel was in the northern Indian Ocean, traveling from Dar es Salaam to Fujairah with no cargo onboard.” Zodiac manages the operations of the Japanese-owned vessel.

However in announcing an investigation underway, the British military’s Maritime Trade Operations contradicted this early piracy assessment, pointing to a sabotage attack likely by foreign state-backed operatives:

Britain’s maritime authorities said earlier in the day that the attack occurred 175 miles off the Port of Duqm on Thursday, adding that the incident was not related to piracy.

According to tracking details in The Associated Press based on UK military statements, “The attack Thursday night targeted Liberian-flagged oil tanker Mercer Street just northeast of the Omani island of Masirah. The location is over 300 kilometers (185 miles) southeast of Oman’s capital, Muscat.” One unconfirmed report from a maritime security risk management firm is pointing to a possible drone attack.

This would be a significant escalation here, if true–@GlobalDryad reports the attack on the Israeli-operated Mercer Street resulted in two casualties & says the method of attack was “possibly UAV.” https://t.co/cfwjRChbdw

— Jason Brodsky (@JasonMBrodsky) July 30, 2021

The AP was also quick to acknowledge suspicions of Iranian covert action, despite the initial suggestion of a piracy incident: “Other Israel-linked ships have been targeted in recent months as well amid a shadow war between the two nations, with Israeli officials blaming the Islamic Republic for the assaults. Israel meanwhile has been suspected in a series of major attacks targeting Iran’s nuclear program,” the report said.

“This is the second time this month a ship tied to Ofer apparently has been targeted. In early July, the Liberian-flagged container ship CSAV Tyndall, once tied to Zodiac Maritime, suffered an unexplained explosion on board while in the northern India Sea, according to the U.S. Maritime Administration,” the report underscores. It will be interesting to see if the US Navy’s 5th Fleet, which patrols the region, will respond to the area of the incident.

Past incidents have tended to not result in casualties, thus this latest serious incident if confirmed to have had Iranian involvement would mark a huge escalation, possibly even derailing the stalled Vienna nuclear talks, also at a sensitive moment for domestic politics in the Islamic Republic, given hardline president-elect Ibrahim Raisi is due to enter office August 3rd. 

Following May’s weaker than expected data on Americans’ income and spending, analysts expected more weakness in income and a small bounce in spending in June, however both saw improvement with Personal Incomes rising 0.1% MoM (-0.3% exp) and Personal Spending up 1.0% MoM (+0.7% exp).

May’s income was revised down from -2.0% to -2.2% MoM and spending revised lower from -0.4% to -0.6% MoM.

Source: Bloomberg

Incomes are up 2.3% YoY while spending remains up 13.6% YoY, thanks largely to base case effect still…

Source: Bloomberg

All of which means the savings rate tumbled (to 9.4%, the lowest since Feb 20202, pre-COVID)

Remember when the world’s prognosticators crowed of the pent-up demand coming any minute from the $2.5 trillion in excess savings… well that number is now down to just $1.7 trillion (almost back to $1.3 trillion ‘norms).

Finally, and perhaps most importantly, The Fed’s favorite inflation indicator – PCE Core Deflator – rose to +3.5% YoY (vs 3.4% in May), the highest since July 1991…

Source: Bloomberg

This was slightly lower than expected (if that is any silver lining) but still doesn’t look very transitory.

Earlier this week we said that Exxon will likely beat expectations largely thanks to surging plastic prices and that precisely what happened. As the company reported moments ago, while prices and margins for crude, nat gas and downstream were all in the from 2010-2021 range, chemicals were a major outlier and well outside the historical range largely thanks to the skyhigh price of petrochemicals.

What is also notable here is that while the vaccine rollout is helping improve global demand, this is being partially offset by persisting lockdowns and outbreaks, and as a result “Margins remain below 10-year lows driven by product oversupply and international jet demand.”

As the next chart from the company’s earnings presentation shows, PET industry margins in Europe and North America were between 200% and 300% higher compared to Q1 2019. The company said there were four big drivers behind the surge: “increased packaging” (that’s the Amazon.com e-commerce boom) and “hygiene demand” (that’s Covid-19 mask and other stuff), plus “strong recovery in automotive” (after sales plunged in 2020) and “durable applications” (more household items like TV screens bought with checks from the government).

Naturally, higher oil prices did not hurt and the company beat on the top and bottom line despite a continued slowdown in production. Here are the details:

• Q2 Revenue $67.74BN, beating Exp. $66.86BN
• Q2 Adj EPS $1.10 vs. Loss/Shr 70.0C Y/Y, and beating exp. of $0.99
• Q2 Capex $3.80B, beating exp. $3.31B, but looking ahead Exxon sees FY capex on the low end of its $16B to $19B guidance

The company reported price and margin improvements across all businesses with continued demand recovery; this however was offset by unfavorable mark-to-market impacts on open trading strategies with higher prices as well as higher planned maintenance across all businesses. On the other side, the company benefited from lower corporate and financing expenses and favorable tax items

Some more details:

• Q2 Upstream Earnings $3.19B, Est. $3.05B
• Q2 Downstream Loss $227M, Est. Loss $155.6M
• Q2 Chemical Earnings $2.32B, Est. $1.94B
• Q2 Production 3,582 Mboe/D, Est. 3,683

Some more detail on upstream…

… and downstream….

Of note, Exxon said it cut Permian drilling and fracking costs by 40% while taking more than a third out its lease-operating expenses. The company hired hands of the oil patch have been on an efficiency tear over the past few years, able to do more for less. Explorers are able to get the same amount of output with less rigs compared to a few years ago. Additionally, due to growing activist pressure from the ESG army, the company said it achieved record-low flaring intensity in the Permian in the second quarter. Flaring intensity was down 30% compared with 2020.

Exxon also reported upstream production of just 3.58 million barrels a day due to “government mandated curtailments” and lower seasonal gas demand in Europe, which while higher than the 3.395 million b/d expected, was the lowest in at least 15 years, according to Bloomberg data.

“Margins remain below 10-year lows driven by product oversupply and international jet demand.”

As Bloomberg notes, the oil giant definitely appears to be in harvest mode, sacrificing production growth for up-front cash flows today. Given its debt situation, that’s understandable.

Elsewhere, Exxon guided to the lower end of its $16-$19BN capex range. As Bloomberg notes, like many of its peers Exxon is planning to boost spending in the second half of the year amid higher oil and natural gas prices. But the budget will be focused on key projects, including in Guyana, Brazil, the Permian and the chemical segment, with full-year spending toward the lower end of the $16 billion-$19 billion guidance range.

Also looking ahead, drawing from the boost in chemicals earnings Exxon is moving ahead with a bunch of projects mainly in the U.S., according to its slide presentation. Three of those are in the Gulf Coast, including the startup of its new Corpus Christi site in 4Q.

How about the balance sheet? Well, after the aggressive debt issuance in 2020, the company is in deleveraging mode, reporting $2.7 billion in debt reduction in the quarter, which was just below the $3.7 billion paid out to shareholders as dividends. This was thanks to a whopping $9.7 billion in cash from operations. While the debt paydown was significant it was lower than the $4 billion cut in 1Q. As a result, net debt now stands at about $57.1 billion, down $7 billion from year end 2020.

Finally, here is the company’s plan on how to grow the stock price further:

Echoing what we said above, RBC analyst Biraj Borkhataria pointed to chemicals as being the “standout performer again” while poor refining margins are weighing on downstream earnings. Still, the bank expects the market to look past this given that at $10 billion, its cash flow from operations “is a strong underlying result.” The bank continues to see Exxon as underperforming with its low free cash flow yield lagging its peers.

RBC’s Borkhataria also notes that Exxon’s slide presentation shows it plans to grow its low-carbon business aggressively, and that it expects the unit to be both strategic and money-making. Investors and analysts are likely to question that claim, he said.

“For the majors, investments are typically strategic, or financially accretive, but generally not both,” Borkhataria writes in a note to clients. “As it relates to low-carbon investments, XOM has historically noted that these ‘lower return’ investments do not fit its criteria, so with the change in board and management, it will be interesting to see what has changed.”

In response to the earnings, which came shortly after an impressive result from Exxon’s biggest competitor Chevron which also topped estimates and resumed its buyback, XOM stock rose by about 2%, and was trading just shy of $60.

The company’s earnings presentation is below.

If there’s one thing meme-stock mania has taught us, it is that Main Street can be a powerful force when pinned up against Wall Street. But what if the two factions decided to work together on something?

That’s something that Robinhood investors need to ask themselves. The controversial brokerage that is “gamifying” the market has drawn ire not just from Main Street for its mishandling of the GameStop fiasco, but also from Wall Street, who sees the company as a competitor.

Following Robinhood’s lackluster IPO yesterday, where the stock barely had a pulse above its IPO price of $38 per share, the idea of the two forces joining hands to short the company’s stock has made its way onto the popular WallStreetBets forum on Reddit, the New York Post notes. 

In fact, Ihor Dusaniwsky, managing director at S3 Partners, told the Post: “Brokers are preparing for a lot of short sale demand. There’s a lot of talk about retail and institutional investors – like hedge funds – shorting the stock.”

He continued, noting that once short sales become prominent, sentiment from those negative on the name may be better reflected in Robinhood’s stock price: “Brokers have a limited capacity to approve short sales on IPO day but shorting can ramp up following the IPO. Because it will have a high percent of retail holdings there will be less short selling approved on the first day.”

One Reddit user posted yesterday: “Based on what we have learned over the past year as a result of the Robinhood inability to effectively manage it’s capitalization to remain solvent during periods of volatility and volume, I believe the Robinhood IPO provides a fantastic short opportunity.”

The user noted his “distrust” for Robinhood CEO Vlad Tenev as part of his thesis. 

Sources also told The Post that “major institutions are also considering the possibility of shorting Robinhood”.

Another Reddit user, according to Bloomberg, wrote: “Is it me or does anyone else get pleasure from watching Robinhood’s stock burn to the ground?”

26 year old Julian Barrios commented: “With the whole GameStop and AMC stuff, I’m guessing the CEO said he needed to step his game up but it’s too late for that. I won’t be buying any Robinhood shares — they don’t deserve my money.”

Vivian Tu, a 27 year old investor and Tik Tok creator, also commented: “There’s a lot of negative sentiment and a ‘retail grudge’ from GME/AMC meme stock history. The way HOOD has traded today, especially against the overall market ticking higher, means that there are more Robinhood naysayers than previously thought.”

One thing that S3’s Dusaniwsky didn’t note is the effect of options eventually trading on the name. Just as the WSB crowd helped boost names like GameStop and AMC by buying deep out of the money call options and manufacturing a gamma squeeze, they may very well have the capability of doing the same on the put side for Robinhood once derivatives start trading. 

While the idea is being passed around on forums online, there isn’t a consensus just yet. Some users are even warning others against the practice.

One user wrote: “You short Robinhood, you’re the one getting your ass squeezed.”

Robinhood plunged more than 8.4% at one point below its IPO price in its first day trading. It marks “the worst debut on record among 51 U.S. firms that raised as much cash as Robinhood or more”, according to Bloomberg. It took the title from the infamous MF Global Holdings Ltd., which fell 8.2% in its first day trading. 

US equity futures stumbled – if trading off session lows – and global shares tracked Asia lower on Friday as investors were worried by a jarring cut to Amazon’s guidance, China’s ongoing regulatory crackdown and rising Delta variant cases, but still remained on course for their sixth straight month of gains as overall solid corporate earnings and central bank largesse kept sentiment intact, while the dollar held near a one-month low and Treasuries rose. Nasdaq futures fell 1% after Amazon tumbled in premarket trading after its sales outlook missed expectations, adding to this week’s cautious forecasts from Facebook and Apple. At 7:15 a.m. ET, S&P 500 e-minis were down 25 points, or 0.56%, while Dow e-minis were down 79 points, or 0.23%.

The top overnight story was Amazon’s 6% plunge after the company said sales growth would slow in the next few quarters as customers ventured more outside the home. Shares of other tech giants including Netflix, Alphabet, and Facebook which benefited last year from people staying indoors due to COVID-19 restrictions, fell between 0.6% and 1.2%. Other notable premarket movers include:

• Caterpillar also fell 2.5% despite reporting a rise in second-quarter adjusted profit on the back of a recovery in global economic activity that has boosted demand for heavy machinery and construction equipment.
• Didi Global (DIDI) shares fall 6.7% after China said it plans to deepen anti-monopoly supervision of ride- hailing companies.
• Pinterest Inc sank 20.9% after saying U.S. user growth was decelerating as people who used the platform for crafts and DIY projects during the height of the pandemic were stepping out more.
• Chevron Corp rose 2% as it reported its highest profit in six quarters and joined an oil industry stampede to reward investors with share buybacks.

Data on Thursday showed the economy recovered to pre-pandemic levels in the second quarter, but the pace of GDP growth was slower than expected. Meanwhile, a report cited the CDC as describing the Delta variant to be as contagious as Chickenpox. After the Federal Reserve this week reiterated its view that higher inflation would be transient, focus on Friday will be on the June reading of the personal consumption expenditures price index. Elsewhere, with second-quarter results coming in from about half of the S&P 500 companies, nearly 91% have beaten profit estimates, according to Refinitiv data. That hasn’t helped push their stock price higher however as markets remain priced to perfection.

“The earnings season has delivered strong results so far, however some investors are concerned that earnings growth will slow from here,” said Lewis Grant, senior global equities portfolio manager at the international business of Federated Hermes. “It was a case of better to travel than arrive for the FAANG stocks. On the other hand, the economy is opening up as we move past the peak infections and consumer balance sheets are strong, and that should support the cyclical end of the market.”

Investors piled into cash and equities in the past week, according to a Bank of America Corp. note citing EPFR Global data. BofA strategists recommended owning defensive and quality names in the second half of the year, as “policy flip-flops will end in market correction.”

MSCI’s World index was last down 0.3%, leaving it broadly flat on the week, but up 1.1% for the month, just shy of a record high. Markets remain in a tussle, though, as a Chinese crackdown on its technology sector and rising cases of the Delta coronavirus variant range against still-Dovish monetary policy and punchy earnings from a range of companies.

In Europe, one day after hitting an all time high, the Stoxx 600 Europe Index slid 0.6%, with declines led by travel and mining companies. UniCredit jumped 5% after the Italian bank reported profit that topped the highest analyst estimate as provisions for loan losses fell.

“We have a bit of day-to-day volatility, but the overall market is quite strong,” said Hans Stoter, global head of core investments at AXA Investment Managers. French billionaire Xavier Niel is joining rival Patrick Drahi in taking his phone company private after customer losses and heavy spending sent its shares into a steady decline. Iliad SA jumped as much as 62% to Niel’s offer price. Here are some of the biggest European movers today:

• UniCredit shares gain as much as 6.3% in Milan trading after the Italian lender beat analyst estimates and announced it’s starting talks to take over Banca Monte dei Paschi.
• Umicore shares rise as much as 3.3%; 1H results beat both consensus and in-house expectations, KBC (accumulate) says in a note.
• Proximus shares rise as much as 4.1%, the most intraday since Jan. 27, with KBC (hold) saying the 2Q results from the Belgian telecoms firm are better than expected.
• Pearson shares rise as much as 2.7%, reversing earlier declines and hitting the highest since June 17, after results that topped expectations and with Shore Capital (hold) saying it sees potential for growth for the education company.
• Intertek shares drop as much as 9.4%, hitting their lowest level since May 2020, with RBC (underperform) saying 1H results missed expectations on weak margins in the Trade unit.
• IAG shares decline as much as 6.4%, falling with other travel stocks, following the British Airways owner’s 2Q results, which struck a more cautious tone than its peers.

“We have a bit of day-to-day volatility, but the overall market is quite strong,” said Hans Stoter, global head of core investments at AXA Investment Managers. “It’s largely still a function of limited alternatives available, with a still attractive pick up in return versus the more risk-free alternatives.”

Bank of America analysts, however, said they had turned “neutral” on European equities after a 60% rally year-to-date, saying they expected the STOXX Europe 600 to remain close to current levels of 460 until early in the fourth quarter.

Earlier in the session, Asian stocks fell as investors remained wary over China’s tightening regulatory grip, while concerns about rising Covid-19 cases sent shares lower in Japan and the Philippines. The MSCI Asia Pacific Index fell as much as 1.3% on Friday a day after capping its biggest one-day gain since mid-May. Chinese tech giants Alibaba, Tencent and Meituan were the biggest drags on the gauge. Benchmarks in Japan and the Philippines were among the worst performers as their governments added measures to contain the spread of the virus. China’s CSI 300 index fell, reversing Thursday’s gain. Chinese stocks are rounding off a volatile week during which investors grappled with an uncertain regulatory landscape after a rout pushed the nation’s key equity index to the brink of a bear market.

“It looks like investors are taking risk off the table in China and also in the Nasdaq ahead of the weekend as no one wants to be caught out if China comes out with some new regulatory surprises or some bad headlines emerge from China’s credit market,” Jeffrey Halley, senior market analyst at Oanda Asia Pacific Pte., said in an email. Asia’s stock benchmark is headed for its second-straight weekly decline, dragged by a combination of virus worries and continued weakness in Chinese shares amid crackdowns on tech and online-education companies. In Hong Kong, the Hang Seng Index, which earlier this week posted its biggest two-day loss since 2008, dropped as much as 2.6%

In rates, after rising on Thursday on the economic data, U.S. Treasury yields pulled back, particularly towards the long end of the yield curve. Benchmark 10-year notes last yielded 1.2506%, down from 1.269% late on Thursday, and the 30-year yield stood at 1.9077%, down from 1.916% on Thursday. The 10-year yield was 3bp lower on the week, its fifth straight weekly drop, supported by favorable supply dynamics and potential for month-end flows; the Bloomberg Barclays Treasury Index was headed for a monthly gain of ~1.2%. The spread between the U.S. 10-year and 2-year yield narrowed to 105.30 basis points. But following Fed Chairman Jerome Powell’s remarks this week that rate increases are “a ways away” and the job market still had “some ground to cover”, the dollar wallowed near one-month lows on Friday and was set for its worst week since May.

In FX, the Bloomberg Dollar Spot Index was flat on the day; sterling eyed its best week since December, advancing 1.7% and up 0.1% on the day. It was buoyed by optimism the spread of the virus in the U.K. may be coming under control, with attention turning to next week’s Bank of England meeting. “Data has been sending encouraging signals that vaccines are helping the U.K. to win the fight against Covid,” said Lee Hardman, a strategist at MUFG. “It reinforces our confidence in a stronger, more sustained economic recovery.” Elsewhere, trading was mixed with month-end in focus. The Japanese yen eased after rising to one-week high earlier in the session amid Gotobi day flows.

“We expect the Fed to remain flexible, edging toward tightening only when justified by consistently strong economic data. Powell was a Fed board member in 2013 when taper talk unsettled markets, so he looks set to remain cautious in his communications,” said Mark Haefele, Chief Investment Officer, UBS Global Wealth Management.

In commodities markets, oil prices fell back after global benchmark Brent on Thursday topped $76 a barrel on tight U.S. supplies. Brent was down 0.24% at $75.87 per barrel and U.S. West Texas Intermediate crude traded down 0.29% at $73.41. Brent crude is still up nearly 2% for the week. Spot gold was unchanged at $1,827.9 an ounce, on course for its best week in more than two months on the prospect of delayed Fed tapering.

Bitcoin continued to trade near $40,000, maintaining its recent rebound.

Looking at the day ahead, there are a number of data highlights from around the world. In Europe, there’s the first look at Q2’s GDP for the Euro Area, Germany, France and Italy, along with the flash CPI print for the Euro Area in July, and preliminary CPI readings from France and Italy. In the US, there’ll be the personal income and personal spending data for June, the final University of Michigan consumer sentiment index for July, and the MNI Chicago PMI for July. Otherwise, central bank speakers include the Fed’s Bullard, and earnings releases include Procter & Gamble, Exxon Mobil, AbbVie, Chevron, Charter Communications, Linde, Caterpillar and Natwest Group.

Market Snapshot

• S&P 500 futures down 0.6% to 4,385.25
• STOXX Europe 600 down 0.4% to 462.01
• MXAP down 1.0% to 197.79
• MXAPJ down 0.9% to 654.41
• Nikkei down 1.8% to 27,283.59
• Topix down 1.4% to 1,901.08
• Hang Seng Index down 1.3% to 25,961.03
• Shanghai Composite down 0.4% to 3,397.36
• Sensex up 0.4% to 52,867.11
• Australia S&P/ASX 200 down 0.3% to 7,392.62
• Kospi down 1.2% to 3,202.32
• German 10Y yield rose 0.1 bps to -0.449%
• Euro up 0.1% to $1.1900
• Brent Futures down 0.1% to $75.96/bbl
• Brent Futures down 0.1% to $75.96/bbl
• Gold spot up 0.1% to $1,829.92
• U.S. Dollar Index little changed at 91.82

Top Overnight News from Bloomberg

• The U.S. expressed concern over harassment and intimidation of foreign correspondents in China, marking an escalation of the two nations’ dispute over the work of journalists
• The euro-area economy rebounded sharply in the second quarter as businesses reopened following the lifting of lockdowns
• China blamed European demands to meet jailed Uyghur scholar Ilham Tohti for preventing diplomatic visits to Xinjiang, suggesting little chance of a breakthrough in a stalemate at the center of tensions between the two sides
• Beijing pledged more effective fiscal support for the world’s second-largest economy and tighter supervision of overseas share listings as policy makers highlighted economic risks in the second half of the year.
• China ordered 12 Internet giants including Alibaba Group Holding Ltd. and Tencent Holdings Ltd. to step up data security protections, including the exporting of key information

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks mostly weakened at month-end with the region occupied by a slew of earnings and data releases, while US equity futures also pulled back after the prior day’s fresh record levels on Wall St. following earnings from Amazon which disappointed on revenue and guidance. ASX 200 (-0.3%) was subdued by underperformance in the defensive sectors and with Origin Energy the worst performer after it flagged significant impairments, although the losses for the index were cushioned by resilience in mining names after further production updates. Nikkei 225 (-1.8%) retreated to its lowest level since early January with the government likely to add four prefectures to the state of emergency and extend the emergency status in Tokyo and Okinawa to August 31st. In addition, the list of worst-performing stocks was heavily dominated by Co.s that recently announced earnings despite some actually reporting improved results, while the mostly better than expected data from Japan including the fastest pace of growth in Industrial Production since July last year, failed to spur risk appetite. Hang Seng (-1.4%) and Shanghai Comp. (-0.4%) were negative as the recent aggressive tech-rebound lost steam which saw yesterday’s best performers in Hong Kong languish at the other end of the spectrum and as Chinese money market rates increase heading into month-end with the PBoC opting again for another tepid increase in its liquidity operations. Notable weakness was also seen in the likes of Sinochem and Sinofert after reports China’s state planner summoned key fertilizers firms and warned them regarding hoarding and speculation. Finally, 10yr JGBs failed to benefit from the weakness in stocks and traded flat with demand sapped amid the recent indecisive mood in T-notes and firm Japanese data, as well as the lack of BoJ purchases in the market today.

Top Asian News

• NetEase’s Music App Is Said to Get HKEX Nod for Hong Kong IPO
• China Holds Seminar With Alibaba, Tencent, Meituan
• Fire Erupts at Tesla Big Battery in Australia During Testing
• Iron Ore Tumbles as China’s Steel Sector Revamp Curbs Demand

The downside pressure across European bourses and futures has lessened in intensity, albeit the region remains largely in the red (Stoxx 500 -0.5%) as the negative APAC sentiment seeped into Europe as traders tee up for month-end. The mood was also hit by Amazon (-6% pre-market) slumping some 7.5% after earnings as the behemoth (accounting for around 5% and 10% of the SPX and NDX respectively) warned of headwinds as COVID restrictions are lifted. US equity futures trade with varying degrees of losses, with the YM (-0.3%) performing better than its ES (-0.7%), RTY (-0.5%) and NQ (-1.1%) peers. Back to Europe, earnings have remained in focus, with varying degrees of losses are seen across the bourses, with the CAC 40 (-0.4%) losses cushioned by earnings-related gains in EssilorLuxottica (+3%), L’Oreal (+0.4%) and BNP Paribas (+0.3%). Sectors are predominantly in the red, although Banks outperform as UniCredit (+5.1%) and BBVA (-0.1%) reported alongside BNP, with the former also entering exclusive talks to purchase some parts of BMPS (+7.5%) with the two sides have agreed on a framework for a potential deal. However, terms have not been agreed. Elsewhere, Deutsche Telekom (-0.7%) gave up the opening gains seen on the back of T-Mobile’s metrics, with Deutsch Telekom a 43% stakeholder of the latter. For full details of the pre-market earnings, please refer to the European Equity Opening News and Additional Equity Stories. Finally, Iliad (+60%) shares spiked higher at the open and held onto gains as Xavier Niel, the controlling shareholder with a stake of 70.65%, is launching a simplified public tender offer for the Co. at EUR 182/shr, representing a 61% premium from Thursday’s close. The offer has been unanimously favourably received by the board.

Top European News

• Iliad Soars 62% After Buyout Offer From French Billionaire Niel
• Polish Inflation Rebounds to 5%, Highest Level in a Decade
• German Economy Expands 1.5% Q/q in 2Q; Est. +2% Q/q
• Italian Economy Expanded 2.7% Q/q in 2Q; Est. +1.3%

In FX, USD – Aside from mild selling for month end via Citi’s rebalancing model, the signs are looking more and more ominous for the Greenback, technically if not fundamentally beyond the dovish leanings of this week’s FOMC relative to market expectations. Indeed, after a pretty tame bounce to barely above the 92.000 mark, the DXY has retreated even further to register a new low for the week and July, at 91.775, and bears will now be eyeing 91.699 from June 29 ahead of 91.500. However, the Dollar may yet get a late reprieve via PCE data as the Fed’s preferred measure of inflation, comments from known hawk Bullard and/or the Chicago PMI as a proxy for the manufacturing ISM.

• GBP/EUR/NZD/AUD/CAD – Sterling is among those setting the pace in the race to extract most from the Buck’s demise, but could remain capped into 1.4000 having stalled just shy of the 50 DMA not far under the round number yesterday, while the Euro has now absorbed offers standing in the way of 1.1900, though could be hampered by multi-billion option expiries stretching from 1.1850 to 1.1920. Elsewhere, the Kiwi and Aussie are back above 0.7000 and around 0.7400 respectively after reversing overnight amidst broader risk aversion, with the former drawing encouragement from a solid recovery in NZ building consents and latter piggy-backing the Yuan’s ongoing revival to best levels seen since late last month. Similarly, the Loonie has rebounded through 1.2450 alongside WTI recouping losses from sub-Usd 73/brl, and is now looking towards Canadian GDP, PPI and budget balances for some independent impetus.
• CHF/JPY – The Franc is probing 0.9050 and poised to gather more momentum if sentiment really deteriorates, while the Yen has breached 100 DMA resistance at 109.60 in wake of mostly better than expected Japanese data in the form of ip, retail sales and unemployment, but is holding beneath 109.50 following Japanese PM Suga declaring a state of emergency for four additional prefectures, in line with earlier reports.
• SCANDI/EM – No change in Norges Bank daily currency purchases planned for August, but the Nok has come unstuck regardless of Brent’s bounce on the back of a surprise rise in Norway’s registered jobless rate. Conversely, the Try has been bolstered by a narrower Turkish trade deficit and the Zar is firmer against the backdrop of Gold forming a base above the 200 DMA and staying on track to record its best week in over two months.

In commodities, WTI and Brent front month futures are choppy, after earlier trimming their APAC losses and briefly breached USD 73.50/bbl and USD 75/bbl respectively to the upside from overnight bases of USD 72.93/bbl and USD 74.39/bbl. New flow for the complex has remained light heading into month-end and with most of the risk events out of the way barring today’s PCE. On the geopolitical front, it’s worth keeping on the radar reports of an oil tanker linked to an Israeli billionaire reportedly coming under attack off the coast of Oman – although details remain light and motives unknown. Alongside sentiment, participants will likely home in on demand-side developments in the absence of notable supply-side events until around the second week of August. Iranian nuclear talks are expected to resume after Raisi is sworn in as Iran’s President on August 5th, whilst OPEC+ will keep an eye on the macro environment in the run-up to its September 1st decision-making meeting – with the JTC. Next week’s focus will fall on the inventory data for expected drawdowns ahead of the US labour market report. Elsewhere, spot gold and silver trade sideways as traders keep some powder dry for today’s US PCE metrics – with the former meandering around its 50 DMA around 1,828/oz. LME copper meanwhile remains subdued amid the sullied risk tone, albeit the red metal trades north of USD 9,750/oz.

US Event Calendar

• 8:30am: June Personal Income, est. -0.3%, prior -2.0%
• 8:30am: June Personal Spending, est. 0.7%, prior 0%
• 8:30am: June PCE Core Deflator YoY, est. 3.7%, prior 3.4%; Core Deflator MoM, est. 0.6%, prior 0.5%
• 8:30am: June PCE Deflator YoY, est. 4.0%, prior 3.9%; Deflator MoM, est. 0.6%, prior 0.4%
• 8:30am: June Real Personal Spending, est. 0.3%, prior -0.4%
• 9:45am: July MNI Chicago PMI, est. 64.1, prior 66.1
• 10am: July U. of Mich. 1 Yr Inflation, est. 4.8%, prior 4.8%; 5-10 Yr Inflation, prior 2.9%
• 10am: July U. of Mich. Sentiment, est. 80.8, prior 80.8; Expectations, est. 78.4, prior 78.4; Current Conditions, est. 84.5, prior 84.5

DB’s Jim Reid concludes the overnight wrap

Since we last spoke two days ago yet more stuff has been sold from our house clear out via Facebook marketplace. A piece of artificial indoor topiary had around 50 people enquire over it. I’m beginning to think it’s like the used car market at the moment. It’s been eye opening. My wife has sold so much stuff online over the last couple of weeks that I’m expecting someone to come round and say they’ve now purchased me. As long as I achieve a higher price than the topiary I’ll be happy.

Higher prices seems to be where we are closing out July as we hit the last business day of the month. Global equities were once again at all-time highs yesterday, with the MSCI World index (+0.66%) and Europe’s STOXX 600 (+0.46%) both climbing to fresh records, whilst the S&P 500 (+0.42%) closed less than 0.1% away. On one level, this is ignoring the fact that global Covid-19 cases are on track for a 6th successive weekly increase, with cases currently rising in every G7 economy apart from the UK. However, strong corporate earnings releases and further dovishness from Fed Chair Powell this week have helped to outweigh that, and if anything, the impact of more cases on markets has been cushioned by expectations that this will in turn see central banks become more cautious about withdrawing monetary stimulus over the coming months. Financial conditions remain at or around record levels of looseness.

That “slightly bad news is good” interpretation was offered further reinforcement by weaker-than-expected US data yesterday. On the bright side, we found out that real GDP has now exceeded its pre-Covid peak in the US, thanks to growth at an annualised rate of +6.5% in Q2 (vs. +8.4% expected). This means that in spite of seeing the largest contraction since quarterly records began in the late-1940s, the time taken to get back to the pre-recession level of GDP has been broadly in line with the post-war average, and much quicker than after the GFC (see my CoTD here for more on this). However, that still underwhelmed expectations that we’d see growth at a stronger pace, and the prior quarter’s reading was also revised down a tenth to show growth of +6.3%. The price index/deflator was up an annualised 6% (vs. 5.4% expected) as inflation concerns are bubbling quietly back up in the background again. See news on breakevens, commodities and German inflation below.

On top of the GDP data, the weekly initial jobless claims for the week through July 24 fell by less-than-expected to 400k (vs. 385k expected) and the prior week’s number was revised up by +5k as well.

In spite of this however, risk appetite remained strong as mentioned, with equity indices rising to fresh records across multiple regions. It was a broad-based advance on both sides of the Atlantic with cyclical industries leading the way, along with energy stocks on the back of a continued recovery in oil prices. The S&P 500 saw over 77% of the index’s constituents increase yesterday with 19 of the 24 GICS Level 2 industry groups gaining. Media (-1.12%) was the worst performing industry yesterday – and the only one to lose more than 0.25% – dragged down by the previous day’s earnings release from Facebook (-4.01%). After the close yesterday, we got further earnings news from Amazon, with the company seeing its shares fall over -7% in after-hours trading due to a lower earnings forecast than expected and missing on analysts’ revenue expectations. There were also signs that consumers, especially in the US, were shifting back to in-store shopping at higher rates than expected.

Overnight in Asia, sentiment has weakened with most indices trading lower along with futures on the S&P 500 (-0.77%) as weak earnings from Amazon act as an overhang. The Nikkei (-1.34%), Hang Seng (-2.10%), Shanghai Comp (-0.53%) and Kospi (-1.10%) have all lost ground, capping off what’s been a relatively poor performance over the month as a whole for equities in the region. Separately, yields on 10y US treasuries are also down -1.9bps. On the data side, there’ve been a number of releases from Japan, with retail sales for June coming in at +3.1% month-on-month (vs. +2.7% expected), whilst the jobless rate ticked down to 2.9% (vs. 3.0% expected).

Today, attention could well turn to the inflation theme again, with the release of the Euro Area flash CPI reading for July at 10:00 London time. That follows the German inflation reading yesterday, which came in at a stronger-than-expected +3.1% (vs. +2.9% expected) on the EU-harmonised measure, and marks the highest that inflation has been in Germany since August 2008. As with the US readings lately, we can’t help thinking that if this is solely due to factors such as base effects, then why weren’t economists predicting them in advance, which begs the question as to whether these pressures are becoming more entrenched. As a reminder, we released the second publication in our “What’s in the tails?” series last week that specifically looked at the prospect for heightened inflation in Germany, which you can read here.

Speaking of inflationary pressures, yesterday saw continued strength across commodities as a whole, with Bloomberg’s Commodity Spot index (+1.38%) hitting its highest levels in over a decade. Precious metals were among the biggest winners yesterday amidst continued concern over inflation and low real yields, with gold (+1.17%) and silver (+2.21%) both seeing decent advances. Energy prices have also recovered after their recent wobble, with Brent Crude up +1.75% to close above $76/bbl again, whilst WTI was also up +1.70%. The gain in oil prices was partly driven by strong demand, which saw US stockpiles decline more than expected. So although various people (including Fed Chair Powell) have cited isolated examples of commodity declines like lumber for why inflation will prove transitory, it’s clear across the asset class as a whole that we’re yet to see broader declines just yet.

Over in sovereign bond markets, there was a more divergent performance across countries. Yields on 10yr US Treasuries rose +3.7bps to 1.269%, as real yields (+0.8bps) hovered around their recent lows. The main driver of the rates move was higher inflation breakevens (+2.8bps), which at 2.42% are now the highest they’ve been since early June. Rates were far tamer in Europe with yields on 10yr bunds closing unchanged, and those on OATs (-0.8bps) and gilts (-0.2bps) moving lower.

Turning to the latest on the pandemic, the UK numbers continued to move in the right direction, with cases over the entire last week now down -37% on the previous week’s total. For reference, there’s only been one other day this calendar year where the weekly decline over the previous 7 days has been as rapid as this. On the flipside, the Japanese government’s expert panel has approved a plan to expand a state of emergency to areas surrounding Tokyo like Osaka and extend it to the end of August to control the spread of the virus. Prime Minister Yoshihide Suga is likely to make it official at a task force meeting beginning at 5 pm and give a news conference on the situation at 7 pm (Tokyo time). Over in the US there was news that some restaurants in New York City would be independently requiring proof of vaccinations in order for patrons to dine indoors. While Mayor de Blasio has not instituted any such rule, he commended the owners and said “This is the shape of things to come.” Staying in the US, President Biden wants the rest of the US to follow NYC’s lead and called on state and local governments to use part of the $350bn in federal funding the administration appropriated to them in the latest stimulus package to offer residents $100 to get vaccinated. On vaccinations, President Biden announced that he would require federal workers to prove their vaccination status or wear masks while at work and be submitted to frequent testing. Meanwhile, Israel will be the first country to widely disperse booster shots of the Covid-19 vaccine, with the country giving third Pfizer shots to those over the age of 60.

Running through yesterday’s other data, German unemployment fell by a stronger-than-expected -91k in July (vs. -29k expected), which pushed the unemployment rate down to a post-pandemic low of 5.7%. Separately, the European Commission’s economic sentiment indicator for the Euro Area rose to 119.0 (vs. 118.2 expected), which is its highest on record going back to 1985. Finally, UK mortgage approvals came in at 81.3k in June (vs. 84.5k expected).

To the day ahead now, and there are a number of data highlights from around the world. In Europe, there’s the first look at Q2’s GDP for the Euro Area, Germany, France and Italy, along with the flash CPI print for the Euro Area in July, and preliminary CPI readings from France and Italy. Over in the US, there’ll be the personal income and personal spending data for June, the final University of Michigan consumer sentiment index for July, and the MNI Chicago PMI for July. Otherwise, central bank speakers include the Fed’s Bullard, and earnings releases include Procter & Gamble, Exxon Mobil, AbbVie, Chevron, Charter Communications, Linde, Caterpillar and Natwest Group.