Month: July 2021

Stock futures were steady, if drifting lower from overnight highs in muted trading as traders were watching whether Monday’s surge in oil which pushed WTI to the highest price since the November 2014 OPEC Thanksgiving massacre would depress stock sentiment after yesterday’s breakdown in OPEC+ talks. As of 730am, Emini S&P futures were down 2 points ot -0.05%, Dow jones futs were down 28 points ot -0.08% and Nasdaq minis were up 16.75 or +0.12%.

Wall Street was facing a groggy restart after its July 4 holiday, with the S&P near-record streak of 7 consecutive all time highs looking shaky. Europe’s equity markets were spluttering at the prospect of higher inflation and China spooked its tech sector again with another high-profile clampdown. Chinese ride-hailing giant Didi plunged 22% in premarket trading after a Chinese regulator ordered the removal of its platform from app stores, days after its U.S. listing. Full Truck Alliance (YMM) and Kanzhun (BZ), which were also part of the crackdown, sinks 15% and 10% respectively Here are some of the other notable U.S. movers today:

• Odonate Therapeutics (ODT) climbs 37% in premarket trading after a filing showed Ikarian Capital boosted its stake in the pharmaceutical company.
• Oil-linked stocks gain after WTI crude rose to the highest level in more than six years in New York as OPEC+ failed to agree on a production increase. Transocean (RIG) climbs 7.3% and Occidental Petroleum (OXY) rises 2.5%, while Schlumberger (SLB) gains 2.1%.
• Retail trader favorites advance after a long weekend with Marin Software (MRIN) rising 20% and Ocugen (OCGN) gaining 17%.

The biggest mover, however, was oil which hit a six-year high this morning after the breakdown in talks among OPEC and its allies left the market without the production hike it was expecting. A barrel of West Texas Intermediate for August delivery traded as high as $76.98 – the highest price in almost 7 years – with no talks scheduled for today. Some OPEC+ sources said there would be no oil output increase in August, while others said a new meeting would take place in the coming days and they believed there would be a boost in August. Crude traders were not hanging around to find out. They pushed Brent up as far as $77.66 – the highest level since October 2018. Oil is up roughly 50% this year and over 385% since last year’s COVID-driven slump.

The move higher in crude risks heightening inflation fears among investors and forcing the Fed to taper just as the US economy loses the tailwinds from the Biden stimulus. The US is asking for a compromise solution to be found, with a White House official saying President Joe Biden wants Americans to have access to affordable and reliable energy as the economy reopens.

“Slowing growth, rising inflation and less expansive monetary policy could act as a dampener on equity markets and riskier corporate bonds,” Pictet Asset Management’s chief strategist Luca Paolini said.

“Without an injection of some extra barrels of oil in the coming weeks, given the tightness of the market, Brent might cross the USD 80/bbl threshold,” UniCredit’s analysts said.

In Europe, gains in travel shares offset a decline in carmakers.  The oil sector made the early running, rising as much as 0.5% as the region’s STOXX 600 sagged 0.2%. Here are some of the biggest European movers today:

• Ocado shares rise as much as 4% after the U.K. online grocer reported 1H Ebitda that beat the average analyst estimate and announced the signing of an agreement with Auchan Retail to develop Alcampo’s online business in Spain.
• Carrefour climbs as much as 2.4%, a fifth session of gains, after Jefferies (buy) said the grocer’s first-half results should confirm strong progress in France on the back of “healthy” market-share wins.
• AngloGold jumps as much as 5.8% after the company named former BHP Group executive Alberto Calderon as its chief executive officer.
• Shop Apotheke plunges as much as 13%, the most since November, after reporting preliminary earnings, with peer Zur Rose also falling. The online pharmacy has lost market share to its biggest competitor at the worst time, Jefferies said in a note.
• Alstom slumps as much as 8.2%. The company’s new targets for FY 2024/2025 should be well received by the market, yet guidance for 1H cash drain is a negative surprise, Morgan Stanley said in a note.
• Asos drops as much as 3.5% after Bank of America downgraded the online retailer to neutral from buy, saying the market may wrongly see its Flexible Fulfillment plans as an equivalent to Zalando’s partner program.
• Wm Morrison falls as much as 0.5% after the company was downgraded to neutral from outperform at Credit Suisse, which sees limited upside potential for the shares as well as uncertainties related to a takeover deal being finalized.

In a notable move, Germany’s ZEW survey saw current conditions surge from -9.1 to 21.9, beating expectations of a 5.0 print, and well above pre-pandemic levels while expectations continued to sour, with the forward lookign component sinking again, adn sliding to 63.3 from 79.8, missing the 66.3 expectation.

Asian stocks also rose, headed for their second (small) gain in two days, as advances in financials and energy firms helped offset concerns over China’s crackdown on the technology industry. Financials were the biggest boost to MSCI Asia Pacific Index as U.S. Treasury yields rose. A gauge of energy stocks climbed the most as crude jumped after OPEC+ failed to reach a deal to bring back more halted output.

Hong Kong shares dipped as investors continued to digest the Chinese government’s move to expand its crackdown on the tech industry beyond Didi to include two other companies that recently listed in New York. The MSCI China Health Care Index fell by as much as 7.5%, its biggest drop since March 2020, on concerns that new government draft guidelines would make it more difficult to develop oncology drugs in China.

Elsewhere, while inflation worries have kept stock gains in check overall recently, energy shares have been the best performers in Asia this year. “I don’t think the OPEC+ disagreement ultimately matters very much for the overall trajectory of crude oil prices,” said Ilya Spivak, head of Asia Pacific strategist at DailyFX. “Supply chain disruptions from uneven economic reopenings and a flood of policy stimulus -– especially on the fiscal side -– are likely to keep prices elevated and feeding the broader reflation narrative that has pushed the Fed to consider tightening sooner than previously expected.” Singapore led gains around the region on Tuesday, with its key stock gauge rising more than 1%. Australian stocks declined after the nation’s central bank indicated it would buy bonds at a slower pace.

Japanese equities rose in thin trading, with trading houses and machinery makers driving a 0.3% gain in the Topix. Energy stocks also advanced, following crude prices higher after OPEC+ failed to reach a deal on output. Daikin and SoftBank Group were the biggest contributors to the 0.2% rise in the Nikkei 225. Nintendo gained 2.5% after Nikkei Inc. announced new rules that may enable it to be added to the blue-chip gauge. Just under 1.7 trillion yen worth of shares traded hands on the first section of the Tokyo Stock Exchange, the lowest daily turnover so far this year. U.S. markets were closed for a holiday Monday.

“Local stocks are likely to show solid performance in the near term,” said Shogo Maekawa, a strategist at JP Morgan Asset Management in Tokyo. “Taking a look globally, business conditions are solid and if U.S. long-term yields rise amid potential tapering by the U.S. Federal Reserve, investors will once again focus on Japan, which is a market heavy with cyclical, value stocks.”

In Australia, the S&P/ASX 200 index fell 0.7% to close at 7,261.80, its lowest since June 21. Health and banking shares dragged the most on the index. The benchmark extended declines after Australia’s central bank indicated it would buy bonds at a slower pace. The Reserve Bank of Australia also said it expects to keep interest rates at a record low for at least another 2-1/2 years. Oil Search was the top performer, advancing alongside other Asian oil explorers as Brent oil extended gains. Ramelius was among the biggest laggards after reporting its 4Q production. In New Zealand, the S&P/NZX 50 index fell 0.4% to 12,758.93.

In rates, treasuries were little changed after erasing declines during European morning, following bunds higher; 10-year note futures briefly eclipsed last week’s high. Treasury yields are near flat on the day after Asia-session losses were erased amid a bund-led rally in Europe; 10-year is around 1.42%, with German 10-year outperforming by ~1bp. S&P 500 futures are little changed while Euro Stoxx 50 slightly lower, despite gains in energy names based on oil rally. With few U.S. economic data releases or Fed speakers slated this week, and no Treasury coupon supply, FOMC minutes release is the main event.

In FX, the Bloomberg Dollar Spot Index was little changed after recovering from a day low when trading entered the European session; the greenback traded mixed versus its Group-of-10 peers, with Antipodean currencies leading gains while the euro fell after earlier nearing the $1.19 handle. New Zealand’s dollar rose to an almost three-week high against the greenback, and the nation’s short-dated bond yields surged after an upbeat business survey drove traders to bring forward rate-hike expectations; markets are now pricing a total unwind of pandemic-fueled rate cuts by the end of 2022. The Australian dollar extended an intraday gain after the RBA said the economy is in a much better position than expected; Aussie 3-year bond yields surged after RBA’s Governor Lowe stressed that the policy rate outlook is dependent on economic factors rather than the central bank’s own forecasts. The U.S. dollar enjoyed a strong performance in both the spot and options market in June, yet options trades versus the Australian dollar came the other way. Norway’s krone swung to a loss as the greenback rebounded; the krone earlier touched a one-week high amid rising oil prices. Brent oil rose to a six-year high after OPEC+ ended days of talks without a deal to bring back more halted output next month.

In commodities, as noted above, it’s all about crude which has surged to fresh multi-year highs this morning, though off best levels, after the breakdown in OPEC+ negotiations and with no clear time for a resumption in the talks; currently, WTI and Brent benchmarks post gains of USD 1.20/bbl and USD 0.20/bbl respectively for the August/September’21 contracts. To recap, Saudi Arabia and Russia are saying the meeting has been cancelled and as such production will now continue at current levels for August; however, the UAE has briefed that the meeting has just been postponed while their proposal is considered. The likes of Iraq believe the situation is ‘normal’ and expects a solution to arise soon while widely followed journalist Reza Zandi writes that the discussions could be reactivated at any moment. However, thus far there has been no fresh update on the status of talks or any timeline for another meeting. A number of desks have given their views on the situation including ING who believes that if output levels are maintained then this will be bullish for prices; however, they do not have a high conviction in members keeping output steady. UBS looks for Brent to hit USD 80/bbl in September.

Away from the oil benchmarks, Credit Suisse equity research cautions that the upside in equities may be comparably more muted given the conflicting leads from increased earnings-upside in H2 and concerns around a lessening of OPEC+’s solidarity. Crude aside, spot gold and silver are firmer this morning in-spite of the increasing upside the USD is experiencing as the metals perhaps take support from the marginally lower yield environment given subdued equity trade; taking the former above USD 1800/oz (vs. low of USD 1791.04/oz). Separately, base metals continue to make ground after strong APAC trade in-spite of the broader indecisive overnight tone.

Looking at the day ahead now, and data releases include German factory orders for May, the ZEW survey for July, the German and UK construction PMIs for June, Euro Area retail sales for May, and the final June US services and composite PMIs, along with June’s ISM services index. Meanwhile central bank speakers include the ECB’s Vice President de Guindos and the ECB’s Hernandez de Cos.

Market Snapshot

• S&P 500 futures little changed at 4,339.25
• STOXX Europe 600 little changed at 457.94
• MXAP up 0.1% to 206.51
• MXAPJ little changed at 691.48
• Nikkei up 0.2% to 28,643.21
• Topix up 0.3% to 1,954.50
• Hang Seng Index down 0.3% to 28,072.86
• Shanghai Composite down 0.1% to 3,530.26
• Sensex up 0.4% to 53,099.15
• Australia S&P/ASX 200 down 0.7% to 7,261.78
• Kospi up 0.4% to 3,305.21
• Brent Futures up 0.4% to $77.44/bbl
• Gold spot up 0.6% to $1,803.36
• U.S. Dollar Index little changed at 92.30
• German 10Y yield fell -0.015 bps to -0.225%
• Euro down 0.1% to $1.1848

Top Overnight News from Bloomberg

• The European Central Bank is entering the final stretch of its biggest strategy review in almost two decades, with officials looking to hammer out key differences over future monetary policy
• The Bank of Japan will likely consider raising its inflation forecast when it updates its quarterly economic outlook next week, according to people familiar with the matter
• German manufacturers unexpectedly saw demand decline in May, suggesting an uneven start to the country’s economic recovery. Orders fell 3.7%, worse than all estimates in a Bloomberg survey. The Economy Ministry said the slump was driven by weak export demand for cars following a steep rise the previous month. Domestic orders rose 0.9%

Quick look at global markets courtesy of Newsquawk

Asian equity markets traded indecisively as the region lacked conviction ahead of this week’s looming central bank events and in the absence of a lead from Wall St where markets were closed for the Independence Day weekend. ASX 200 (-0.7%) was initially kept afloat by strength in energy as oil prices rose to fresh cyclical highs after the cancellation of the OPEC+ meeting with no new date set and which means that the current quota levels will stand, although gains were later reversed amid cautiousness heading into the RBA policy decision where the central bank kept rates unchanged and extended bond purchases at a lower rate through to mid-November when it will then conduct a further review. Nikkei 225 (+0.2%) eked marginal gains after better-than-expected Household Spending data and with Labour Cash Earnings at its largest gain in three years, but with upside restricted by a mixed currency, as well as COVID-19 concerns which threaten an extension of the quasi-restrictions in Tokyo and with the opening ceremony of the Olympics reportedly to be held without spectators. Hang Seng (-0.3%) and Shanghai Comp. (-0.1%) were subdued as concerns regarding China’s fresh tech crackdown persisted and with calls by the PBoC for banks to provide additional credit supply for SMEs doing little to spur risk appetite, although there were some success stories with oil names mostly helped by the gains in underlying energy prices and with Suning.com surging by the daily limit after it received a bailout from a consortium including a state fund and Alibaba. Finally, 10yr JGBs traded lower amid a similar lacklustre picture in T-note futures and after a slip beneath the psychologically key 152.00 level, while support from the firmer results at the 30yr JGB auction was only brief with price action not helped by increased corporate supply as Nomura, Mizuho and Xiaomi plan USD-denominated bond offerings.

Top Asian News

• Hong Kong Court Jails U.S. Lawyer Over Scuffle With Policeman
• Hong Kong to Speed Up IPO Deals to Cut Down on Risks
• Japan, U.S. Must Defend Taiwan Together, Deputy Premier Aso Says
• Carrie Lam Dismisses Fears Over Hong Kong Bill Spooking Big Tech

European equities (Eurostoxx 50 -0.3%) trade predominantly lower with prices having drifted south since the cash open amid a lack of noteworthy fundamental catalysts and a mixed German ZEW release. US participants will be returning to the fray today after the extended weekend with futures stateside hovering near the unchanged mark and exerting no real bias. Upcoming risk events including the ISM Services print due later today and FOMC minutes from the June meeting tomorrow, however, it is unclear how much traction in the market these will garner with the latter somewhat mitigated by the recent flurry of Fed-speak. In a recent note, analysts at Citi suggest that one-side positioning in equity markets, particularly the Nasdaq 100, could see limited scope for further rallies with the index potential vulnerable to profit-taking. Back to Europe, sectors are relatively mixed with Travel & Leisure names top of the pile as investors are taking some comfort from news that Germany is to lift its ban on travellers from the UK, Portugal, Russia, India and Nepal. Oil & Gas names have also been supported throughout the session amid the ongoing advances in the crude complex amid the OPEC+ breakdown yesterday. To the downside, Auto names lag with softness seen in some of the German names with some observers highlight disappointing domestic Industrial Orders for the month of May. In terms of stock specifics, Ocado (+2.6%) sits near the top of the Stoxx 600 after reporting a 21.4% increase in H1 revenues and 41.2% rise in H1 EBITDA. Also of note for the UK supermarket sector, Sainsbury’s (+0.8%) reported a 1.6% increase in Q1 LFL sales which was ahead of Co. expectations. Elsewhere, Sartorious (+5.1%) is the best performer in the Stoxx 600 after upgrading FY21 forecasts. To the downside, Alstom (-4.0%) is a standout laggard after flagging that it expects negative free cash flow for the fiscal year as it looks to integrate Bombardier’s rail unit.

Top European News

• ECB Officials Zero In on Final Compromises of Policy Overhaul
• Hexagon in $2.75 Billion Deal to Buy Infor’s Software Unit
• U.K. to Change Self-Isolation Rules for Those With Double Jabs
• U.K. Homebuilding Drives Construction Growth to 24-Year High

In FX, a flurry of activity in the currency markets even before US participants return from their extended July 4th celebrations as the Buck succumbed to more broad selling pressure that tipped the index to the brink of 92.000. The Greenback remains heavy on the back of last Friday’s mixed NFP release, but also felt the heat from another spike in oil prices as the OPEC+ stalemate continues, while several major rivals are rebounding in their own right for independent reasons. However, the DXY clung on and just carved out a new high at 92.424 after the Dollar defended incursions and/or approaches towards several psychological levels following the loss of some technical supports in the run up to final Markit services and composite PMIs, the non-manufacturing ISM and employment trends.

• NZD/AUD – The Kiwi and Aussie are clearly outperforming, albeit off best levels circa 0.7105 and 0.7599 respectively vs their US peer in wake of an upbeat NZIER Q2 survey overnight and relatively hawkish RBNZ rate calls from ASB Bank and BNZ that are both touting hikes in November. Meanwhile, Aud/Usd dipped initially as the RBA extended its QE remit until mid-November at least and reaffirmed guidance for unchanged rates through to 2024 at the earliest, but then bounced firmly on the improved economic assessment and taper for the third round of bond buying to a Aud 4 bn/week pace from Aud 5 bn. Nevertheless, the Aud/Nzd cross remains anchored around 1.0700 after Governor Lowe re-emphasised a data rather than date dependent timeline for tightening and reiterated that the Bank is not thinking about lifting the cash rate in 2023.
• GBP/JPY – No additional boost for the Pound via a much stronger than expected UK construction PMI, so 1.4000 in Cable looks elusive after a very near miss, but Sterling is having another look at 0.8550 against the Euro after PM Johnson confirmed that almost all remaining virus restrictions will be removed on July 19. Elsewhere, the Yen is holding firmly above 111.00 where hefty option interest resides (1.8 bn) and may have drawn some encouragement from not as weak as anticipated Japanese household spending data.
• CHF/EUR/CAD/NOK – The G10 laggards, or handing back more ground to the recovering Buck than others to be more precise as the Franc retreats through 0.9200, Euro reverses from just shy of 1.1900 and a probe beyond the 10 DMA (1.1893 today), Loonie retraces from even closer to 1.2300 and Norwegian Crown trades nearer 10.1850 vs the Euro than peaks a tad over 10.1400. Note, Eur/Usd is now sub-1.1850 and digesting a mixed ZEW survey that may hamper the headline pair along with option expiries between 1.1865-70 (1.1 bn) and straddling the big figure above at 1.1895-1.1905 (1.7 bn). Back to Usd/Cad and Eur/Nok, correlations with crude appear to be decoupling even though WTI and Brent remain bid and not too far from nigh on Usd 77/brl and Usd 77.84/brl pinnacles.
• SEK/EM – Although the Swedish Krona has not been unduly ruffled by the political void, Eur/Sek is eyeing 10.1300 to the downside within a circa 10.1526-10.1249 following the return of PM Lofven in relief over continuity more than anything else perhaps. However, recovery gains in Bitcoin and other cryptos are fading on the back of another warning from the PBoC over risks attached in contrast to Gold scaling the 100 DMA on the way to reclaiming Usd 1800/oz+ status.

In commodities, crude remains underpinned this morning, though off best levels, after the breakdown in OPEC+ negotiations and with no clear time for a resumption in the talks; currently, WTI and Brent benchmarks post gains of USD 1.20/bbl and USD 0.20/bbl respectively for the August/September’21 contracts. To recap, Saudi Arabia and Russia are saying the meeting has been cancelled and as such production will now continue at current levels for August; however, the UAE has briefed that the meeting has just been postponed while their proposal is considered. The likes of Iraq believe the situation is ‘normal’ and expects a solution to arise soon while widely followed journalist Reza Zandi writes that the discussions could be reactivated at any moment. However, thus far there has been no fresh update on the status of talks or any timeline for another meeting. A number of desks have given their views on the situation including ING who believes that if output levels are maintained then this will be bullish for prices; however, they do not have a high conviction in members keeping output steady. UBS looks for Brent to hit USD 80/bbl in September. Away from the oil benchmarks, Credit Suisse equity research cautions that the upside in equities may be comparably more muted given the conflicting leads from increased earnings-upside in H2 and concerns around a lessening of OPEC+’s solidarity. Crude aside, spot gold and silver are firmer this morning in-spite of the increasing upside the USD is experiencing as the metals perhaps take support from the marginally lower yield environment given subdued equity trade; taking the former above USD 1800/oz (vs. low of USD 1791.04/oz). Separately, base metals continue to make ground after strong APAC trade in-spite of the broader indecisive overnight tone.

US Event Calendar

• 9:45am: June Markit US Services PMI, est. 64.8, prior 64.8
• 9:45am: June Markit US Composite PMI, prior 63.9
• 10am: June ISM Services Index, est. 63.5, prior 64.0

DB’s Jim Reid concludes the overnight wrap

It was a fairly subdued session for markets yesterday with the US out on holiday, though risk assets generally performed strongly as investors reacted positively to the latest services and composite PMI readings from Europe. By the end of the session, the STOXX 600 (+0.34%) had closed less than half a percent away from its all-time high last month, with cyclical sectors leading the advance, whilst the risk-on tone saw a selloff among sovereign bonds and fresh gains for a number of key commodities including oil on the OPEC+ meeting breakdown.

Indeed the most consequential story of the day was probably that around oil where the failure to reach a deal at the latest OPEC+ talks sent prices up to fresh 2-year highs. As we touched on in yesterday’s edition, some members of the group including Saudi Arabia had been hoping to increase production over the coming months, but the UAE had refused to agree and sought better terms that would change how its quota is calculated and allow it to produce more. Then the news came through towards the end of the European session that the meeting planned for yesterday had been called off, and that the group would continue with quotas at their current levels, which sent prices surging, with Brent Crude (+1.30%) and WTI (+2.10%) up to new post-pandemic highs of $77.16/bbl and $76.74/bbl respectively. Clearly there is two way risk here as at first glance a failure to agree supplies is bullish for prices. However too big a disagreement could eventually lead to unilateralism amongst OPEC+ members and maybe notably higher supply as they break ranks. The middle ground may still be paved with compromise. So in helpful research added value, the price of oil might go up, down or sideways!! On a serious note DB’s Michael Hsueh has recently suggested that oil will likely go above $80 in Q3. See here for more. The latest gains yesterday already leave WTI up by over +58% on a YTD basis, which if sustained could have broader consequences for inflation at a time when price pressures are already widespread across the economy. The moves higher for commodities were seen more broadly across the asset class yesterday, with copper (+1.63%), iron (+3.10%) and coal (+2.98%) all climbing as well.

Asian markets are again trading mixed this morning with the Nikkei (+0.33%) and Kospi (+0.39%) up while the Hang Seng (-0.58%), Shanghai Comp (-0.53%) and Asx (-0.13%) are down. It is worth noting that the performance of Asian markets have started to decouple from their US and European peers recently as a number of countries in the region are struggling to check the spread of the delta variant whilst also continuing to lag on vaccinations. Futures on the S&P 500 and Stoxx 50 are both trading broadly flat while yields on 10y USTs are up +2.0 bps to 1.444%. In FX, the New Zealand dollar is up c. +0.80% as the market is starting to price in a rate hike form the RBNZ this year. This has also led to New Zealand’s 10yr yields being up by +4.5bps. Elsewhere, the Reserve Bank of Australia left the key rate unchanged at +0.10% at today’s meeting while indicating that it will do a mild taper of its QE programme after September. However they are indicating that they don’t expect to hike rates until 2024 which is more dovish. The Australian dollar is up c. +0.40% after the decision with yields on 10y sovereign bonds up +4.0bps. In terms of overnight data releases, Japan’s May household spending came in at +11.6% yoy (vs. 11.0% yoy expected) while real cash earnings came in at +2.0% yoy (vs. +2.4% yoy expected) with the previous month’s reading revised down to +1.9% yoy from +2.1% yoy.

Back to the rest of yesterday’s session now and the morning got off to a decent start after the final PMI readings were generally a little stronger than the flash signal, and the Euro Area Composite PMI hit a 15-year high of 59.5 (vs. flash 59.2), so no sign yet that growth momentum is slowing down. Furthermore, the country-by-country readings were also incredibly strong, with Spain’s composite PMI of 63.4 at its highest level since February 2000, whilst France’s was revised up to a 3-year high of 57.4 (vs. flash 57.1). Even in Germany, where the revision was slightly downwards to 60.1 (vs. flash 60.4), that still marked the highest level for the composite PMI in a decade.

In light of the strong data, which itself came on the back of Friday’s “golidlocks” US jobs report, all the main European bourses moved higher, including the FTSE 100 (+0.58%), the CAC 40 (+0.22%) and the DAX (+0.08%). Sovereign bonds yields also rose in line with the risk-on tone elsewhere, with a bear-steepening that saw yields on 10yr bunds (+2.4bps), OATs (+2.8bps) and BTPs (+3.3bps) all rise on the day.

In terms of the latest on the pandemic, we heard from UK Prime Minister Johnson that he was planning to end legal limits on social contact in England on July 19, with a shift in emphasis away from legal restrictions towards personal choices. Furthermore, he said that the legal obligation to wear a face covering would be taken away, and it would no longer be necessary for the government to instruct people to work from home. Assuming this does go ahead as planned (with the full confirmation not taking place until Monday July 12 after they review the latest data), then this would mean the UK becomes a fascinating case study for others on whether it’s possible to live with the delta variant once most of the population have been vaccinated, and what this would mean for hospitalisations and deaths. In terms of the numbers, cases are continuing to rise in the UK, with the total over the last week up +53% on the week before, but the age distribution of cases is much lower this time relative to previous waves, and there are some indications that the rate of growth may have peaked for the time being, with the week-on-week growth rate down from +74% on Friday. Meanwhile, in Japan, PM Suga will meet with relevant ministers today to discuss whether enhanced virus restrictions in Tokyo and other areas will need to be extended. Boradcaster TBS added that given cases are rising in Tokyo and other areas, ending the virus measures as scheduled on July 11 isn’t an option. A formal decision is likely to come on Thursday.

On the vaccine front there was some more negative data out from Israel, where the Health Ministry there said the Pfizer vaccine was just 64% effective against infection amidst the continued spread of the delta variant. Fortunately, the effectiveness numbers for hospitalisations and severe illness were at a higher 93%, but continued reports like these will only raise fears about what a more vaccine-resistant strain could mean in terms of containing the pandemic.

Finally, there really wasn’t much in the way of economic data yesterday apart from the PMI releases, though French industrial production unexpectedly contracted by -0.3% in May (vs. +0.8% expected).

To the day ahead now, and data releases include German factory orders for May, the ZEW survey for July, the German and UK construction PMIs for June, Euro Area retail sales for May, and the final June US services and composite PMIs, along with June’s ISM services index. Meanwhile central bank speakers include the ECB’s Vice President de Guindos and the ECB’s Hernandez de Cos.

China’s move to block Didi Chuxing Technology Co. from app stores just days after the ride-hailing giant’s U.S. IPO has resulted in a 22% plunge in shares U.S. premarket trade Tuesday. 

Didi said on Monday that the Cyberspace Administration of China’s (CAC) ban on the app would have a significant impact on its revenue. As for existing customers with the app, the ban wouldn’t affect them.  

In premarket trading on Tuesday, shares are trading around $12 handle, or about a 22% discount from Friday’s close. U.S. stocks were closed on Monday for holidays. 

CAC ordered the ban after discovering the ride-hailing had illegally collected users’ data. The Wall Street Journal noted that cybersecurity regulators had advised Didi to delay its U.S. IPO, but the company decided to go along with it anyways. Didi said it did not know the CAC decision ahead of the listing. 

Furthermore, CAC expanded its latest crackdown on the tech industry beyond Didi to include two other US-listed firms — Full Truck Alliance Co. and Kanzhun Ltd.

“We are clearly in an era where the Chinese authorities are really quite thoughtfully considering how they want to regulate the tech industry and the internet industry and I think that just seems to me to be a completely reasonable thing to do on a rather young industry,” Capital Group’s Andy Budden told Bloomberg.

CAC’s latest regulatory assault has turned IPO buyers into bagholders in a matter of days. 

Russian authorities have dispatched ships to search for the wreckage of a small aircraft carrying 28 people (22 passengers including two children, along with 6 crew) that reportedly crashed into the sea near the remote Kamchatka Peninsula in Russia’s far east.

The small Soviet-era plane, an Antonov An-26 turboprop aircraft, belonging to local carrier Kamchatka Aviation Enterprise, departed from the regional capital Petropavlovsk-Kamchatsky and was headed to the town of Palana, over 435 miles (about 700 kilometers). The plane was nearing its destination – it was only about 10 minutes, or six miles, away from the small airport in Palana – when authorities lost radio contact.

Russia’s Federal Air Transport Agency is investigating whether the accident was caused by bad weather – the pilot was said to be grappling with intense fog and extremely low visibility – or some other malfunction. According to RT, a fleet of ships are searching the waters near Palana, which is situated on the upper-west portion of the peninsula.

“All emergency services have sounded the alarm and have been dispatched to search the route of the plane,” the Kamchatka regional government said in a statement per the NYT.

The suspected crash is Russia’s third major commercial aviation disaster in the last three and a half years. In 2018, an An-148 regional jet plunged into a field just after takeoff from Moscow, killing all 71 aboard. In 2019, a Russian-made Sukhoi SSJ-100 jet burst into flames as it touched down on a runway in Moscow, killing 41. It’s also at least the second failure involving a passenger plane flying to Palana from Kamchatka’s main city, Petropavlovsk-Kamchatsky, in recent memory. The last crash occurred in 2012, an An-28 approaching the remote town of about 3K people crashed into a mountainside, killing 10.

The An-26 is a twin-engine turboprop plane designed in the Soviet Union in the 1960s. The first models entered service in 1970 and production was halted in 1986. Hundreds remain in use, however, mostly by military. The plane involved in the crash first entered service in 1982.

The accident could be a problem for the small airline, which provides a vital link between a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By Kit Rees, Bloomberg reporter and commentator

Stocks around the world continue to smash one record after another, and some of the world’s biggest money managers have a simple message: Get used to it.

The likes of BlackRock Inc., State Street Global Markets, UBS Asset Management and JPMorgan Asset Management expect equity markets to keep rising in the second half of the year, with many investors increasingly looking outside the U.S. for more returns. They cite reasons such as the economic recovery, continuing central-bank accommodation and a lack of alternatives amid low rates and the tightest credit spreads in a decade.

“Many indicators suggest there is still overwhelming liquidity in the system that is looking for a home,” says Carsten Roemheld, capital markets strategist at Fidelity International. Flows will continue to go into equities, though return expectations should be much lower from here, he says.

One reason behind the rally in equities is that there is still nothing as attractive as stocks out there, given that developed-market government bond yields remain lackluster and credit spreads have tightened to their lowest levels in over a decade. Goldman Sachs strategists recently flagged that U.S. money-market fund assets have ballooned to a record $5.5 trillion during the pandemic, showing that there is a lot of cash on the sidelines.

Recovery in earnings growth will also be key to sustaining gains. Globally, profit expectations have bounced back to pre-pandemic levels, and nearly 50% of S&P 500 companies have raised their full-year outlook over the past three months, one of the highest percentage levels since 2010.

“We are slowly looking to position back into value as we expect a solid second half for corporate earnings and the economy,” says Maarten Geerdink, the head of European equities at NN Investment Partners. But that fall short of estimates could be punished.

“Within equities, cyclicals and value should continue to benefit from the likely surge in consumer spending, but investors should also consider secular growth stocks, such as mega-cap technology,” says Seema Shah, the chief global strategist at Principal Global Investors.

Still, an extended rally is not a given, considering much of the reopening optimism is already priced in. Some investors are even turning to more defensive sectors. “Quality at a value price is key at this juncture and we are positioning our portfolio in between the barbell of growth tech stocks and the deep cyclical value trades,” says Eric Lynch, managing director at Scharf Investments. “We currently like health care, as it is the only sector where the long term average is still cheap.”

One could argue that the set-up for equities is simply too good, with economic indicators in both the euro area and US running red hot. But even this isn’t necessarily seen as a problem, according to Claudia Panseri, a global equity strategist at UBS Global Wealth Management, who says that historically, peaking leading indicators doesn’t always mean markets will fall.

“Hardly anything has the potential to make you look more foolish as a market participant than to predict a market correction,” says DWS Chief Investment Officer Stefan Kreuzkamp. “The trigger of a correction is unlikely to be one of the many talked about risks, but something that will happen in some niche corner of the market that no one expects.”

In what looks to be shaping up as the biggest bait and switch boondoggle of the entire “green” movement, Elon Musk took to Twitter over the holiday week to tell his disappointed supporters that he “didn’t expect full self driving” to be such a hard problem to solve. 

This would be a wonderful update on the state of Tesla’s FSD project, except for one small thing: the company has been charging customers for full-self driving, which still doesn’t exist in any operable form, for the better part of the last 5 years. 

While Musk and his team continue to fumble with making new variations of the almost decade-old Model S (the latest of which appears to be the Model S Flambée Style) and updating the Full Self Driving 9.0 beta that was supposed to be shipped two weeks from June 6, per another Musk tweet that wasn’t accompanied by any regulatory filing, Musk’s followers are starting to grow impatient.

In fact, some cultists Tesla supporters are starting to jab Musk on Twitter for his continued missed timelines, electrek noted this weekend. One Tesla owner even named his model “Two Weeks”, a reference to Musk’s missed timeline for FSD version 9.0.

This elicited a response from a brooding Musk, wherein he lamented how hard of a problem Full-Self Driving actually is, something that Tesla skeptics have been pointing out since Day 1. 

“Haha, FSD 9 beta is shipping soon, I swear!” Musk tried to reassure, before offering up a slate of excuses. “Generalized self-driving is a hard problem, as it requires solving a large part of real-world AI. I didn’t expect it to be so hard, but the difficulty is obvious in retrospect. Nothing has more degrees of freedom than reality,” Musk wrote.

Put simply, and out of Musk-bullshit-lingo, its an admission from Musk that fully autonomous driving – the same “feature” that bulls like Cathie Wood have threaded through their financial models in depth to arrive at bizarre Tesla price targets – is a complex problem that Musk apparently isn’t even close to solving. Who could have guessed?

As a reminder, Musk said in 2019 he was “very confident” in predicting autonomous robotaxis “next year”, which would have been 2020, which has now turned into “last year” and is six months away from being “two years ago”:

Just in case you have an argument with an irrational #Tesla fan:#ElonMusk #ConArtist #FSDbeta #fraud #scam $tsla $tslaq pic.twitter.com/iYxhKR6FfC

— Bullshit Exposed (@BS__Exposed) July 5, 2021

Even pro-Tesla blog electrek’s recanting of Musk’s Full-Self Driving promises makes the hope of FSD ever happening sound like a pipe dream: 

“It was first supposed to happen in 2018, then 2019, and in more recent years Musk has been more careful about the way he talks about full self-driving and now instead refers to a “feature-complete” system that would still rely on the driver’s attention but could lead to true autonomy with data proving that it’s safer than humans.

This “feature complete” system is now Tesla’s Full Self-Driving (FSD) Beta, which first started being released to early access owners back in October 2020 as part of a limited program. Tesla has since released several software updates for FSD Beta, and it has expanded the early access pool, but the program has certainly slowed down in recent months. The next big step is expected to be the FSD v9 Beta update, which Musk has been promising for a while now.”

Recall, earlier this year Tesla offered up another reality check when it admitted to regulators that it was still “firmly in level 2” autonomy. 

The company “told a California regulator that it may not achieve full self-driving technology by the end of this year,” according to Reuters back in May. The memo was originally unearthed by legal website PlainSite. 

“Tesla indicated that Elon is extrapolating on the rates of improvement when speaking about L5 capabilities. Tesla couldn’t say if the rate of improvement would make it to L5 by end of calendar year,” the memo said. 

It continued: “Tesla indicated that they are still firmly in L2. As Tesla is aware, the public’s misunderstanding about the limits of the technology and its misuse can have tragic consequences.”

We’d once again ask where the regulators are in a situation like this – (Has the SEC looked at Musk’s disclosures versus what has been delivered? Has the FTC looked at what has been “sold” versus what has been delivered? Is the NHTSA even paying attention?) – but we’ve grown so dejected of wishing for some semblance of reality to intrude into the Musk stratosphere the best we can do is just sit back and watch the whole thing explode before our eyes, not unlike a Model S Plaid rolling down a suburban street. 

Tesla in 2019: “Next year no one needs to pay attention!”
Tesla in 2021: Removes software from drivers that was purchased for $10,000 because they did not pay enough attention.
This is the epitome of a bait and switch scam. pic.twitter.com/fBcTkOdsSl

— Bullshit Exposed (@BS__Exposed) April 3, 2021

Authored by Raul Ilargi Meijer via The Automatic Earth blog,

Why the Delta scare?

As a virus mutates, it becomes more contagious and less lethal. And then eventually it mostly disappears. Many voices claim that Delta will be with us for a very long time, but we should be so lucky. It’s way more likely that it will soon be followed by a next variant that will in turn become dominant. And more contagious and less lethal.

And no, that’s not because of unvaccinated people, or at least there’s no logic in that. If most people are not vaccinated, the virus has no reason to mutate. If many people are, it does. So this CNN piece is suspect. Vaccinated people are potential variant factories, just as much, if and when the vaccines used don’t stop them from being infectious, as the present vaccines don’t, far as we know.

Unvaccinated People Are “Variant Factories,” Infectious Diseases Expert

Unvaccinated people do more than merely risk their own health. They’re also a risk to everyone if they become infected with coronavirus, infectious disease specialists say. That’s because the only source of new coronavirus variants is the body of an infected person. “Unvaccinated people are potential variant factories,” Dr. William Schaffner, a professor in the Division of Infectious Diseases at Vanderbilt University Medical Center, told CNN Friday. “The more unvaccinated people there are, the more opportunities for the virus to multiply,” Schaffner, a professor in the Division of Infectious Diseases at Vanderbilt University Medical Center, said. “When it does, it mutates, and it could throw off a variant mutation that is even more serious down the road.”

“Even more serious”? Well, yes, it can become more contagious, but then it loses lethality. Maybe that’s what we want. Maybe we want a virus that everyone can be infected by, and build resistance to, without serious consequences. Maybe that’s even what we should aim for. And also, maybe that’s what we already have, with survival rates of 99.99% among most people.

And maybe, just maybe, a one-dimensional “solution” in the shape of an experimental vaccine is the worst response of all. Because it doesn’t protect from anything other than more severe disease, while unleashing potential adverse effects for decades to come in the inoculated. Maybe one dimension simply doesn’t cut it. Maybe we should not refuse to prevent people from becoming infected, or to treat them in the early stages of the disease.

Maybe the traumatic effects of lockdowns and facemasks should be part of “benefits and risks” models. And maybe we should start trying vitamin D, ivermectin and HCQ on a very large scale. No research, you say? There’s more research for those approaches than for the vaccines. But it’s largely been halted in the west to maintain the viability of the one-dimension “solution”; the medical Siamese twin of the Trusted News Initiative, one might say. Of which The Atlantic is also a valued member, look at this gem:

The 3 Simple Rules That Underscore the Danger of Delta

2. The variants are pummeling unvaccinated people.

Vaccinated people are safer than ever despite the variants. But unvaccinated people are in more danger than ever because of the variants. Even though they’ll gain some protection from the immunity of others, they also tend to cluster socially and geographically, seeding outbreaks even within highly vaccinated communities.

The U.K., where half the population is fully vaccinated, “can be a cautionary tale,” Hanage told me. Since Delta’s ascendancy, the country’s cases have increased sixfold. Long-COVID cases will likely follow. Hospitalizations have almost doubled. That’s not a sign that the vaccines are failing. It is a sign that even highly vaccinated countries host plenty of vulnerable people.

[..] And new variants are still emerging. Lambda, the latest to be recognized by the WHO, is dominant in Peru and spreading rapidly in South America. Many nations that excelled at protecting their citizens are now facing a triple threat: They controlled COVID-19 so well that they have little natural immunity; they don’t have access to vaccines; and they’re besieged by Delta.

First, the vaccines don’t confer immunity on the jabbed, there is no evidence of that. Second, a large majority of healthy people have an immune system strong enough to fight off the infection, even without ever being infected. So to suggest that unvaccinated people might “gain some protection from the immunity of” the vaccinated is simply nonsense.

As for “Delta’s ascendancy”, yes, cases are rising in the UK and Israel, two highly vaccinated countries. Not that anyone would acknowledge a possible connection there: it’s all despite the vaccines, not because of them. But as the graph below shows, while cases there are up a lot, hospitalization and deaths are not over the past month. They barely register.

On January 20, the UK had 1,823 deaths. Today, they had 15.

I even enlarged the hospitalizations a bit, or you wouldn’t see anything.

“Hospitalizations have almost doubled”, says The Atlantic. Yeah, but they’re still very low, as are deaths. And perhaps that’s not all that surprising, because the Delta variant doesn’t appear to be the big killer that everyone wants to close their borders and restaurants for again. There’s no conclusive evidence, it’s too early, but this is what we know today.

Rand Paul Cites 0.08% Delta Variant Death Rate Among Unvaccinated

Kentucky GOP Sen. Rand Paul is telling Twitter followers to not let the ‘fearmongers’ win, amid growing concerns about the newest delta variant of the coronavirus. Paul, who is a doctor with a degree in medicine from Duke University, cited a study of the strain that shows only a 0.08% death rate among unvaccinated people. “Don’t let the fearmongers win. New public England study of delta variant shows 44 deaths out of 53,822 (.08%) in unvaccinated group. Hmmm,” he tweeted Tuesday to his 3.2 million followers. The variant, which has caused virus outbreaks in Australia and other countries, has resulted in officials reimposing recently lifted health-safety orders including mask-wearing.

In another graph, the Delta variant Case Fatality Rate in the UK even appears 8 times higher among the fully vaccinated than the unvaccinated. Maybe the press should pay a little more attention to that, instead of the Great Big Delta Scare. All they do today is sell fear and vaccines, but that will backfire, promise.

And what goes for the press is also valid for politicians and their “experts”: there will come a day that people realize you could have focused on prophylactics and early treatment, but chose not to. And that this cost a lot of lives and other misery. What are you going to do then? Apologize?

Let’s not miss this from the past week: strong immune systems kill the virus before antibodies are formed. Which means an antibody test won’t show anything, but a PCR test will come back positive because there are dead virus bits. And everyone will cry: vaccinate! vaccinate!

Maybe it’s finally time for some real science, instead of clickbait and fear and gene therapy.

Pre-existing polymerase-specific T cells expand in abortive seronegative SARS-CoV-2 infection

Individuals with likely exposure to the highly infectious SARS-CoV-2 do not necessarily develop PCR or antibody positivity, suggesting some may clear sub-clinical infection before seroconversion. T cells can contribute to the rapid clearance of SARS-CoV-2 and other coronavirus infections1–5 . We hypothesised that pre-existing memory T cell responses, with cross-protective potential against SARS-CoV-26–12, would expand in vivo to mediate rapid viral control, potentially aborting infection.

We studied T cells against the replication transcription complex (RTC) of SARS-CoV-2 since this is transcribed first in the viral life cycle13–15 and should be highly conserved. We measured SARS-CoV-2-reactive T cells in a cohort of intensively monitored healthcare workers (HCW) who remained repeatedly negative by PCR, antibody binding, and neutralisation for SARS-CoV-2 (exposed seronegative, ES).

16-weeks postrecruitment, ES had memory T cells that were stronger and more multispecific than an unexposed pre-pandemic cohort, and more frequently directed against the RTC than the structural protein-dominated responses seen post-detectable infection (matched concurrent cohort). The postulate that HCW with the strongest RTC-specific T cells had an abortive infection was supported by a low-level increase in IFI27 transcript, a robust early innate signature of SARS-CoV-2 infection16.

We showed that the RNA-polymerase within RTC was the largest region of high sequence conservation across human seasonal coronaviruses (HCoV) and was preferentially targeted by T cells from UK and Singapore pre-pandemic cohorts and from ES. RTC epitope-specific T cells capable of cross-recognising HCoV variants were identified in ES. Longitudinal samples from ES and an additional validation cohort, showed pre-existing RNA-polymerase-specific T cells expanded in vivo following SARS-CoV-2 exposure, becoming enriched in the memory response of those with abortive compared to overt infection. In summary, we provide evidence of abortive seronegative SARS-CoV-2 infection with expansion of cross-reactive RTC-specific T cells, highlighting these highly conserved proteins as targets for future vaccines against endemic and emerging Coronaviridae.

*  *  *

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In the days after the June 23 incident between the UK Royal Navy’s HMS Defender and a Russian patrol vessel and military aircraft near Crimea which resulted in warning shots fired from the Russian side, Putin asserted that a US reconnaissance plane had been nearby monitoring the dangerous close-call incident as it unfolded below. Putin had cast the whole showdown as a “provocation” in which the US aircraft was present monitor Russia’s response to the UK vessel. Moscow’s position is that the UK vessel had ventured a full three kilometers into Russian territorial waters, which was met with a Su-24M dropping bombs in the Defender’s path along with the Russian patrol ship firing warning shots.

The latest charge on Sunday, however, has gone further, with Russian presidential spokesman Dmitry Peskov accusing Washington and the UK of essentially engineering the dangerously close military encounter in order to probe and test Russia’s defense of its borders.

“I think our intelligence certainly knows who made a decision there [in the situation with the British destroyer]. But certainly I think such operations are basically planned by senior partners from overseas,” Peskov was cited in TASS as saying.

Given Putin’s prior words pointing the finger directly at Washington during his annual televised Q&A last month, this latest Kremlin statement is also no doubt a clear reference to the US (in terms of the provocative reference to “who made the decision here”). Presidential spokesman Peskov elaborated further in his Sunday statements that “in this case the destroyer was just a tool of provocation.”

These latest statements came with a warning, following the earlier summoning of the British ambassador and military attaché in Moscow quickly after the event. Peskov said Russia will continue to “respond harshly” to any future provocations in a similar way. This after UK officials expressed “surprise” at how rapidly the sea encounter devolved in a ‘live fire’ incident. 

The Kremlin is now telling the West this is precisely what aggressors can expect and more: 

“This is indeed so,” Peskov said, agreeing with a stance that in such situations Moscow will act harshly. He commented on a remark that Russian President Vladimir Putin’s reaction “was very harsh and it is clear that no provocations should be repeated, the response will be in accordance with the charter that says – to sink.”

“Obviously, the reaction will be certainly harsh” the presidential spokesman stressed further. 

Footage of Russian Black Sea Fleet and Border Service of the Federal Security Service’s prevention of the breach of the Russian Federation state border committed by the UK Navy destroyer «Defender» pic.twitter.com/4VnAlMjK4Y

— Минобороны России (@mod_russia) June 23, 2021

The Sunday statements also shed more light on Putin’s decision to make public classified intelligence information in choosing to divulge that a US reconnaissance plane had been present throughout the ordeal. While the US side never confirmed it, and is not expected to given the presence of highly classified intelligence monitoring missions, Peskov elaborated that Putin made public information that proved it…

“And most importantly, as the president said, that information that the reconnaissance plane obtained is not that information that they sought to get, but this was that information that the Russian side believed it necessary to provide,” Peskov said.

The Kremlin spokesman also noted that during this Q&A session Putin revealed the number of the reconnaissance jet’s tail number. “Someone even joked [during the event] that the president will now give the first and last names of this plane’s pilots and even their address,” he said.

This actually wasn’t the first time the Kremlin threatened to sink any foreign military ship that breaches Russian waters.  

My feeling is that this was staged. Why? Help me understand …

Britain acknowledges surprise at speed of Russian reaction to warship https://t.co/DMkPZMunrv

— NotImpressed #FBPE #FBPPR #FBPA #SardinesUK (@randombigbird) June 25, 2021

Over a week ago the Associated Press reported of Moscow’s clear stance: “Russia is prepared to target intruding warships if they fail to heed warnings, a senior Russian diplomat declared Thursday after a Black Sea incident in which a British destroyer sailed near Crimea in an area that Russia claims as its territorial waters.”