Global Markets Hit New Record High As China Concerns Ease

US equity-index futures were little changed near all-time highs, as global shares rode earnings to a fresh record high boosted by easing concerns over China’s crackdown on gaming and technology industries, but worries about Covid-19 variants lingered. S&P futures were steady, trading 5 points lower or -0.11%, in the wake of a record S&P 500 close on robust earnings. Tech shares led a broad-based advance as the Stoxx Europe 600 index climbed for a third day to a fresh record. The 10-year U.S. Treasury yield held its retreat, and the dollar was steady against a basket of major peers in the wait for ADP employment data to provide clues to the pace of monetary tightening in the world’s biggest economy.. WTI crude oil hovered around $70 a barrel.

The MSCI World index was last up 0.2%, tracking overnight gains in Asia, where the equivalent index, excluding Japan rose 1%. The strongest earnings beat on record and expectations of continuing central-bank stimulus have propelled U.S. and European shares to all-time highs, weathering the spread of the delta variant as well as a burst of inflation attributed to pandemic-linked bottlenecks. In comparison, the mood was Asia more somber, with analysts reviewing economic growth projections for China as officials there grapple with the broadest Covid-19 outbreak since the beginning of the pandemic.

“Aside from the healthy earnings outlook, we also see equities being supported by continued monetary stimulus from the Federal Reserve and the attractiveness of stocks relative to low bond yields,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “Cyclicals are expected to benefit from the shift in consumer spending away from pandemic winners such as mega-cap tech.”

With Chinese stocks stabilizing overnight thanks to a rare day of no new crackdowns, attention fell on the following premarket movers:

• Activision Blizzard (ATVI) shares rise 5.6% as its second quarter results and guidance look robust, analysts said. If the video-game developer is able to address the workplace controversies it currently faces, it should be well-positioned for further growth, they added.
• Cerus (CERS) jumps 13% in premarket trading after it reported earnings that Cantor Fitzgerald says show the company “keeps getting better each and every quarter.”
• Lyft Inc. (LYFT) gains 1% as its first ever adjusted profit was made possible by a rebound in demand after vaccine rollouts and reopenings, as well as cost reductions, according to Jefferies. Third-quarter revenue will be dampened by driver supply bottlenecks and increased incentives, analysts led by Brent Thillsaid.
• Zero-fee trading platform Robinhood Markets Inc. (HOOD) jumps 7.8% in premarket trading after surpassing its initial public offering price for the first time since its market debut.
• Zymergen (ZY) shares plunge 71% in premarket trading after the bio-manufacturing company said it no longer expects product revenue in 2021, that it will be “immaterial” in 2022, and its CEO stepped down. Three brokers cut their ratings on the stock.

The Stoxx Europe 600 Index gained 0.6% to a new all time high, led higher by tech and travel stocks. Satellite firm SES SA and coffee group JDE Peet’s N.V.gained after positive updates. Siemens rose 1.8%, to the highest in more than a month, before the German engineering company’s earnings report. Commerzbank sank 4.6%, the biggest drop since April, after the lender posted worse-than-expected results.  The travel and leisure sector also outperformed as shares of online gaming companies recovered after Chinese state media toned down their criticism of the industry. In the UK, the FTSE 100 was also up about 0.6%, latter supported by strong results from housebuilder Taylor Wimpey which jumped after saying it expects to deliver 2021 full-year operating profit above the top end of consensus. Here are some of the biggest European movers today:

• SES shares surge as much as 10% after results, with Goldman Sachs highlighting the satellite firm’s 2Q beat and Ebitda guidance raise.
• IMCD shares jump as much as 8.3% to a record high, following earnings that are “significantly ahead” of expectations, according to Kempen (neutral).
• Taylor Wimpey shares rise as much as 6.6%, the most since March 1. The U.K. housebuilder’s earnings guidance is ahead of expectations and its comments on price strength outpacing rising costs are encouraging, Liberum says.
• Delivery Hero shares gain as much as 4.2% as Goldman Sachs reinstates coverage of the online food delivery firm with a buy rating. Separately, Just Eat Takeaway is also reinstated by Goldman at buy.
• Thales rises as much as 2.5% after confirming plans to sell Ground Transportation Systems to Hitachi Rail for EU1.66b, updating its FY guidance and raising its mid-term margin target.
• Commerzbank shares decline as much as 5.6% after the German lender missed estimates due to one-time factors, RBC Capital Markets said in a note. After making some adjustments, RBC calculates that operating performance was better than expected.
• Dr. Martens shares fall as much as 4.9% after its former CEO sold shares in the bootmaker.
• Philips shares decline as much as 3.1% following a Reuters report that the U.S. FDA has classified the recall of some of the company’s ventilators as Class 1, the most serious type of recall.

Earlier in the session, Asian stocks advanced as investors snapped up cheaper shares of China’s tech giants and digested the spread of the delta variant of Covid-19 in the region. The MSCI Asia Pacific Index rose 0.4%, buoyed by communication services shares such as Tencent and other tech stocks as Chinese state media toned down criticisms of the video-game industry. Tencent rebounded by 2.4%, recouping some of Tuesday’s loss. South Korea led gains in the region as foreigners piled into chip stocks such as Samsung. Shares in Singapore also rallied, boosted by optimism over bank earnings, while indexes in India and Australia traded at record highs. Malaysian equities, however, fell as political woes deepened Sentiment has been fragile for Asian equity traders coming into August after China roiled markets with a sudden slew of policy initiatives last month. A virus resurgence in Japan and other parts of Asia has also scuppered optimism, with China also dealing with its broadest Covid-19 outbreak since the beginning of the pandemic. “We’ll have to push back our expected schedule of reopening,” Ken Peng, Asia Pacific investment strategist at Citi Private Bank, told Bloomberg Television. “China probably wouldn’t do a reopening until after the Winter Olympics anyway, and it’ll delay recovery” in the service, retail, and consumption sectors, he added. Improved sentiment on tech stocks Wednesday fueled Hong Kong shares, even as traders remain alert to indications of any new rules in the world’s second-largest economy. Alibaba shares edged lower triggered by the e-commerce giant‘s first-quarter sales miss.

Japanese stocks fell as SoftBank retreated on a potential block of its $40 billion sale of Arm Ltd. to chip company Nvidia Corp. The Topix Index declined for the second day, dropping 0.5%, or 9.71, to 1,921.43 in Tokyo. Sony Group Corp. contributed the most to the index’s loss, decreasing 3.2%. Adways Inc. had the largest drop, sliding 13.4%. Today, 1,647 of 2,188 shares fell, while 473 rose; 25 of 33 sectors were lower, led by electric appliances stocks. The Nikkei 225 lost 0.2% to 27,584.08. “While the markets continue to be wary of the ongoing delta variant outbreaks, investors may be in wait-and-see mode for some time given Olympics and summer holidays,” said Seiichi Suzuki, a market analyst at Tokai Tokyo Research Institute. Japan’s stock market will be closed on Aug. 9 for a national holiday. The Tokyo Olympics run until Aug. 8. “Japan will head into a three-day weekend at the end of this week,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank. “It’s hard for investors to increase their positions in Japanese stocks.”

India’s benchmark indexes climbed to fresh highs, led by a fourth day of gains for Housing Development Finance Corp., the nation’s largest mortgage lender. The S&P BSE Sensex rose 1% to 54,369.77 in Mumbai, while the NSE Nifty 50 Index advanced 0.8% to 16,258.80. Four of the 19 sector sub-gauges compiled by BSE Ltd. gained, led by a gauge of banks. The gains come before the central bank’s monetary policy decision Friday, with interest rates expected to be kept at an all-time low even as inflation accelerates. Steady buying by local funds has also supported sentiment. “With accommodative financial conditions worldwide, we see the mega rally in risk assets to continue,” Amar Ambani, head of research at Yes Securities Ltd., wrote in a note. “We expect the government to continue spending on infrastructure and to fast track the reform agenda.” Earnings for Indian companies have been lackluster, with 21 of the 34 Nifty firms that have announced so far missing analyst estimates. State Bank of India climbed 2.3% to a record after the country’s largest bank by assets posted first-quarter profits that beat analyst estimates.

Strong corporate profits have eased concerns over the COVID-19 pandemic, as vaccine roll-outs continue apace in developed markets, despite a resurgence of cases in Asian countries including China. While that has helped buoy equities, inflationary pressures and a growing belief the U.S. Federal Reserve may soon signal its intention to trim support to the economy continue to cause a tussle with the bond market over mid-term direction as Reuters notes.

“Macro data is coming at high expansionary levels but currently all the market is seeing is peak data. It wants to know what’s going to be the glide path over the next 12 months. Those concerns are playing out in the bond market,” said Grace Peters, EMEA head of investment strategy at J.P. Morgan Private Bank. “When it comes to the equity markets, you have more balance, as lower yields support equities, especially the growth part of the equity market. At the same time, there is strong bottom-up evidence that life is good for corporates.”

Close to 90% of companies listed on the S&P500 have reported positive earnings surprises for the second quarter, National Australia Bank (NAB) economist Tapas Strickland said.

“Aside from (the) healthy earnings outlook, we also see equities being supported by continued monetary stimulus from the Federal Reserve and the attractiveness of stocks relative to low bond yields,” said Mark Haefele, Chief Investment Officer, UBS Global Wealth Management in a note.

In FX, the euro dipped after a European Central Bank policy maker said the central bank won’t rush a decision on stimulus. The Bloomberg Dollar Index held little changed and most Group- of-10 currencies traded in narrow ranges. The pound rose for a second day, with some investors expecting the Bank of England to take a hawkish turn on Thursday; the euro slipped to a session low of 1.1842 before trimming losses. New Zealand’s dollar rose against all its G-10 peers as traders boosted bets for interest- rate hikes after the nation’s jobs data beat economists’ estimates. The kiwi was also bolstered by fund-related purchases against the Australian dollar, traders said. The Australian dollar bounced off a session low after a gauge of China’s services activity topped analysts’ estimates. The safe haven Swiss franc and Japanese yen led losses on concern the spread of the delta variant could derail global growth.

In rates, treasury yields suddenly slumped to session lows of 1.1555% after trading steady for much of the overnight session as market awaits latest quarterly refunding announcement at 8:30am ET. Price action calm over Asia, early European session has seen yields trade in a narrow range. ISM services and ADP employment data also due Wednesday, which may provide some insight ahead of Friday payrolls. No Treasury supply this week, although quarterly refunding announcement at 8:30am ET will draw focus as officials may provide details about the timing of reducing auction sizes.  Euro zone government bond yields hovered near recent lows, with the German 10-year yield at -0.489%, little moved by July euro zone purchasing managers index survey data that came in slightly worse than expected.

In commodities, Brent futures gave up early gains to last trade 0.2% lower at $72.30 a barrel, while U.S. crude was down 0.4% at $70.26 a barrel. Spot gold was up 0.2% at $1,812.9 an ounce.

Looking at the day ahead, expected data include ADP employment change for July as well as the ISM services index. Key U.S. jobs data this week could stoke market swings if they lead investors to adjust expectations over the Federal Reserve’s likely timeline for eventually tapering stimulus. Fed Vice Chair Richard Clarida is due to speak about monetary policy Wednesday. “Today’s employment figures could rapidly change the market mood,” said Swissquote analyst Ipek Ozkardeskaya. “A strong read should accelerate the thinking that the Fed will get to the tapering stage quicker than otherwise. That could apply a certain pressure on the U.S. stocks.”  Separately the Central Bank of Brazil will release its latest monetary policy decision and then Federal Reserve Vice Chair Clarida speaks. Finally, earnings releases today include CVS Health, Booking Holdings, General Motors, Uber, and Toyota.

Market Snapshot

• S&P 500 futures little changed at 4,410.75
• STOXX Europe 600 up 0.5% to 467.87
• MXAP up 0.4% to 201.46
• MXAPJ up 0.9% to 667.98
• Nikkei down 0.2% to 27,584.08
• Topix down 0.5% to 1,921.43
• Hang Seng Index up 0.9% to 26,426.55
• Shanghai Composite up 0.8% to 3,477.22
• Sensex up 1.0% to 54,384.95
• Australia S&P/ASX 200 up 0.4% to 7,503.18
• Kospi up 1.3% to 3,280.38
• Brent Futures down 0.1% to $72.33/bbl
• Gold spot up 0.1% to $1,812.46
• U.S. Dollar Index little changed at 92.11
• German 10Y yield fell 0.5 bps to -0.487%
• Euro little changed at $1.1858

Top Overnight News from Bloomberg

• Investors waiting for a heads-up from the European Central Bank on the future of pandemic bond-buying in September will probably be disappointed, according to Governing Council member Martins Kazaks
• The lira’s best month this year may only serve to highlight the volatility that still haunts Turkish assets
• The hunt for a benchmark to replace yen Libor is gaining ground, with Japan’s traders leaning toward the Tokyo Overnight Average Rate in the battle to dominate the financing of the country’s $27 trillion derivatives market
• Overnight-index swaps show that traders are fully pricing in a rate increase from the Reserve Bank of New Zealand this month, compared to an 84% chance before the jobs print
• China’s broadest Covid-19 outbreak since the beginning of the pandemic in late 2019 is hampering tourism and spending during the peak summer holiday, prompting analysts to review their economic growth projections as risks escalate

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac equities traded mostly higher after initially overlooking the gains on Wall Street, in which the S&P 500 rose to another record high heading into Friday’s US jobs report. US equity futures overnight resumed trade modestly softer and were caged throughout the session, albeit the ES, NQ, and RTY remained above 4400, 15000, and 2200 respectively. Back to APAC, newsflow remained light overnight, the ASX 200 (+0.5%) pulled back after fleetingly topping 7,500, whilst the Nikkei 225 (-0.3%) experienced early underperformance and briefly dipped below 27,500 as chatter regarding a potential nationwide State of Emergency kept the index subdued. The Hang Seng (+1.5%) and Shanghai Comp (+0.6%) initially conformed to the sluggish trade seen across the region at the time, before a notable beat in the Caixin Services PMI bolstered the two indices – with the constituents in the former also cheering China tempering down its crackdown language. SMIC and Tencent both rose some 4% whilst the Hang Seng Tech Index rebounded over 3%. The KOSPI (+1.3%) also welcomed China’s softened stance. Elsewhere, the Japanese 10yr yield fell to zero for the first time since December.

SGH Macro Advisors’ understanding is that the recent Chinese Politburo meeting warned that the risk of holding US Treasuries is increasing amid the rising US financial deficit and debt levels, alongside China’s concerns over a potential US recession. It was reportedly agreed that US Treasury holdings should continue to be reduced rather than increased. The State Council was reportedly told to speed up oversight and guide “platform companies” to make “comprehensive rectifications” in-line with regulatory requirements. The meeting is said to have also stressed the importance of keeping strong pressure on virtual currency trading; a senior official said the PBoC’s goal is to ensure that there will be no more virtual currency trading in China by the end of the year. The meeting also called for improving the oversight mechanism for Chinese overseas IPOs. Furthermore, sources said new loans in H2 will be guided to remain at or slightly above 2020 levels, whilst the PBoC will utilise “low-profile tools” to inject long-term liquidity. (SGH Macro Advisors)

Top Europe News

• Bonds Feel Pull of Sub-Zero Yields as Virus Concern Takes Toll
• VW to Hit Finance Profit Target Years Early on Used-Car Boom
• Oil Fluctuates as Rising Equities Offset China’s Delta Outbreak
• U.K. May Block Arm/Nvidia: Readaross for Ultra and Meggitt Deals

European equities (Eurostoxx 50 +0.7%) trade predominantly firmer following on from yesterday’s strong close on Wall St and an APAC session which was characterised by a reprieve for Chinese equities. More specifically, a solid Caixin Services PMI and China tempering its crackdown rhetoric helped provide support for the Hang Seng Tech index, albeit there are clearly still reasons to be cautious about Xi’s intentions for the Chinese corporate sector. In Europe, a minor downward revision to the composite PMI has done little to shift the dial with many of the themes covered by the report very much already part of the narrative for the region. Stateside, price action for futures is relatively lacklustre with the ES hugging the unchanged mark. All sectors in Europe trade in positive territory with Tech, Autos and Travel & Leisure top of the leaderboard. Of note for the latter, investors await tomorrow’s travel update from the UK with the latest press reports suggesting that the announcement will see Spain avoid the “red list” amid a significant fall in cases and lack of capacity in hotel rooms for travellers to quarantine in. Earnings reports have slowed down from the pace seen last week as the reporting season begins to wind down. However, notable reports from the pre-market today included Taylor Wimpey (+3.5%) and Legal & General (+2.4%) who sit at the top of the FTSE 100. In Germany, Commerzbank (-4.6%) earnings disappointed after restructuring efforts at the Co. prompted a EUR 527mln net loss for Q2. Elsewhere, Hugo Boss (+1.1%) trade firmer on the session with the Co. noting a Q2 return to pre-pandemic levels of sales in China and Britain. Finally, Thales (+1.6%) is a notable gainer in France after agreeing to sell its Railway signalling business to Hitachi in a deal valued at EUR 1.66bln.

Top Asian News

• Japan PM’s Plan to Have Mild Virus Cases Stay Home Sparks Anger
• Thai Central Bank Holds Rate in Split Vote, Cuts GDP Forecast
• Bonds Feel Pull of Sub-Zero Yields as Virus Concern Takes Toll
• Largest Indian Bank Jumps to Record After Profit Beats Estimates

In FX, it’s almost deja vu for the Kiwi, but this time on a stonking NZ jobs report that has prompted another ratchet up in RBNZ rate hike pricing for this month’s policy meeting and put clear daylight between the Nzd, Aud and Usd. In short, almost all elements of the Q2 labour report were above consensus and upbeat, though the standout metric was the unemployment rate dropping to 4% from a revised 4.6% vs 4.5% forecast and returning to pre-pandemic levels much sooner than envisaged. In response, another three local banks are now echoing Westpac’s prediction that the OCR will reach 1% by the end of 2021 from 0.25% at present, while a 25 bp hike on August 18 is fully factored in and more to the extent that +50 bp is deemed to be a 5-1 shot. Back to the Kiwi, 0.7050 and the nearby 50 DMA at 0.7052 have offered little resistance as it probes 0.7080 vs its US counterpart, while 1.0500 has been breached in the Aussie cross with similar ease even though Aud/Usd is firmly back above 0.7400 with the aid of much stronger than expected Chinese Caixin services and composite PMIs.

• DXY – Notwithstanding ongoing outperformance down under, the Dollar and index retain an underlying bid and the latter a fairly tight grasp of the 92.000 handle as the countdown continues to this week’s headline event in the form of US jobs data (assuming the BoE does not upstage NFP tomorrow of course). However, the midweek agenda has potential for further deviation and direction given more proxies for the BLS report via ADP and the employment component of the services ISM, not to mention the headline reading itself, while many will be looking for policy clues from Fed’s Clarida as one of the more influential FOMC members and vice chair rather than Bullard who has made his hawkish views and desire to get on with tapering well known. Back to the DXY, a marginal new w-t-d peak at 92.196 followed a bounce from 91.956 and exposes late July highs of 92.202 and 92.289 amidst broad retreats in most basket components bar Sterling and the Swedish Crown.
• GBP/SEK – The Pound and Swedish Krona may be deriving impetus from relative strength in the respective services PMIs, but in truth the UK’s final print was inflated by an additional five days following ‘Freedom Day’. Hence, Cable is probably getting more of a tailwind from the Eur/Gbp cross retesting recent lows into 0.8500 as it probes 100 and 50 DMAs around 1.3922 and 1.3931/2 ahead of the half round number awaiting super BoE Thursday, while Eur/Sek remains anchored either side of 10.200.
• CAD/EUR/JPY/CHF – Some solace for the Loonie after its midweek meltdown alongside WTI as the crude benchmark attempts to form a base above Usd 70/brl, with Usd/Cad retreating from circa 1.2575 to sub-1.2550 in advance of Canadian building permits. Conversely, the Euro has lost more momentum and support that was keeping it propped in the high 1.1800 area in wake of softer than forecast Eurozone services and composite PMIs, though Eur/Usd could be cushioned by 2 bn option expiries between 1.1845-55 and/or 1 bn in Eur/Jpy at the 129.25 strike given the Yen’s inability to extend gains through 109.00. Elsewhere, the Franc has pared some gains as well, but is still pivoting 0.9050.

In commodities, WTI and Brent are contained on the session in a continuation of the steady APAC performance with fresh catalysts slim aside from geopolitical updates and weekly crude data. Currently, the benchmarks are diverging slightly around the unchanged level. On the weekly data, last night’s private inventories saw a smaller than expected headline draw prompting some modest initial pressure; albeit, this was offset by the bullish internals when compared to their expectations. For reference, today’s EIA equivalent is expected to post a headline draw of 3.102M with the internals expected to draw as well. On the geopolitical front Iran has denied it was involved in yesterday hijackings off the coast of the UAE; however, sources indicate that the UK’s working assumption is they are behind it – whether directly or indirectly – while the US believes its too early to determine. Furthermore, reports suggest the US will reposition at least one military vessel to the general area of the incident while the IRGC has warned of a tough response to any confrontation. Moving to metals, spot gold and silver are supported at present but have not manged to successfully deviate, by any real magnitude, from the unchanged mark. The aforementioned precious metals perhaps gleaned their initial support from the softer USD and lower real-yields but have been unfazed by the USD’s resurgence to fresh WTD peaks. Elsewhere, base metals are in-fitting with the broader tone and little changed with players remaining attentive to the BHP/Chile copper situation with no updates on talks at present. While Peru, the second largest copper producing nation, is in focus as domestic mining executives are concerned about the new administrations campaign pledge to increase industry taxation.

US Event Calendar

• 8:15am: July ADP Employment Change, est. 682,000, prior 692,000
• 9:45am: July Markit US Composite PMI, prior 59.7
• 9:45am: July Markit US Services PMI, est. 59.8, prior 59.8
• 10am: July ISM Services Index, est. 60.5, prior 60.1

DB’s Jim Reid concludes the overnight wrap

Markets were generally quiet for a second day, though sentiment was somewhat improved as strong earnings announcements prompted European and US stocks to close at new record highs. By the close the S&P 500 (+0.82%) and Europe’s STOXX 600 (+0.20%) both traded higher led by value and cyclical stocks.

Looking at the moves in more depth, banks and energy companies were the best performers on either side of the Atlantic. This started in Europe, where strong earnings results from Societe Generale SA and Bank of Ireland Group led the STOXX 600 banks index to rise +0.93%. Similarly, US banks (+1.67%) were among the strongest industries in the US, with only energy (+1.83%) and biotech (+1.99%) stocks doing better. The broad increase in energy stocks was partly due to a strong earnings call from BP, who increased their dividend and share buyback, matching their competitors. The sector was able to hold on to its gains even as oil prices fell for the second straight day (WTI down -0.98% and Brent down -0.66%) on worries that the delta variant would continue to disrupt and slow the global recovery, particularly in EM. The other outperforming industry in the US was consumer products, specifically apparel, which saw stocks like Ralph Lauren (+6.13%) and Under Armour (+6.19%) rally on strong earnings announcements that underscore consumer demand last quarter.

Asian markets are mostly trading higher outside of the Nikkei (-0.29%) with the Hang Seng (+1.57%), Shanghai Comp (+0.56%) and Kospi (+1.22%) all up. Sentiment is being aided this morning by the toning down of criticism of the gaming/online entertainment industry by Chinese media outlets. This in turn has eased fears that the industry will be next in line for the ongoing Chinese regulatory crackdown. Shares of Tencent Holding are up +4.94% thereby reversing a large part of yesterday’s -6.17% decline. In Fx, the New Zealand dollar is up +0.51% this morning after a strong jobs report has boosted the pricing of an early hike by the RBNZ. 10 year NZ yields are +4.7bps. Elsewhere yields on 10y UST are modestly up with futures on the S&P 500 down -0.10% while those on the Stoxx 50 are up +0.18%.

The main data highlight today will be July service and composite PMIs from around the world. The flash numbers we already have showed significant strength, with the Euro Area composite PMI up to a 21-year high of 60.6, whilst the US reading still showed a decent performance at 59.7, even though it’s down somewhat from its recent high. As seen from the manufacturing PMIs and US manufacturing ISM earlier this week, global growth rates continue to look like they may have peaked in Q2 but remain at very robust levels. Overnight, we have already seen China’s Caixin services PMI which came in at a strong 54.9 (vs. 50.5 expected), the highest print since December 2020. Furthermore, Japan final Jibun services PMI printed at 47.4 vs. 46.4 in the flash while Australia’s final services PMI came in in line with the flash reading at 44.2.

Sovereign debt was relatively tame yesterday, but more divergent than equities. US Treasury yields fell back -0.5bps to 1.172% as a rise in inflation breakevens (+1.1bps) could not overcome the larger decrease in real yields, which fell -1.5bps to -1.20%, marking yet another lowest ever closing level (since TIPS used from 1997). Rates were similarly subdued in Europe, where yields on 10yr bunds (+0.5bps) and OATs (+0.3bps) rose marginally, while more peripheral debt such as Italian (-0.5bps), Portuguese (-0.3bps) and Greek (-0.6bps) bonds all saw yields drop slightly.

On the topic of sovereign debt, my CoTD Yesterday looked at German 30 year yields which dipped into negative territory on Monday for the first time since early February. I explored what a zero coupon 30 year bond purchased at 100 today (like Germany current benchmark) would be worth in real terms out to maturity given different average inflation rates. Basically 2% inflation would see you nearly lose half your money in real terms out to maturity. See the note here.

On the pandemic, Prime Minister Johnson blocked the creation of an “amber watchlist” for foreign countries, which would act as an extra category in the country’s traffic-light style system. Many of the proposed countries are seeing rapid spreads of the delta variant, but are also popular vacation destinations that would be under treat of turning red rapidly and thereby force even fully vaccinated people to quarantine in hotel on their return to the UK. This comes as cases continue to rise in some parts of the world. China most notably increased restrictions yesterday, with Beijing banning passenger train travel from 23 regions including Zhengzhou, Nanjing, Yangzhou, Shenyang and Dalian. At least 46 cities in China have advised residents to refrain from traveling unless it’s absolutely necessary. In addition, the current outbreak has led to closure of all tourists sites in Zhangjiajie, a renowned scenic destination in central China while other cities in Hunan, Jiangsu and Shanxi provinces have also closed tourist locations.

On vaccines, similar to news out of Israel last week, Greece and Sweden have independently decided to offer a vaccination booster in the next year. Sweden is expecting to give some at-risk residents their third shot this autumn, and that the booster shot is likely to be made using one or two mRNA vaccines. In the US, New York City became the first region in the country to require workers and customers at indoor restaurants and gyms to prove their vaccination status. The mandate is similar to those in France and Italy and will begin to be phased in over the next 2-4 weeks. Elsewhere in the US, Tyson – the largest meat producer in the US – has announced that it will require all workers be fully vaccinated by November 1, becoming one of the first private institutions to do so. Lastly, the Telegraph has reported that the UK will recommend the Pfizer or Moderna vaccination shots for those aged 16 and 17.

It was a light 24 hours for data, but the most noteworthy data point from yesterday was the Euro area June PPI print, which showed prices rose in line with expectations at .+1.4% m/m and +10.2% y/y (vs. +10.3% y/y). US June factory orders grew slightly better than expected (+1.5% vs. 1.0%), however core shipments were unrevised.

To the day ahead now, and aside from the aforementioned final July services and composite PMI readings, other important data releases include Euro Area and Italy June retail sales along with US July ISM services index and ADP employment change. Separately the Central Bank of Brazil will release its latest monetary policy decision and then Federal Reserve Vice Chair Clarida speaks. Finally, earnings releases today include CVS Health, Booking Holdings, General Motors, Uber, and Toyota.