Futures Rebound From Rout As “Buy The Dip Outweighs Fear” Even As Yield Slide Continues

U.S. stock-index futures rebounded from Monday’s rout and European stocks were modestly in the green as investors weighing corporate earnings against the uncertain outlook for global growth, or as Bloombnerg put it, “as buy the dip outweighs fears.” But in a continuation of yesterday’s moves, treasury yields edged lower sliding to 1.16% while the dollar hit a fresh three month high while bitcoin tumbled below the key support level of $30,000. At 730 a.m. ET, Dow e-minis were up 200 points, or 0.6%, S&P 500 e-minis were up 23.00 points, or 0.54%, and Nasdaq 100 e-minis were up 70 points, or 0.48%.

IBM gained 4.0% in premarket trading as brokerages raised their price targets on the stock following strong quarterly growth in the company’s cloud and consulting businesses. Energy stocks Chevron, Schlumberger, Occidental and Phillips 66 rose between 0.8% and 2.7%, as oil prices edged higher after the previous session’s 7% slide. Halliburton added 2% after it posted a second-straight quarterly profit, as a rebound in crude prices from pandemic-lows buoyed demand for oilfield services. Here are some other premarket movers:

  • Amazon.com (AMZN) gains 0.6% in premarket trading ahead of Jeff Bezos’s flight to space with his Blue Origin crew.
  • Ardelyx (ARDX) slumps as much as 73% in premarket after the FDA identified deficiencies on the company’s New Drug Application for
  • Tenapanor for the Control of Serum Phosphorus. Piper Sandler downgraded the stock to neutral from buy and slashed its price target to $4 from $14, adding that it struggles to see a path forward for Tenapanor.
  • Cryptocurrency-exposed stocks fall in premarket trading after the selloff in Bitcoin accelerated and pushed the token below $30,000 for the first time in around a month. Marathon Digital (MARA) slides 2.3% and Riot Blockchain (RIOT) drops 2.4%, while Bit Digital (BTBT) falls 1.6%.

Analyst views on the recent actions were mixed, ranging from the skeptical…

“The reality is that this price action has become somewhat self-fulfilling as the myopic investor sentiment and positioning are forced to re-assess,” said James Athey, investment director at Aberdeen Standard Investments. “I fear the equity selling isn’t over yet, and if I am right, Europe will be the worst place to be given the index is value dominated – and thus very cyclical.”

… to the optimistic:

“Given that there is little doubt that central banks will do all they can the prevent a significant tightening of financial conditions, meaning there is still a lot of liquidity ready to buy the dip, we think that market valuations are starting to be appealing from a medium-term perspective,” Xavier Chapard, a strategist at Credit Agricole CIB, wrote in a client note. Still, “we are not sure that markets have already fully integrated the risks caused by the new epidemic developments,” he added.

Stocks on Wall Street fell as much as 2% on Monday, with the Dow posting its worst day in nine months as COVID-19 deaths increased in the United States. Riskier assets globally have come under pressure recently after hitting an all time high as recently as last week, as many countries struggled to contain the outbreak of the fast-spreading Delta virus variant, raising fears that further lockdowns and other restrictions could upend the worldwide economic recovery.

“Despite the vaccine rollout, markets do not appear to be learning to live with COVID-19,” ANZ analysts wrote in a note to clients. “Sentiment appears to have shifted, at least for the moment, to a persuasion that growth and earnings expectations may be overdone,” they said, noting that risk-averse investors were bailing out of commodities. Sure enough, the 10-year Treasury yield fell further below 1.2%, hitting the lowest level since February as traders pared bets on Federal Reserve tightening (more below).

MSCI’s broadest gauge of global shares was 0.5% lower, extending its longest-losing streak in nearly 18 months.

European equities are modestly in the green but trade off best levels, having risen earlier as much as 1% boosted by positive corporate earnings and production updates from miners. CAC outperforms at the margin. UBS jumped more than 4% after reporting earnings that beat analysts’ estimates, while Volvo Group declined after missing expectations. Miners, insurance and construction names are the best sectors; tech and health care post small losses. Here are some of the biggest European movers today:

  • Alfa Laval shares rise as much as 7.3% after 2Q adjusted Ebita beat the average analyst estimate.
  • UBS gains as much as 4.8% after the bank posted 2Q results that beat analyst estimates.
  • EasyJet climbs as much as 4.2% after results that were broadly in line with expectations, with Bernstein (outperform) saying “travel recovery begins now.”
  • Alstom rises as much as 4% after the company reported higher-than-expected 1Q sales and orders that Redburn (buy) says were encouraging.
  • Volvo falls as much as 4.7% in Stockholm trading after the truckmaker posted 2Q adjusted operating profit that missed estimates. Analysts including Oddo note the Swedish company still sees possible production disruptions in 2H amid supply chain issues.
  • Fevertree drops as much as 9.3% after the maker of high-end tonics provided margin guidance that Morgan Stanley said suggests “sizeable downgrades” to consensus estimates.

The positive moves followed continued selling in Asia, with MSCI’s gauge of Asia Pacific stocks outside Japan falling 0.7% and Japan’s Nikkei 225 hitting a six-month low, down nearly 1% and entering a technical correction.

Earlier in the session, Asian stocks fell for a third day as concerns grew globally over the potential for the delta variant of Covid-19 to derail economic recoveries. Industrials and financials were the biggest drags on Tuesday, mirroring the cyclical selloff in the U.S. overnight, as investors rushed into bonds and other haven assets. The MSCI Asia Pacific Index fell as much as 1%, after dipping below its 200-day moving average on Monday. Markets were closed for holidays in Singapore, Indonesia, Malaysia and the Philippines.

“The drop in U.S. Treasury yields reflects reduced inflation expectations if reopening is delayed and potential downside risk to the economy,” Tai Hui, chief Asia market strategist at JP Morgan Asset Management, wrote in a note. “The decline in yields has also penalized value stocks more than growth stocks.” Geopolitical tensions also weighed on equities after the U.S., U.K. and allies formally attributed the Microsoft Exchange hack to actors affiliated with the Chinese government.

China deleveraging risks hurt property stocks and the broader market for a second day, causing a plunge in shares of heavily indebted developer China Evergrande Group. The Hang Seng Index dropped 0.8% while China’s blue chip CSI300 Index slid as much as 0.9% before paring most of its loss. Taiwan led losses around the region, with its key equity gauge declining 1.5%. Stocks also dropped in Japan, with the Nikkei 225 entering a technical correction after felling 1% on Tuesday, taking its loss from a February high to more than 10%. Fast Retailing and SoftBank Group were the biggest drags on the blue-chip gauge, which also erased its gain for the year. The Topix fell 1%, closing at its lowest since May 17; electronics and auto makers weighed the most, as all but 2 industry groups fell; +4.7% YTD.

India’s benchmark equity index extended declines into a third day as most of the nation’s largest companies quarterly earnings posted so far have missed estimates. The S&P BSE Sensex lost 0.6% to 52,230.29 as of 9:49 a.m. in Mumbai, adding to its steepest drop in three months on Monday, while the NSE Nifty 50 Index retreated by a similar magnitude today. Seventeen of the 19 sector sub-indexes compiled by BSE Ltd. declined, led by a gauge of power companies. Most regional benchmarks in Asia traded lower as the spread of the delta coronavirus variant weighed on sentiment. In India’s earnings season, five of the six Nifty 50 members that have announced results so far fell short of analysts’ estimates. HCL Technologies Ltd. fell 2% after posting profit and sales that missed expectations after yesterday’s market close.

Australia’s S&P/ASX 200 index closed 0.5% lower at 7,252.20, the lowest since June 21. Miners and utilities led the index lower. Stocks came off their intraday lows after the Reserve Bank of Australia said it would retain the option to increase or reduce its weekly bond purchases given uncertainty over the economic outlook. The best performing stock was Oil Search after the company rejected an initial A$22 billion takeover approach from Santos and said it’s open to engaging on any proposal that’s in the interest of its shareholders. SkyCity was among the biggest decliners after indicating Adelaide casino operations would remain closed until at least July 27. In New Zealand, the S&P/NZX 50 index was little changed at 12,650.84.

In FX, in a sign of lingering fears of the spread of the Delta variant, the Aussie dollar/Swiss franc cross, a favourite proxy in currency markets for economic recovery bets, fell to its lowest level since December 2020 at 0.6714 francs. The Bloomberg Dollar Spot Index rose to a fresh cycle high earlier as havens turned bid after the Tokyo fix, then erased its advance as oil and Treasuries steadied and U.S. equity futures rebounded. Macro names and systematic desks were dollar buyers before London stepped in, while hedge funds later added euro-pound longs and real money sold cable, according to two Europe-based traders cited by Bloomberg. Cable fell as much as 0.4% to 1.3627, down a fourth day, before paring most of the drop; some of the latest retreat is down to comments from Bank of England policy maker Catherine Mann who called “not be premature in terms of tightening monetary policy.” The euro was little changed at $1.1799; it earlier slipped as much as 0.2% to $1.1772 as Italy’s 5-year yield turned negative for the first time since April; sizable demand seen above the $1.17 handle, with options-related interest also playing its part: traders. EUR/NOK up 0.4% to 10.6025, new year-to-date high. The kiwi leads G-10 losses, with NZD/USD sliding as much as 0.8% to 0.6889, the lowest since November, before halving the drop. Aussie down a fourth day, with AUD/USD slipping 0.5% to 0.7311, an eight-month low.

In rates, cash Treasuries extended gains despite the rebound in risk assets, and added to Monday’s gains sending 5- and 10-year yields to multi-month lows. Most of the advance occurred during European morning, following a choppy Asia session with no appetite to fade the rally. Long-end is lagging, however, after having led Monday’s advance. Yields were richer by up to 3bp across belly of the curve, leaving 5s30s spread steeper by ~3bp around 114bp, around where it began the week; 10-year at around 1.18% is ~1bp richer on the day after paring a 2.8bp drop to 1.16%.

Treasury futures benefited from block trades at 6:21am ET: 3.6k FVU1 at 124-14.75 and 3.6k UXYU1 at 151-01+ for combined $690k/DV01. In Europe, Germany’s 10-year yield, the benchmark for the bloc, briefly fell to -0.403%, breaching a new lowest level since February and was down around 1 basis point to -0.398%, as of 0733 GMT. Peripheral and semi-core spreads widen slightly, Italy under performs. 

In commodities, oil prices stabilized after slumping around 7% in the previous session due to worries about future demand and after an OPEC+ agreement to increase supply. Brent crude gained 0.7% to $69.11 a barrel. The U.S. crude contract for August delivery, which expires later on Tuesday, was up 0.9% at $66.64 a barrel. Spot gold fades Asia’s modest gains to trade near $1,815/oz after hitting a one-week low of $1,794.06 in the previous session. Base metals were mixed, LME lead and LME copper outperform; zinc drops as much as 0.7%.

In a separate gauge of investor risk appetite, bitcoin fell below $30,000 for the first time since June 22.

Meanwhile, Q2 reporting season is underway, with 41 of the companies in the S&P 500 having reported. Of those, 90% have beaten consensus estimates, according to Refinitiv data. Focus is now on earnings reports from companies including Netflix Inc, Philip Morris and Chipotle Mexican Grill later in the day.

Looking at the day ahead, the data highlights include US housing starts and building permits for June. From central banks, we’ll hear from the ECB’s Villeroy, while earnings releases include Netflix, Phillip Morris, HCA Healthcare, Chipotle, United Airlines and Halliburton.

Market Snapshot

  • S&P 500 futures up 0.6% to 4,276.75
  • STOXX Europe 600 up 0.9% to 448.16
  • MXAP down 0.8% to 200.61
  • MXAPJ down 0.6% to 670.29
  • Nikkei down 1.0% to 27,388.16
  • Topix down 1.0% to 1,888.89
  • Hang Seng Index down 0.8% to 27,259.25
  • Shanghai Composite little changed at 3,536.79
  • Sensex down 0.4% to 52,333.07
  • Australia S&P/ASX 200 down 0.5% to 7,252.23
  • Kospi down 0.3% to 3,232.70
  • German 10Y yield fell -2.2 bps to -0.408%
  • Euro little changed at $1.1792
  • Brent Futures up 0.2% to $68.77/bbl
  • Brent Futures up 0.2% to $68.78/bbl
  • Gold spot up 0.0% to $1,812.72
  • U.S. Dollar Index little changed at 92.91

Top Overnight News from Bloomberg

  • Americans should avoid traveling to the U.K. because of a surge in that nation’s spread of Covid-19, U.S. government and health officials warned
  • A selloff in Bitcoin accelerated Tuesday, pushing it below $30,000 for the first time in about a month
  • After a first half built on reopening hopes, a sudden bearish turn has replaced inflation fears with growth worries — sharply dividing Wall Street
  • Overseas funds bought the second-highest amount of Japanese government bonds on record in June as enhanced returns using cross-currency basis swaps and index-linked demand fueled inflows
  • Investment strategists are starting to consider a new bearish scenario: the economy has already hit its speed limit
  • Long-term Treasury rates tumbled to the lowest levels in months as the spread of the delta coronavirus variant called into question optimistic assumptions about economic recovery, also touching off a global stock market slump
  • RBA said it would retain the option to increase or reduce its weekly bond purchases given uncertainty over the economic outlook, according to minutes of its July meeting
  • Americans should avoid traveling to the U.K. because of a surge in that nation’s spread of Covid-19, U.S. government and health officials warned

A more detailed look at global markets courtesy of Newsquawk

Asian equity markets traded lower after the region inherited a negative mood from global peers in which risk appetite was pummelled by ongoing Delta variant fears that forced fresh restrictions for several regions around the world and prompted the US to raise the UK to the highest risk level, as well as issue a “do not travel” warning. However, the declines in Asia were milder and US equity futures also attempted to recoup some of their recent losses. ASX 200 (-0.5%) was led lower by underperformance in energy after oil prices tumbled by over 7% due to COVID-19 concerns and the recent OPEC+ agreement to lift output, although Oil Search bucked the trend following a merger approach from Santos that it rejected although remains open for a revised proposal. Mining names were pressured after BHP announced its quarterly iron ore production figures which declined from a year ago and with another state lockdown announcement, this time for South Australia, adding to the downbeat tone. Nikkei 225 (-1.0%) declined to its lowest levels in six months shortly after the open as it suffered the ill-effects of the haven flows into its currency and amid ongoing virus woes with Hokkaido to seek quasi-emergency measures. Hang Seng (-0.8%) and Shanghai Comp. (-0.1%) were subdued as several countries took aim at China for cyber hacking which China dismissed as groundless, while the PBoC refrained from any adjustments to the Loan Prime Rate for a 15th consecutive month to the disappointment of the outside calls for a 5bps cut. Attention also remained on Evergrande shares which extended on the prior day’s 16% slump with another double-digit decline after a Chinese city halted sales of the Co.’s projects which added to its ongoing debt concerns. Finally, 10yr JGBs were supported by the recent downbeat picture in risk assets and bull flattening in USTs that saw a drop of around 10bps for the US 10yr yield, although upside for 10yr JGBs was capped as the 152.50 level provided a magnet for price action and amid softer demand in the Japanese enhanced liquidity auction for longer-dated bonds.

Top Asian News

  • China Denies Microsoft Hack, Says U.S. and Allies Ganging Up
  • More Companies Pull Out of Tokyo Olympics Opening Ceremony
  • Republicans Want Digital Yuan Restricted at Beijing Olympics
  • Evergrande Shares, Bonds Plunge on Fears of Liquidity Crisis

Major bourses in Europe saw a broadly positive cash open and held onto gains through much of the morning before losing momentum and reversing (Euro Stoxx 50 +0.1%). US equity futures meanwhile trade sideways with modest broad-based gains of around 0.4% across the board. News flow remains light this morning as participants keep tabs on COVID developments, US-Sino tensions and central bank rhetoric, given some of the hawkish noises emanating from some G10 economies; though, both the ECB and Fed are now in their quiet/blackout periods. In terms of scheduled risk events for the week, the ECB on Thursday and Flash PMIs on Friday will likely steal the limelight. Sectors are predominantly in the green but do not portray a clear theme nor bias. Construction, Insurance, Food & Beverage and Media reside as the winners whilst Tech, Healthcare, and Oil & Gas lag. In terms of individual movers, earnings season is kicking off in Europe with UBS (+3.1%) holding onto most of its opening gains after revenues topped forecasts and the group announced a share buyback under the current programme. Other earnings-related movers include Alstom (+2.7%), Alfa Laval (+6.1%), Telenor (+2.6%), Volvo (-3.6%) and easyJet (+3.0%). Finally, Swatch (+0.4%) and Richemont (+0.2%) glean some support as Swiss Watch Exports rose by some 12.5% vs 2019 levels.

Top European News

  • Apollo in Talks to Join Fortress Bid for Grocer Morrison
  • Private Equity Bet $40 Billion on U.K. Freedom Day Success
  • ‘Killer Acquisitions’ Targeted as U.K. Regulator Gets New Powers
  • Europe’s Biggest Banks Warn of Major Flaw in Key ESG Metric

In FX, the Kiwi’s sharp fall from grace continues, as bullish/hawkish fundamentals dissipate further and technical impulses become more and more negative in Nzd/Usd and Aud/Nzd irrespective of the fact that the COVID-19 situation is worsening in Australia with lockdowns being extended and widened. The headline pair has now lost ‘key’ support on some charts at 0.6915 and is striving to keep tabs with the round number below, while the cross is probing above 1.0600 having held a few pips over the semi-psychological 1.0550 level on Monday, and with little new emerging from the RBA minutes that underscored the decision to maintain rate guidance and taper QE after some deliberation. However, Westpac is now warning that the economy may contract in Q3 and the Board may have to reverse its Aud 1 bn/week unwind in bond purchases to spur growth, leaving Aud/Usd in the low sub-0.7350 area ahead of retail sales data. Conversely, the Greenback has regained poise after losing out to safer-havens amidst the risk rout yesterday, and the index is straddling 93.000 within a 93.039-92.799 range against the backdrop of re-steepening along the US Treasury curve and a rebound in outright yields pre-building permits and housing starts.

  • JPY/CHF – As noted above, the Yen and Franc have both handed back some safety premium to the Dollar on the grounds of improving risk sentiment that has prompted a re-widening of UST/other bond spreads, with Usd/Jpy back over 109.50 and Usd/Chf approaching 0.9200 again vs lows of around 109.07 and 0.9163 respectively at one stage on Monday. Note, no real reaction or independent direction gleaned from in line Japanese CPI or a wider Swiss trade surplus in advance of trade and M3 money supply tomorrow, while the Yen looks confined between 108.85-109.00 to 109.95-110.10 extremes given decent expiry option interest either side (1 bn and 1.6 bn).
  • EUR/GBP/CAD – All marginally softer vs their US peer, but the Euro managing to contain declines through 1.1800 following its stop-loss decline to circa 1.1764 yesterday and capped by option expiries at the big figure (1.2 bn) as the clock continues to tick down to Thursday’s ECB policy meeting. Elsewhere, Sterling remains soft across the board under 1.3700 in Cable terms and beneath 0.8625 in Eur/Gbp, while the Loonie pivots 1.2750 with some help from relative stability in crude after Monday’s mauling.

In commodities, WTI and Brent September contract remain choppy in early European hours after the benchmark settled lower by around USD 5/bbl apiece yesterday. The complex remains pressured by concerns surrounding the Delta variant as more APAC regions enter tighter lockdowns (Indonesia and Singapore recently), whilst travel corridors are being reviewed to stem the spread. Double-vaccinated international travel has also come under question after the UK imposed travel restrictions on travellers from France who have been double-dosed, in turn posing a threat to the anticipated demand path for jet fuel heading into summer. Some have been pointing the finger at OPEC+ for yesterday’s decline, although the overall outcome of the meeting was constructive. Seemingly the timing of the OPEC+ decision to add more barrels and bearish COVID development were the main factors behind yesterday’s correction. WTI and Brent trade around USD 66.50/bbl (vs high 67.29/bbl) and just under USD 69/bbl (vs high 69.60/bbl). Elsewhere, spot gold and silver trade sideways in a tight range around USD 1,815/oz and USD 25/oz respectively as the Dollar remains steady. Turning to base metals, LME copper consolidates under around the USD 9,275/oz mark, whilst Shanghai copper fell as much as 2% overnight amid a firmer Dollar and COVID concerns. Meanwhile, Dalian coking coal futures rose to two-month highs, with traders citing the lower supply.

US Event Calendar

  • 8:30am: June Housing Starts MoM, est. 1.1%, prior 3.6%
  • 8:30am: June Housing Starts, est. 1.59m, prior 1.57m
  • 8:30am: June Building Permits MoM, est. 0.7%, prior -3.0%, revised -2.9%
  • 8:30am: June Building Permits, est. 1.7m, prior 1.68m, revised 1.68m

DB’s Jim Reid concludes the overnight wrap

Yesterday I published my latest monthly chartbook, which is called “US recovery at 1 year. Late cycle already?” (Link here).This is undoubtedly the most unusual recovery in history with many sectors already running ahead of their pre-recession trend (not something seen at this stage of a cycle before), whilst several service-based ones remain well behind. The charts in the pack look at a number of different economic and market variables and where they stand relative to other recoveries through time. Net net this is a very strong US recovery relative to history. However does that make us theoretically later in the cycle than a normal early cycle recovery? Interestingly last night the NBER officially pinpointed April 2020 as the end of the recession meaning that the slump only lasted two months. In nearly 170 years of data this is the shortest recession on record, taking that title away from a 6-month recession in 1980. Also you may recall that this recession also came on the heels of the longest economic expansion on record at 10.5 years. It’s amazing what extraordinary stimulus can do during the expansion stage and the subsequent slump.

Speaking of late-cycle, the prospect of weaker growth ahead thanks to the spread of the delta variant sent a violent shudder through global markets yesterday, which in turn led to one of the biggest risk-off moves in months. Unlike some previous Covid-related selloffs (or vaccine rallies indeed), there didn’t seem to be a single trigger point behind yesterday’s rout, which instead looked to be the culmination of rising fears that a return to “normality” could be quite a bit further out than many had hoped a few months back. That’s partly because new variants mean that the vaccine rollout may not necessarily be enough to get everyday life back to its pre-Covid normal, but also a function of the fact that we’ll soon be heading back into the winter months in the northern hemisphere, in which respiratory viruses spread more easily. So investors are facing the very real prospect that limitations on daily life could be a factor affecting markets and corporates even into 2022, which is a far cry from the hopes many had at the start of this year when the vaccine rollout began. Staying on the theme, Bloomberg reported overnight that Apple has decided to push back its return to office deadline by at least a month to October at the earliest, due to rise in the Covid infections across many countries. Many more could follow as the spread of variants continue to act as a curveball for the return to normality.

In terms of those moves yesterday, equity indices saw a broad-based selloff, with the S&P 500 (-1.59%) seeing its biggest decline since May, whilst the losses in Europe were even greater as the STOXX 600 (-2.30%) experienced its worst daily performance of 2021 so far. Reflecting investor fears about future growth prospects, cyclical industries underperformed the more defensive sectors, whilst energy stocks saw the biggest falls of all thanks to the slump in oil prices (more on which below). Banks in both US (-3.28%) and Europe (-3.65%) lagged significantly as yield curves flattened with the risk off. Furthermore, in line with the jitters over the delta variant, some of the most Covid-sensitive assets were the worst affected yesterday, with the STOXX 600 Travel & Leisure index (-3.84%) and the S&P 500 Airlines (-3.76%) both losing ground as the prospect of further restrictions on daily life and international travel ramped up.

With investors moving away from risk, sovereign bonds were the main beneficiary, with yesterday marking the biggest one-day decline in 10yr Treasury yields since February, as they fell -10.2bps to 1.189% – the largest one day drop in nearly 5 months. That came as investors moved to push back the timing of future hikes from the Federal Reserve, and the decline was pretty equally driven by lower inflation breakevens (-7.4bps) and real rates (-2.7bps). In fact, yesterday also saw real rates close at their lowest level since early-February, when Democratic lawmakers were just starting to shape the eventual $1.9 trillion stimulus package that would eventually be signed in March. And while we’re on the topic of late-cycle indicators, one thing to note as well is that the 2s10s yield curve closed beneath 100bps yesterday for the first time since early February, which is a reasonably big unwinding from the closing peak of 158bps at the end of Q1. It was a similar story in Europe, where yields also fell to their lowest level in some months, as those on 10yr bunds (-3.3bps), OATs (-2.3bps) and gilts (-6.6bps) all fell back.

The risk-off sentiment has continued in the Asian session this morning with the Nikkei (-0.99%), Hang Seng (-1.19%), Shanghai Comp (-0.50%) and Kospi (-0.82%) all trading in the red. Futures on the S&P 500 (+0.14%) are up though while yields on 10y USTs are broadly unchanged. Elsewhere, the RBA’s latest monetary policy minutes highlighted that the central bank would be flexible in increasing/reducing its weekly bond purchases given uncertainty over the economic outlook. This comes on the heels of a slight taper of QE that was announced by the RBA two weeks back and since then the two biggest cities in Australia and now South Australia have imposed lockdowns to check the spread of the virus. The Australian dollar is down -0.29% against the USD. In terms of overnight data releases Japan’s June CPI printed in line with consensus at +0.2% yoy.

Elsewhere the White House announced yesterday that it was joining the EU in accusing actors associated with the Chinese government of cyberattacks on the Microsoft Exchange, as well as pointing out a broad array of “malicious cyber activities” carried out by Beijing’s leadership. President Biden said yesterday that, while the US’s investigation is still ongoing, his understanding “is that the Chinese government, not unlike the Russian government, is not doing this themselves, but are protecting those who are doing it and maybe even accommodating them being able to do it.” Nations that attribute the attack to China include Australia, Japan, Canada, New Zealand, and the entirety of NATO – the first condemnation by the group on China’s cyberattacks according to the White House. This follows a more hawkish stance on China overall from the Biden administration, which has left much of the Trump-era tariffs in place and has called competition with China one of the defining challenges of this century.

Looking at other asset classes yesterday, a big story was the significant slump in oil prices following the OPEC+ agreement to boost supply, with WTI (-7.51%) and Brent Crude (-6.75%) both witnessing their worst daily performances since March. They probably also got caught up in the general risk-off. Industrial metals also suffered, with copper losing -2.82%, though precious metals didn’t see as big a selloff amidst the flight to safety, with gold just better than unchanged (+0.03%). This move into safe havens was evident in the foreign exchange markets as well, with the Japanese Yen (+0.56% vs USD) being the strongest-performing G10 currency, followed by the Swiss Franc (+0.21% vs USD). Meanwhile Bitcoin (-2.77%) experienced its own losses to close beneath $31,000 for the first time since New Year’s Day.

Turning to the pandemic, the UK reported a further 39,950 cases yesterday, which is notably down from the peak above 50k we’ve seen reported a couple of times in recent days, although the overall numbers for the last week still show an increase of +41% over the previous 7-day period. Monday data can often be on the low side. This came amidst an easing of restrictions in England as even nightclubs reopened yesterday. Citing the rise of cases in the UK, the US raised its travel warning to the UK, asking residents not to travel to the nation. On the other hand, the US is allowing fully vaccinated Americans to travel into Canada again as of this week. Elsewhere in Australia the state of Victoria has decided to extend its lockdown by 7 days to midnight of July 27 and will close its border to people from Sydney, with exceptions for essential workers and for compassionate reasons. Philippines President Rodrigo Duterte has also said that more stringent movement restrictions may be needed after the country detected cases of the more transmissible delta variant.

There was very little on the data front yesterday, though the US’ NAHB housing market index for July came in at 80 (vs. 81 expected), which marks its lowest level since last August.

To the day ahead now, and the data highlights include US housing starts and building permits for June, as well as the German PPI reading for June. From central banks, we’ll hear from the ECB’s Villeroy, while earnings releases include Netflix, Phillip Morris, HCA Healthcare, Chipotle, United Airlines and Halliburton.

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