FTSE 100 Supported by Financial, Travel Stocks; Mid-Caps at Record High

The blue-chip FTSE 100 ended 0.3% higher, rising for a fourth straight session, with HSBC Holdings, Lloyd’s Group, Flutter Entertainment, Standard Chartered and Ocado Group among the top performers.

The banking sector climbed 2% as it tracked gains in benchmark bond yields, which rose for a third day, while travel stocks extended gains for a fourth session.

“The travel sector continues to enjoy some strength amid hopes for the easing of restrictions with a dip in the pound also helping to lift the UK’s flagship index,” said Danni Hewson, financial analyst at AJ Bell in a note.

Global equity markets were lacklustre as investors shifted their focus towards the U.S. Federal Reserve’s annual symposium on Friday for any hints regarding the timeline for Fed’s tapering of asset purchases.

The FTSE 100 has risen nearly 29% from its October 2020 lows as the economy starts to recover from pandemic-related lockdowns.

But fears that the recovery could stall as central banks begin to discuss tapering their asset purchases have weighed on the pace of growth.

Limiting Wednesday’s advances were consumer goods makers including Unilever and Reckitt Benckiser, and supermarket group Sainsbury’s, all down between 0.3% and 1.2%.

The domestically focussed mid-cap index ended 0.4% higher after touching a record of 24,058.93.

Waste management firm Augean surged 17.5% after it said it had agreed to a buyout offer of 341 million pounds ($468 million) from a group affiliated to London-based investment manager Ancala Partners LLP.

“This continuing global corporate raid suggests bidders still see a lot of untapped value in the UK market,” Hewson said.

British subprime lender Amigo dropped 4.5% after it said its losses increased substantially in the last financial year.

In signs of steady interest for UK corporates, activist investor Cevian Capital pushed its stake in insurer Aviva above 5%, according to a stock exchange filing.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Shashank Nayar and Amal S in Bengaluru; Editing by Subhranshu Sahu)

 

Asian Stocks Hold Gains as Markets Await Powell Speech

MSCI’s broadest index of Asia-Pacific shares outside Japan spent most of the day near flat, but was last up 0.34%, and about 4% higher so far this week.

Australia’s market rose 0.22% and South Korea gained 0.16%, though Chinese blue chips fell 0.07%, and U.S. stock futures, the S&P 500 e-minis, were down 0.02%.

In early European trades, the pan-region Euro Stoxx 50 futures and FTSE futures were both up 0.04%

Japan’s Nikkei was also flat, but a Reuters poll of analysts and fund managers showed Japanese shares are expected to recover from their eight-month low marked on Friday to near a 30-year high by the end of this year.

“Sentiment (is) positive but vulnerable to shifts ahead of the Jackson Hole conference which features Fed Chair Powell on Friday,” said Rob Carnell, ING head of Asia research in a note.

“Part of the sentiment improvement may lie with recent thoughts that this weekend’s conference will not deliver any further insight into the timing of any Fed taper.”

This marks a change from last week, when MSCI’s Asia ex-Japan index fell to its lowest in 2021, spooked by a combination of fears about slowing growth in Asia amid outbreaks of the Delta variant of the new coronavirus, and worries the Fed might to begin shrinking its monetary stimulus sooner rather than later.

Chinese regulatory crackdowns that have roiled sectors from technology to property, also weighed on shares in Hong Kong and mainland China, dragging on the broader Asian index.

On Wednesday, the Hong Kong benchmark fell 0.16% after posting its best day in a month the day before.

The Hang Seng TECH Index, which reached its all time low last week amid worries about the regulatory crackdowns, gained 0.4%, building cautiously on this week’s strong gains as investors piled into oversold stocks.

“It’s been a fairly obvious trade to go back to neutral particularly on stocks that have been oversold,” said Rob Mumford, a Hong Kong based investment manager at GAM Investments.

“How it progresses from here, I don’t think is as much about China and Asia but what the U.S. does. If it’s a benign scenario out of Jackson Hole I think you’ll definitely see China mean revert,” he said.

On Friday, the Federal Reserve will have its annual economic symposium, traditionally held at Jackson Hole, though this year it will take place virtually due to the spread of COVID-19 in the country.

The focus remains squarely on Chair Jerome Powell’s remarks at the event for any clues regarding the timeline for Fed’s tapering of asset purchases, an issue that has buffeted financial markets in recent months.

The yield on benchmark 10-year Treasury notes was last 1.2919% little changed from their US close of U.S. close of 1.29%, having touched as much as 1.304% earlier in the session.

The dollar gained a little ground in Asian trading on Wednesday but was still not far above a one-week low versus major peers on Wednesday.

“If Powell speaks about the policy outlook and more specifically, hints at the time and/or pace of tapering, the USD could get a boost in our view,” wrote analysts at CBA in a note.

“In the meantime, the USD will remain guided by broader market mood.”

U.S. crude dipped 0.28% to $67.36 a barrel, while Brent crude fell 0.15% to $70.94 per barrel – both are up around 8% on the week, however, after posting their biggest weekly decline in more than nine months last week. [O/R]

Safe haven gold fell in tandem with the broad increase in risk appetite, with the spot price dropping 0.35% to $1,796.03 per ounce.

For a look at all of today’s economic events, check out our economic calendar.

(Editing by Shri Navaratnam and Kim Coghill)

European Shares Seen Holding Tight to Record Levels: Reuters Poll

The Reuters poll of 18 fund managers, strategists and brokers surveyed over the past week predicted the STOXX 600 would reach 470 points by year end, just 0.4% below Monday’s close.

A much stronger-than-expected second-quarter earnings season and improving economic data in Europe pushed the benchmark STOXX 600 to its longest winning daily streak in almost 15 years in August.

With most of the results accounted for, European profits are expected to have surged a whopping 151% in the second quarter, according to the latest Refinitiv I/B/E/S data.

And European corporates are set for more quarters of double-digit profit growth, with the European Union pumping more support through its huge post-pandemic recovery fund and vaccines mitigating worries around the COVID-19 Delta variant.

Refinitiv data points to profit growth of 43% and 35% in the third and fourth quarter, respectively.

Data has already shown that euro zone business activity grew strongly again in August, only dipping from July’s two-decade high monthly pace, with the IHS Markit flash Composite Purchasing Managers’ Index, a gauge of economic health, at 59.5, well above the 50 mark separating growth from contraction.

European stocks are up 18% this year and have outperformed the MSCI’s global stock index, which is up 13% year to date.

But remaining anchored to record levels won’t come without challenges, as investors ponder risks that inflation could lead to a tightening of monetary policy conditions, especially in the United States, while China’s months-long regulatory crackdown on an array of private companies keeps investors on their toes.

Equities will “continue climbing a wall of worry,” said Emmanuel Cau, head of European equity strategy at Barclays, with the regulatory crackdown in China being “another challenge for investor confidence”.

Some $120 billion of market capitalization was wiped off the European luxury space, which shed 14% in two days in August, after Chinese President Xi Jinping delivered a blow to the sector, with plans for wealth redistribution.

ALL EYES WILL BE ON GERMANY

Investors are also taking into account the prospect of political gridlock in Germany in the wake of the upcoming elections, the first without Angela Merkel in more than 15 years.

“All eyes will be on Germany’s federal elections in September 2021”, said Roland Kaloyan, head of European equity strategy at SocGen.

Barclays is not planning to turn more defensive just yet after it moderated its cyclical exposure, as European shares still offer attractive relative value, Cau said.

European indexes are cheaper than global peers as they are heavy in banks and other cyclical stocks which benefit when the economy looks up, and are light on tech and growth stocks for which investors are reluctant to pay hefty premiums amid buoyant economic activity and rising interest rates.

According to the poll, Germany’s industrials-heavy DAX index should gain about 1.2% to 16,050 points at the end of the year against Monday’s close of 15,852.8 points.

London’s blue chip index is expected to rise 1.3% to 7,200 points. France’s CAC 40 index is seen rising 1.7% to 6,800 points.

While Italy’s FTSE MIB and Spain’s IBEX are seen making the biggest gains, jumping 2.9% to 26,810 points and 2.1% to 9,160 points, respectively, before the end of the year.

For a look at all of today’s economic events, check out our economic calendar.

(Other stories from the Reuters Q3 global stock markets poll package:)

(Reporting by Joice Alves; additional polling by Sujith Pai and Indradip Ghosh; Editing by Chizu Nomiyama)

FTSE 100 Inches Higher As Industrial Miners Jump

After falling as much as 0.46%, the FTSE 100 index ended 0.2% higher, helped by heavyweight mining stocks up 2.4%.

Limiting the advances, however, were pharmaceutical stocks that weakened 1.1% to be the top losing sub-index.

“Basically we have been trading waters while we look across Europe and that seems to have been the trend throughout the day,” said Craig Erlam, senior market analyst at Oanda.

“I think at this point all eyes are on the Jackson Hole meeting, so it wouldn’t be a surprise to see this kind of market behaviour.”

The FTSE 100 has added 10.3% so far this year, but is still 8% away from its record highs hit in 2018 as an economy slowing due to weaker consumer demand, and risks around central banks pulling back monetary support sooner than expected, have weighed on the FTSE 100 recently.

In a bright spot, official data showed that British retailers saw the biggest surge in spending in almost seven years this month and orders hit a new high. However, stocks fell to the lowest levels on record, putting pressure on prices.

The domestically focused mid-cap index added 0.6%, hitting record highs. Travel stocks were among the top boosts.

Meanwhile, real estate stocks fell 0.3% after official data showed the number of homes sold in the UK fell by more than half last month after the scaling-back of a tax break designed to encourage home purchases during the coronavirus crisis.

Rio Tinto gained 3% after the miner said it had restarted operations at its Richards Bay Minerals project in South Africa after a furnace in July was shut down, affecting the supply of raw materials.

Wood Plc dropped 0.2% after the engineering and consultancy firm forecast lower annual revenue and reported a 14.1% fall in first-half profit.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Shashank Nayar and Amal S in Bengaluru; Editing by Subhranshu Sahu, Uttaresh.V and Mark Heinrich)

Marketmind: Gathering Clouds?

European stocks posted their biggest weekly drop last week since February. A large part of the reason behind the sharp drop is growing concerns over a slowing global economy, as well as increasing fears over rising infection rates and vaccine durability. Investors hoping for a bounce this week from a clutch of “flash” European manufacturing surveys for August out on Monday may be disappointed going by the recent softening trend in U.S. and Chinese PMIs.

The broad message from the European PMI camp is likely that the strong recovery in growth seen over Q2 is now in danger of fading as a combination of rising prices, ongoing supply chain issues (see Toyota news last week) and labour shortages take their toll on business activity.

Indeed, investors in an August global fund manager survey by investment bank BoFA Securities cut their expectations for global growth to their lowest since April 2020. Notwithstanding a wave of short covering lifting Asian markets in early Monday, signs of growing caution are rife in asset markets.

Base metals, bulk resources and oil are struggling after global growth jitters took a heavy toll on commodities last week. The dollar index consolidated gains below a November 2020 high while the yield curve held near a one-year low.

The focus will shift to the Fed later in the week when Fed Chair Jerome Powell takes the stage at the Jackson Hole symposium. Markets will be keenly watching the tapering plan and potential next steps from officials.

While much of the tapering news value is already baked into markets, it remains to be seen whether the global rise of the Delta variant prompts the Fed to soften its rhetoric.

Elsewhere, in coronavirus news, Prime Minister Jacinda Ardern on Monday extended New Zealand’s strict nationwide COVID-19 lockdown.

Key developments that should provide more direction to markets on Monday:

Germany, France, UK, Euro PMIs

U.S. home sales

Private equity companies are circling British supermarket group Sainsbury’s SBRY.L with a view to possibly launching bids of more than 7 billion pounds ($9.53 billion), the Sunday Times reported.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Saikat Chatterjee)

 

The Week Ahead – Private Sector PMIs and the Jackson Hole Symposium Key Areas of Focus

On the Macro

It’s a relatively busy week ahead on the economic calendar, with 50 stats in focus in the week ending 30th August. In the week prior, 52 stats had also been in focus.

For the Dollar:

In the first half of the week, prelim private sector PMIs and core durable goods will draw interest.

Expect the services PMI on Monday and core durable goods on Wednesday to be the key drivers.

On Thursday, the weekly jobless claims and 2nd estimate GDP numbers for the 2nd quarter will be in focus.

Barring any revisions from 1st estimates, the jobless claim figures will be key.

At the end of the week, the inflation and personal spending numbers wrap things up.

Finalized consumer sentiment figures for August are also due out. Expect any revisions to influence, particularly to the downside.

On the monetary policy front, the markets will also respond to chatter from Jackson Hole. This is expected to be the key driver for the Dollar and the broader markets. The Symposium commences on 26th August.

In the week ending 13th August, the Dollar Spot Index rose by 1.06% to 93.496.

For the EUR:

It’s a busier week on the economic data front.

Prelim private sector PMIs for France, Germany, and the Eurozone will be in focus on Monday.

Expect plenty of influence from the numbers. Late in the day on Monday, Eurozone consumer confidence figures will also draw interest.

On Tuesday, German GDP numbers for the 2nd quarter will draw attention ahead of business sentiment figures on Wednesday.

Germany’s headline Ifo Business Climate Index numbers for August will be key.

Wrapping things up on Thursday, German consumer confidence figures will also influence.

Both business and consumer confidence are key to a sustainable economic recovery. Weak numbers could further weigh on the EUR.

For the week, the EUR fell by 0.84% to $1.1698.

For the Pound:

It’s a relatively quiet week ahead on the economic calendar.

Prelim private sector PMIs for August will be in focus on Monday along with CBI Industrial Trend Orders.

Expect the services PMI to be the key driver.

Away from the economic calendar, UK politics and central bank chatter will also need monitoring.

The Pound ended the week down by 1.75% to $1.3623.

For the Loonie:

It’s a quiet week ahead on the economic calendar.

RPMI numbers for July is the only data for the markets to consider in the week.

With the numbers due out on Friday, market risk sentiment and prelim private sector PMIs from elsewhere will drive market risk appetite and ultimately the Loonie.

The Loonie ended the week down 2.45% to C$1.2821 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

Retail sales figures for July are due out on Friday and will be the key stat of the week.
With lockdown measures in place, the markets will be looking to assess the damage.

Other stats include construction work down and new CAPEX expenditure for the 2nd quarter.

Thursday’s CAPEX numbers will draw interests ahead of the retail sales figures.

The Aussie Dollar ended the week down by 3.23% to $0.7132.

For the Kiwi Dollar:

It’s a quiet week ahead.

Retail sales for the 2nd quarter will provide the Kiwi with direction on Tuesday.

On Wednesday, trade data for July will also influence.

Following the RBNZ decision to hit the pause button, COVID-19 news updates will also influence.

The Kiwi Dollar ended the week down by 2.94% to $0.6835.

For the Japanese Yen:

It’s a quiet week ahead.

Private sector PMIs for August will be in focus on Monday. The markets will be looking for a pickup in service sector activity and for continued growth across the manufacturing sector.

Tokyo inflation figures for August are also due out at the end of the week.

Barring a marked pickup in inflationary pressures, however, the numbers are unlikely to move the dial.

The Japanese Yen fell by 0.17% to ¥109.780 against the U.S Dollar.

Out of China

There are no material stats to provide the markets with direction in the week ahead.

The Chinese Yuan ended the week down by 0.37% to CNY6.5015 against the U.S Dollar.

Geo-Politics

Iran and China continue to be the main areas of interest for the markets. News updates from the Middle East, in particular, will need continued monitoring…

Chatter from Capitol Hill over Afghanistan will also need monitoring.

The Weekly Wrap – FED Monetary Policy and U.S Economic Data Drove Dollar Demand

The Stats

It was a busier week on the economic calendar, in the week ending 20th August.

A total of 52 stats were monitored, which was up from 40 stats in the week prior.

Of the 52 stats, 24 came in ahead forecasts, with 23 economic indicators coming up short of forecasts. There were 5 stats that were in line with forecasts in the week.

Looking at the numbers, 26 of the stats reflected an upward trend from previous figures. Of the remaining 26 stats, 25 reflected a deterioration from previous.

For the Greenback, market sentiment towards FED monetary policy and economic data delivered Dollar strength. In the week ending 20th August, the Dollar Spot Index rose by 1.06% to 93.496. In the previous week, the Dollar had fallen by 0.30% to 92.523.

Out of the U.S

Key stats included retail sales and jobless claims figures.

Retail sales figures disappointed. In July, retail sales fell by 1.1%, reversing a 0.7% rise from June. Economists had forecast a 0.3% decline. Core retail sales fell by 0.4% versus a forecasted 0.1% rise. In June, core retail sales rose by 1.6%.

On the positive side, however, were labor market numbers once more. In the week ending 13th August, initial jobless claims fell from 377k to 348k. Economists had forecast a decline to 363k.

On the monetary policy front, the FOMC meeting minutes from Wednesday contributed to the upside in the Dollar. FOMC member chatter also suggested a near-term move that drove demand for the Greenback.

Out of the UK

Economic data was on the busier side once more. Employment, inflation, and retail sales figures were in focus.

It was a mixed bag on the economic data front. Claimant counts saw a modest decrease in July, falling by just 7.8k. In June, claimant counts had tumbled by 114.8k.

On the positive, however, was a sharp pickup in wage growth in June and a fall in the unemployment rate. The unemployment rate fell from 4.8% to 4.7%, with average wages incl. bonuses up 8.8%. In May, average wages incl. bonuses had been up by 7.4%.

At the end of the week, retail sales declined by 2.5% in July versus a forecasted 0.4% rise. In June, retail sales had risen by 0.5%. Core retail sales fell by 2.4% versus a forecasted 0.3% rise. Core retail sales had risen by 0.3% in June.

In the week, the Pound slid by 1.75% to end the week at $1.3623. In the week prior, the Pound had fallen by 0.04% to $1.3866.

The FTSE100 ended the week down by 1.81%, reversing a 1.34% gain from the previous week.

Out of the Eurozone

It was a quiet week on the economic data front.

Eurozone employment, 2nd estimate GDP, and finalized inflation figures were in focus.

In line with 1st estimates, the Eurozone economy expanded by 2.0% in the 2nd quarter, rebounding from a 0.3% contraction in the previous quarter. While, the year-on-year, number was revised down from 13.7% to 13.6%, the numbers were good enough to support the EUR.

Employment also picked up in the 2nd quarter, rising by 0.5% to reverse a 0.2% decline from the previous quarter.

On the inflation front, the Eurozone’s annual rate of inflation picked up from 1.9% to 2.2%, which was in line with prelim figures. The Eurozone’s core annual rate of inflation softened from 0.9% to 0.7%, which was also in line with prelim numbers.

For the week, the EUR fell by 0.84% to $1.1698. In the week prior, the EUR had risen by 0.30% to $1.1797.

The CAC40 slid by 3.91%, with the DAX30 and the EuroStoxx600 ending the week with losses of 1.06% and 1.48% respectively.

For the Loonie

It was a busy week on the economic data front.

Inflation, employment, and retail sales figures were in focus through the week.

In July, the core annual rate of inflation accelerated from 2.7% to 3.3%. For the month of July, core consumer prices increased by 0.6% following a 0.3% rise in June.

Employment figures were also Loonie positive. In July, the ADP reported a 221.3k increase in hiring, reversing most of a 294.2k slide from June.

At the end of the week, retail sales delivered much-needed support. In June, retail sales rose by 4.7% versus a forecasted 4.6% increase. Retail sales had fallen by 2.0% in May. Core retail sales rose by 4.2%, reversing a 2.1% decline from May. Economists had forecast a 4.4% rise.

Other stats included housing sector data that had a muted impact on the Loonie.

While the stats were skewed to the positive, bearish market sentiment and sliding crude oil prices weighed.

In the week ending 20th August, the Loonie slid by 2.45% to C$1.2821. In the week prior, the Loonie had risen by 0.31% to C$1.2515.

Elsewhere

It was a particularly bearish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar tumbled by 3.23% to $0.0.7132, with the Kiwi Dollar ending the week down by 2.94% to $0.0.6835.

For the Aussie Dollar

Employment figures were in focus late in the week.

In July, the unemployment rate fell from 4.9% to 4.6% versus a forecasted increase to 5.0%.

While positive, the decline came as a result of a fall in the participation rate attributed to lockdown measures.

Employment rose by a modest 2.2k in July, while full-time employment fell by 4.2k. In June, full-time employment had risen by 51.6k.

On the monetary policy front, the RBA meeting minutes were also in focus early in the week. There were no major surprises, however, with near-term economic speed bumps leaving the RBA in a holding pattern.

For the Kiwi Dollar

It was a particularly quiet week, with no major stats to consider.

The RBNZ monetary policy decision sank the Kiwi Dollar mid-week, however. Expectations of a hawkish rate hike were dashed as New Zealand went into full lockdown earlier in the week.

As a result of the lockdown, the RBNZ hit pause on lifting the cash rate. In spite of a hawkish press conference and upbeat sentiment towards the economy, the Kiwi failed to recover.

For the Japanese Yen

It was a busy week.

At the start of the week, 2nd quarter GDP numbers were in focus. The Japanese economy expanded by 0.3%, quarter-on-quarter, partially surprises recovering from a 1% contraction in the previous quarter. Economists had forecast a 0.2% expansion.

Year-on-year, the economy grew by 1.3% versus a forecasted 0.70%. In the 1st quarter, the economy had contracted by 3.9%.

Mid-week, trade data also beat forecasts, with the trade surplus widening from ¥384.0bn to ¥441.9bn. Exports were up 37.0%, year-on-year. In June, exports had been up 48.6%.

Machinery orders did disappoint, however, with orders falling by 1.5% in June. In May, orders had jumped by 7.8%.

The Japanese Yen fell by 0.17% to ¥109.78 against the U.S Dollar. In the week prior, the Yen had risen by 0.60% to ¥109.59.

Out of China

Industrial production, retail sales, and fixed asset investment numbers were in focus.

Disappointing economic data set the tone for the markets at the start of the week, raising concerns over the economic recovery.

In July, industrial production was up 6.4% year-on-year, which was down from 8.3% in June. Economists had forecast a 7.8% increase.

Retail sales were up 8.5%, which was softer than a 12.1% increase in June. Fixed asset investments increased by 10.3%, year-to-date, compared with 12.6% in June.

On the monetary policy front, the PBoC left loan prime rates unchanged at the end of the week. Despite some weak numbers out of China of late, this was in line with expectations.

In the week ending 20th August, the Chinese Yuan fell by 0.37% to CNY6.5015. In the week prior, the Yuan had ended the week up by 0.03% to CNY6.4774.

The CSI300 and the Hang Seng ended the week down by 3.57% and by 5.84% respectively.

European Stocks End Higher but Log Worst Week in 6 Months

The pan-European STOXX 600 index was up 0.3%, with the retail sector gaining 1.2%.

British retailer Marks & Spencer jumped 14.1% to the top of the STOXX 600, as it hiked its profit outlook after a jump in demand for food and a surge in online clothes’ orders indicated that its latest turnaround plan was starting to deliver.

London’s FTSE 100 index rose 0.4%, while Germany’s DAX was up 0.3%. Frankfurt shares recovered from a fall earlier in the session after data showed a bigger-than-expected jump in producer prices in July.

The mining index ended flat, becoming the worst performing European sector for the week.

Signs of a slowdown in the global economic recovery and a surge in cases of the Delta variant of the coronavirus have knocked Europe’s STOXX 600 off record highs this week.

The index slumped 1.5% on Thursday alone, tracking a fall in global equities on indications the U.S. Federal Reserve could start reining in easy money policies later this year.

“Progress made by countries in dealing with COVID-19 still seems to have had little bearing, in general, on the relative performance of their stock markets,” said Bethany Beckett, UK economist at Capital Economics.

“Instead, swings in sentiment about the virus at a global level appear to have continued to exert a bigger influence via sector rotation.” Beckett expects this trend to persist.

Focus next week will be on the high-profile annual U.S. Jackson Hole central bankers’ conference, where Fed Chair Jerome Powell could signal he is ready to start easing monetary support.

ECB President Christine Lagarde will not attend the conference, a spokesperson for the central bank said this week.

Luxury goods rebounded from declines earlier in the day to gain 0.5%, but fell 5.5% over the week, pressured by worries over possible wealth policy developments in China.

UK supermarket Morrisons rose 4.2% after agreeing to a takeover offer worth 7.0 billion pounds ($9.54 billion), while Swedish real estate web portal Hemnet surged 27.8% on an upbeat quarterly report.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sagarika Jaisinghani and Shreyashi Sanyal in Bengaluru; editing by Uttaresh.V, Kirsten Donovan)

 

Fifty Shades of Green: EU Sustainable Fund Rules Muddy the Waters

A Reuters analysis of funds marketed to retail investors increasingly hungry for anything green shows asset managers are adopting a wide range of strategies to justify the sustainable label since the EU brought in disclosure rules in March.

The EU’s Sustainable Finance Disclosure Regulation (SFDR) is an attempt to deliver transparency for investors focussed on environmental, social and governance (ESG) issues but fund managers say the definition of sustainability is too vague and has created confusion about what makes the cut.

Take the Allianz Global Water fund.

It actively invests in companies that improve the supply, management and quality of water and is marketed as falling under Article 8 of the SFDR, which means it is a fund that promotes “among other characteristics, environmental or social characteristics, or a combination of those characteristics”.

Now take one of Legal & General Investment Management’s (LGIM) Article 8 exchange-traded funds (ETF).

The L&G UK Equity UCITS ETF tracks the Solactive Core United Kingdom Large & Mid Cap Index, which excludes coal miners and firms that make weapons such as cluster bombs or have breached U.N. principles on corporate values.

Its top 10 holdings are the same as for L&G funds tracking the FTSE 100 index that don’t carry the Article 8 label and include oil giants BP and Royal Dutch Shell, miner Rio Tinto and British American Tobacco.

L&G said the fund was considered Article 8 because it promotes sustainability characteristics by applying LGIM’s Future World Protection List and this was a “binding element” of the investment process.

“The lens we should use is what is right. It’s not just about what is legally required because it seems not very much is legally required,” said Eric Christian Pedersen, head of responsible investments at Nordea Asset Management.

GREEN RUSH

The new EU rules have sparked a rush by investment firms to badge products as sustainable as they seek to grab a share of the booming market in sustainable mutual funds that hit a record $2.3 trillion in the second quarter.

From March 10, the rules automatically placed all investment funds into a coverall Article 6 category. Managers could then upgrade them to Article 8, or Article 9 which is for products with an explicit sustainable investment objective.

The investment industry has dubbed Article 8 funds “light green” and Article 9 “dark green”, though the EU regulations do not use those terms.

A European Commission spokesperson said its rules were designed to ensure funds were transparent about the sustainability of products so investors could make choices, and was not a labelling scheme.

Reuters asked 20 of the biggest fund houses for a list of products they market as Article 8 or 9.

An analysis of the funds of the 14 firms that replied shows some Article 8 products have limited claims to sustainability, such as those tracking conventional stock and bond indexes, investing in fossil fuels or buying debt from countries with weak ESG standards such as Saudi Arabia and Nigeria.

Some claims hinge on funds excluding securities they would not have bought anyway, based on the index being tracked.

For some in the industry this represents so-called greenwashing, where the benefits of a business or asset are exaggerated to attract environmentally aware investors.

Hortense Bioy, director of sustainability research at Morningstar, said Article 8 funds ranged from climate-themed green to “very, very light green”, excluding just a few firms.

“Managers need to ask if they are even relevant,” she said. “That is the key message: investors shouldn’t expect anything from Article 8.”

INDEX TRACKERS

Industry experts say none of the asset managers is breaking any rules. Managers determine themselves which article to apply and Brussels does not check whether claims are justified.

The Reuters analysis shows some managers are more likely to brand funds as sustainable than others.

Two of Europe’s biggest firms, Alliance Bernstein and AXA Investment Management, classify nine in every 10 euros of assets they manage under the scope of SFDR as Article 8 or 9, according to data they supplied to Reuters.

Others such as Pictet Asset Management and Allianz Global Investors place a little over half of their relevant assets in those categories, their data showed.

Morningstar data published in July shows a third of the assets falling under SFDR are now billed as Article 8 or 9, with Article 6 products disappearing from recommendation lists sent by investment advisers to retail investors.

Many Article 8 funds have clear sustainability criteria, such as strategies that invest in businesses with the lowest carbon impact in their sectors, or Allianz’s water-focused fund.

For others, that’s not always the case. Candriam’s Cleome Index Europe Equities is another Article 8 product. It tracks the MSCI Europe index but excludes companies that don’t comply with the U.N. principles.

Critics say such exclusions are very limited.

When asked for an example, Candriam did not point to any company expelled from the U.N. list that is also part of MSCI Europe. The Candriam fund’s top 10 holdings replicate the index.

A Candriam spokesperson said it also applies exclusions on companies materially involved in controversial weapons, tobacco and thermal coal, and the Cleome equity fund uses proprietary ESG analysis relative to the benchmark, justifying Article 8.

Morningstar analysis shows one in four Article 8 funds has exposure to companies involved in controversial weapons and one in five to tobacco. A third of Article 8 and 9 funds have more than a 5% exposure to fossil fuel firms.

‘NASTY’ ESG?

Demand for funds with a sustainable label is soaring.

“There is a clear commercial opportunity,” said Eric Borremans, head of ESG at Switzerland’s Pictet Asset Management, which classes 57% of its assets as Article 8 or 9.

Borremans said Pictet had no index-tracking Article 8 funds but planned to apply the label to some after incorporating more exclusions.

U.S. investment giant BlackRock told Reuters it expected to exceed a target of putting 70% of its new, or rebranded, products this year under Articles 8 or 9.

Some funds use ESG thresholds to justify sustainable labels.

JPMorgan Asset Management says 51% of the securities in its Article 8 range must carry an ESG score in the top 80%. These are scores fund firms or third-party providers give companies based on ESG metrics such as carbon usage, governance or human rights in supply chains.

Critics say such thresholds are too weak.

“You have funds saying most of our holdings are not nasty and therefore I’m ESG,” said Pedersen at Nordea, which requires 100% of its Article 8 holdings be above a minimum ESG score.

The JPMorgan threshold, for example, also means 49% of companies in its funds could rank in the bottom 20% for ESG goals, although the funds exclude sectors such as tobacco, controversial weapons and coal miners.

JPMorgan Asset Management did not respond to questions about ESG scores. A spokesperson said the firm remained “focused on a thoughtful and thorough approach to the implementation of SFDR”.

Pictet’s Borremans said funds interpreting the rules loosely now can get away with it, but strategies sailing close to the wind will eventually be exposed.

By next year, the EU will flesh out its taxonomy — a list of environmentally sustainable economic activities — and from July 2022 funds must detail how they meet sustainability criteria based on the EU’s Regulatory Technical Standards (RTS) that will clarify disclosure requirements.

“It could hurt the reputation of an asset manager to offer financial products as falling under Article 8 and 9 or as taxonomy aligned if this cannot subsequently be backed when the RTS enters into application,” the European Commission spokesperson said in emailed comments.

Amundi’s head of cross-border product, Florian Schneider, said SFDR rules made clear products with minimal exclusions were Article 8.

“The danger is everyone blindly assuming all Article 8 funds offer the same level of ESG integration when there are very different shades of green.”

For a look at all of today’s economic events, check out our economic calendar.

($1 = 0.7274 pounds)

(Additional reporting by Simon Jessop; Editing by Sujata Rao, Alexander Smith and David Clarke)

Afghanistan’s Fall And Its Possible Impact On The Global Financial Markets

Afghanistan has been thrown into turmoil over the past few days, and the effects of the fall of the government could go beyond the local market and affect the global financial markets also.

Taliban Takes Control Of Kabul

The biggest news in the world over the past few days is the Taliban taking control of Kabul and effectively replacing the Afghanistan government. The uncertainty comes after the United States and its allies withdrew their troops from the Middle Eastern country for the first time in a decade.

United States President Joe Biden decided earlier this year that the country would be pulling its troops from the Middle Eastern country for the first time since they were deployed after the 9/11 attack. According to the president, the US has spent over a trillion dollars, and it has achieved its objective in the country.

However, the Taliban didn’t take long before completely overrunning the Afghan military and gaining control of major territories in the country. The group took control of Kabul, the nation’s capital, with President Ashraf Ghani fleeing the country on Sunday evening. The Taliban took control complete of the presidential palace and declared that the war is over.

FTSE 100 chart. Source: FXEMPIRE

The Afghan situation has escalated over the past 24 hours, with thousands of people looking to flee the country due to the uncertainties of Taliban leadership. The airports around the country are flooded with thousands of people seeking to leave the country while millions more are at the passport offices looking to process their Visa and flee. The turbulent environment in Afghanistan is definitely going to affect the local market, but the international markets would also be affected.

Local And International Markets Could Be Affected By The Situation In Afghanistan

There is no factor that negatively affects the financial markets like the uncertainty of investors. Following the recent unrest and the toppling of the president, the investor confidence in Afghanistan could drop to an all-time low.

Millions are looking to flee the country, and this implies that virtually all aspects of the economy are not working. If people are worried about leaving the country, they won’t settle down to do their jobs, and this will negatively affect the economy. With economic activities currently down, it is only right that the financial markets are down also.

Furthermore, some foreign countries such as Germany are starting to pull their people out of the country. Investors, but foreign and local, will have little interest in the Afghan financial markets at the moment, and this would have both short and medium-term effects on the economy. If the Taliban remains in power, many investors will pull out of Afghanistan as they would not be sure of the working conditions under the new Islamic leadership.

On the global stage, the financial markets would also be affected. So far, the effects of the unrest in Afghanistan are already visible in other parts of the world. Financial market indices are down, with investors keenly watching to see how the world leaders would react to the situation.

The FTSE 100 dropped by 0.90% today, while the STOXX Europe 600 also lost 0.50% of its value. The Dow Jones Industrial Average (DIJA) and the S&P 500 are also down by 0.065% and 0.23% so far today. The NASDAQ composite is another major index that is currently trading in the red zone, and it is down by 0.74% at the time of this report.

S&P 500 chart. Source: FXEMPIRE

This means that most of the major global financial market indices are trading in the red zone over the past 24 hours. The performance paints a clear picture of the current state of the financial markets and what investors are feeling.

Joe Biden is expected to make an address regarding the situation in Afghanistan later today. His speech could play a huge role in how the financial markets would perform over the next few days. This is because most of the other major world leaders would be looking to the United States to determine the next line of action. The next few hours and days would be interesting as the progress in Afghanistan could shape the performance of the financial markets globally.

The Week Ahead – Monetary Policy, Economic Data, and COVID-19 in Focus

On the Macro

It’s busier week ahead on the economic calendar, with 54 stats in focus in the week ending 20th August. In the week prior, 40 stats had also been in focus.

For the Dollar:

Retail sales figures will draw plenty of interest on Tuesday. Following impressive NFP numbers, the markets will be expecting positive numbers. Last week’s data, sent mixed messages, however, leaving uncertainty and increased volatility.

On Thursday, the weekly jobless claims data for the 1st week of August will be in focus, along with Philly FED manufacturing data.

While the Philly FED numbers are key, expect the initial jobless claims data to be of greater influence.

On the monetary policy front, the FOMC Meeting Minutes on Wednesday will also provide plenty of direction. Any talk of tapering should labor market numbers improve would deliver Dollar support.

In the week ending 13th August, the Dollar Spot Index fell by 0.30% to 92.518.

For the EUR:

It’s a quieter week on the economic data front.

2nd estimate GDP numbers for the Eurozone will be in focus on Tuesday. Expect any downward revisions to test EUR support. The ECB has raised concerns over growth in the 3rd quarter. Lowering the bar for the 2nd quarter would deliver a gloomier outlook.

Finalized inflation figures for the Eurozone on Wednesday and wholesale inflation figures from Germany will also draw interest.

For the week, the EUR rose by 0.30% to $1.1797.

For the Pound:

It’s a busy week ahead on the economic calendar.

Claimant counts, employment change, and the unemployment rate will be in focus on Tuesday. Expect the unemployment rate and claimant count figures to be key.

Also of influence will be inflation and retail sales figures due out on Wednesday and Thursday.

The Pound ended the week down by 0.04% to $1.3866.

For the Loonie:

It’s a busier week ahead on the economic calendar.

Mid-week, inflation will be in focus ahead of ADP employment change and retail sales figures due out on Thursday and Friday.

After a quiet week on the economic data front in the week prior, expect plenty of interest in the numbers.

The Loonie ended the week up 0.31% to C$1.2515 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

Employment figures due out on Thursday will be the only stats for the markets to consider.

Weak numbers, linked to the rise in new COVID-19 cases and containment measures, would weigh on the Aussie Dollar.

On the monetary policy front, however, the RBA meeting minutes due out on Tuesday will also be key.

The Aussie Dollar ended the week up by 0.19% to $0.7370.

For the Kiwi Dollar:

It’s a quiet week ahead. There are no material stats due out of New Zealand to provide the Kiwi Dollar with direction.

While there are no stats to consider, the RBNZ monetary policy decision will have a material impact on Wednesday.

Economic data from New Zealand has been upbeat of late. The markets will be expecting hawkish chatter.

The Kiwi Dollar ended the week up by 0.46% to $0.7042.

For the Japanese Yen:

It’s a busier week ahead.

2nd quarter GDP numbers will set the tone on Monday.

The focus will then shift to trade data and machinery orders due out on Wednesday.

Inflation figures wrap things up on Friday.

The Japanese Yen rose by 0.60% to ¥109.590 against the U.S Dollar.

Out of China

It’s also a busier week ahead.

Industrial production, retail sales, fixed asset investments, and the unemployment rate are due out on Monday.

Expect the retail sales and industrial production figures to be key.

On the monetary policy front, the PBoC will set the loan prime rates on Friday. The markets are expecting the PBoC to stand pat, however.

The Chinese Yuan ended the week up by 0.03% to CNY6.4774 against the U.S Dollar.

Geo-Politics

Iran and China continue to be the main areas of interest for the markets. News updates from the Middle East, in particular, will need continued monitoring…

The Weekly Wrap – Inflation and Consumer Sentiment Sink the Greenback…

The Stats

It was a quieter week on the economic calendar, in the week ending 13th August.

A total of 40 stats were monitored, which was down from 50 stats in the week prior.

Of the 40 stats, just 8 came in ahead forecasts, with 28 economic indicators coming up short of forecasts. There were 4 stats that were in line with forecasts in the week.

Looking at the numbers, 17 of the stats reflected an upward trend from previous figures. Of the remaining 23 stats, 21 reflected a deterioration from previous.

For the Greenback, a string of disappointing economic data from the U.S sent the Dollar into the red. In the week ending 13th August, the Dollar Spot Index fell by 0.30% to 92.518. In the previous week, the Dollar had risen by 0.68% to 92.800.

Out of the U.S

Key stats in the week included inflation, jobless claims, and consumer sentiment figures.

In July, inflation numbers came in softer than expected, with the core annual rate of inflation softening from 4.5% to 4.3%.

While the annual rate of inflation held steady at 5.4%, however, consumer prices rose by just 0.5% in July. In June, consumer prices had risen by 0.9%.

Weekly jobless claims fell from 387k to 375k in the week ending 6th August. Economists had forecast a decline to 365k.

All in all, the numbers looked to have eased pressure on the FED following the impressive NFP numbers from the week prior.

At the end of the week, consumer sentiment added further downward pressure on the greenback.

According to prelim figures, the Michigan Consumer Sentiment Index slid from 81.2 to 702. Economists had forecast an increase to 81.5. The Michigan Consumer Expectations Index also took a hit, falling from 79.0 to 65.2.

Out of the UK

Economic data was on the busier side, with GDP numbers for the 2nd quarter the key stats of the week.

In the 2nd quarter, the economy expanded by 4.8%, quarter-on-quarter, versus a forecasted 5.1%. The economy had contracted by 1.6% in the previous quarter.

Year-on-year, the economy expanded by 22.2%, falling short of a forecasted 22.5%. In the 1st quarter, the economy had contracted by 6.1%.

Manufacturing and industrial production figures also fell short of forecasts.

Manufacturing production was up 13.9%, year-on-year, versus a forecasted 14.0%. Industrial production was up 8.3%, falling short of a forecasted 10.8%.

Trade data also failed to impress, with the trade deficit widening from £0.2bn to £2.5bn in June.

Ahead of the stats, sentiment towards monetary policy and the UK government had weighed on the Pound.

News of Boris Johnson threatening to sack Rishi Sunak was Pound negative. There was also talk of MPC member Saunders being the only hawk, raising doubts of an imminent move on policy.

In the week, the Pound slipped by 0.04% to end the week at $1.3866. In the week prior, the Pound had fallen by 0.23% to $1.3872.

The FTSE100 ended the week up by 1.34%, following a 1.29% gain from the previous week.

Out of the Eurozone

It was a mixed set of numbers on the economic data front.

German and Eurozone trade and economic sentiment figures drew plenty of attention.

Germany’s trade surplus widened from €12.5bn to €16.3bn, with the Eurozone’s widening from €12.3bn to €18.1bn.

Economic sentiment figures were disappointing, however.

Germany’s ZEW Economic Sentiment Index fell from 63.3 to 40.4 in August. The Eurozone’s Index slid from 61.2 to 41.7.

Also negative was an unexpected fall in Eurozone industrial production, which declined by 0.3% in June. Production had fallen by 1.1% in May.

For the week, the EUR rose by 0.30% to $1.1797. In the week prior, the EUR had fallen by 0.91% to $1.1762.

The CAC40 rose by 1.16%, with the DAX30 and the EuroStoxx600 ending the week up by 1.37% and by 1.25% respectively.

For the Loonie

It was a particularly quiet week on the economic data front.

There were no major stats out of Canada to provide the Loonie with direction in the week.

In the week ending 13th August, the Loonie rose by 0.31% to C$1.2515. In the week prior, the Loonie had fallen by 0.63% to C$1.2554.

Elsewhere

It was a bullish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar rose by 0.19% to $0.7370, with the Kiwi Dollar ending the week up by 0.46% to $0.7042.

For the Aussie Dollar

Business and consumer confidence figures were in focus in the week.

The stats were skewed to the negative, with fresh lockdown measures weighing on sentiment.

In July, the NAB Business Confidence Index fell from 11 to -8. For August, the Westpac Consumer Confidence Index fell by 4.4% to 104.1.

While consumer confidence weakened, this was still considered a solid number, limiting the impact on the Aussie Dollar.

For the Kiwi Dollar

It was a quiet week, with the July Business PMI the key stat of the week.

In July, the Business PMI rose from 60.7 to 62.6, coming in ahead of a forecasted fall to 60.0.

Looking at the sub-components, a pickup in the pace of hiring and a more marked increase in new orders were key.

For the Japanese Yen

It was a particularly quiet week, with no major stats from Japan to provide direction.

The Japanese Yen rose by 0.60% to ¥109.59 against the U.S Dollar. In the week prior, the Yen had fallen by 0.48% to ¥110.25.

Out of China

Inflation figures were in focus at the start of the week.

In July, the annual rate of inflation softened from 1.1% to 1.0%, while consumer prices rose by 0.3% in the month. Consumer prices had fallen by 0.4% in June.

Wholesale inflationary pressures continued to pick up, however.

The annual rate of wholesale inflation accelerated from 8.8% to 9.0% in July. July’s figures suggested that a further pickup in inflationary pressures could be on the horizon.

In the week ending 13th August, the Chinese Yuan rose by 0.03% to CNY6.4774. In the week prior, the Yuan had ended the week down by 0.34% to CNY6.4831.

The CSI300 and the Hang Seng ended the week up by 0.81% and by 0.50% respectively.

European Stocks Extend Record Rally on Lift From Insurers, M&A Activity

The pan-European STOXX 600 index inched up 0.1%, extending gains to a ninth consecutive session.

British insurer Aviva rose 3.5% after saying it would return at least 4 billion pounds ($5.5 billion) to shareholders, while Zurich Insurance Group added 3.8% on reporting a 60% jump in first-half business operating profit.

Dutch insurer Aegon NV jumped 7.3% after posting much better than expected second-quarter earnings.

Deutsche Telekom rose 2.8% after raising its profit outlook for the second time this year.

The benchmark STOXX 600 clocked its longest winning streak since June, as earnings reports and optimism related to the pace of vaccination across Europe reinforced investor confidence in an economic recovery.

Data showed Britain’s economy grew by a faster than expected 1% in June, after many hospitality firms restarted indoor service in mid-May and as more people visited doctors following the pandemic, lifting healthcare.

Factory output fell in June in the euro zone, as Germany, the bloc’s industrial powerhouse, faltered amid supply bottlenecks, European Union estimates showed.

“The second successive monthly fall in euro-zone industrial production in June was largely due to ongoing supply-chain difficulties in Germany,” said Andrew Kenningham, chief Europe economist at Capital Economics.

“As these will ease only slowly, we don’t expect industry to contribute much to economic growth in the coming months, even though demand is still red hot,” Kenningham added.

Cineworld Group rose 3.9% after it said it was considering a listing of itself or a partial listing of its movie chain Regal on Wall Street.

Meanwhile, Adidas rose 1.6% after selling its Reebok brand to Authentic Brands Groups for up to 2.1 billion euros ($2.5 billion), as the German sporting goods company sought to draw a line under an ill-fated investment.

Stock Spirits Group soared 43.7% funds as funds affiliated with private-equity firm CVC agreed to take over the London-listed vodka maker in a deal valuing it at 767 million pounds ($1.1 billion).

Dragging down miners, UK-listed shares of global miner Rio Tinto slipped 5.5% on trading ex-dividend.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sruthi Shankar and Shreyashi Sanyal in BengaluruEditing by Shounak Dasgupta and David Holmes)

Marketmind: Peak Inflation?

A look at the day ahead from Tommy Wilkes.

Wednesday’s 0.5% reading for the consumer price index in July was the largest drop in month-to-month inflation in 15 months and has some investors starting to bet long-feared inflation on the back of pandemic-era stimulus may be peaking. U.S. Treasury yields fell, erasing some of this month’s surge.

The reading certainly eases pressure on the Federal Reserve by supporting its assertion than inflation rises are temporary and gives the central bank more time to decide when to taper asset purchases. It also gives ammunition to bulls determined to push stocks higher.

On Thursday markets looked set to take a breather, with both U.S. and European stock futures flat or down slightly.

U.S. 10-year Treasury yields held above 1.3% — while inflation fears may be receding for now, the benchmark yield is still nearly 20 basis points higher than in early August.

Elsewhere, data showed that Britain’s economy grew by a faster-than expected 1.0% in June, boosted by the huge services sector.

The mood in Asia, where stocks have underperformed U.S. and European peers recently, was downbeat again after China said it would draft new laws on national security, technology innovation, monopolies and education, as well as in areas involving foreigners — the latest regulatory crackdown.

Fears about the spread of the COVID-19 Delta variant in Asia have also sapped confidence, with stocks lower on Thursday.

In currency markets, the dollar recouped some of Wednesday’s tumble after the lower inflation reading.

Oil prices mostly held gains from earlier in the week, with Brent firmly above $71 a barrel and U.S. crude at $69.

In corporate news, German online takeaway food firm Delivery Hero raised its 2021 outlook after more than doubling quarterly revenues.

Aviva Investors said it would return at least 4 billion pounds ($5.5 billion) to shareholders after a rise in profits — the latest European firm to return to buybacks.

Key developments that should provide more direction to markets on Thursday:

– Emerging markets: Mexico, Turkey, Serbia,  Philippines, Peru central banks meet

– U.S. PPI/initial jobless claims data

– Auctions: 4-week T-bills, 30-year Treasuries

– U.S. earnings: Baidu, Walt Disney, Uber

– European earnings: Deutsche Telekom. Henkel, freenet. TUI, RWE, Aviva, Cineworld

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Tommy Wilkes; Editing by Dhara Ranasinghe)

Stocks Strengthen; Yields, Dollar Rise on Fed Taper Talk

The dollar also scaled a four-month high versus the euro as investors looked ahead to U.S. inflation numbers on Wednesday for indications of when the world’s largest economy might start to withdraw stimulus.

MSCI’s gauge of stocks across the globe gained 0.16%, trading just off the record high it hit last week.

The Dow Jones Industrial Average and S&P 500 both touched record intraday highs.

The Dow Jones Industrial Average rose 171.08 points, or 0.49%, to 35,272.93, the S&P 500 gained 6.27 points, or 0.14%, to 4,438.62, and the Nasdaq Composite dropped 64.83 points, or 0.44%, to 14,795.34.

European shares extended gains for a seventh straight session as investors took comfort from strong earnings reports and economic recovery prospect.

The pan-European STOXX 600 index rose 0.35%

“Domestically and globally, we’re seeing economies recovering from the pandemic. It’s a good period for investing,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

Sentiment was further boosted by the U.S. Senate passing a $1 trillion bipartisan infrastructure bill that could provide the United States with its biggest investment in decades in roads, bridges, airports and waterways.

Activity, meanwhile, was heating up in bond markets.

Indications in recent days of an improving labor market have prompted investors to rethink the outlook for U.S. monetary policy, halting recent sharp falls in both U.S. and European bond yields.

U.S. 10-year Treasury yields scaled their highest in over three weeks, rising as high as 1.336% in London trade and extending the longest run of gains since early February.

The benchmark 10-year Treasury yield, which reached 1.346%, its highest level since July 15, last fell 8/32 in price to yield 1.3439%, from 1.317% late on Monday.

Speculation is mounting that Federal Reserve Chair Jerome Powell could signal it is ready to start easing monetary support in a speech to be delivered at the annual Jackson Hole conference of central bankers.

“Expectations have clearly shifted for Fed Chair Powell to turn hawkish at Jackson Hole and make a formal announcement on tapering asset purchases at the September FOMC meeting,” said Ed Moya, senior market analyst at OANDA in New York.

Adding fuel to the debate, two Fed officials said on Monday that while the labor market still has room for improvement, inflation is already at a level that could satisfy one leg of a key test for the beginning of interest rate hikes.

Data on Monday showed that U.S. job openings shot up to a fresh record high in June and hiring also increased.

That followed Friday’s nonfarm payroll report showing jobs increased by a larger-than-anticipated 943,000 in July.

While signs of economic recovery in the United States are reviving reflation trade bets, investors remain wary of the lingering risks posed by COVID-19.

China on Monday reported more COVID-19 infections in what seems to be its most severe resurgence of the disease since mid-2020, as some cities added rounds of mass testing in a bid to stamp out infections.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.4% after trading much of the day in the red as worries weighed about the spread of the Delta variant.

With tapering expectations gaining traction, the dollar extended its gains made on Friday and Monday.

The dollar index rose 0.07%, with the euro down 0.13% to $1.1722.

Oil prices rose, recouping some of the losses in the previous session when prices slipped to a three-week low. [O/R]

U.S. crude oil futures settled at $69.29 per barrel, up $1.81 or 2.72%. Brent crude futures settled at $70.63 per barrel, up $1.59 or 2.3%.

U.S. gold futures settled up 0.3% at $1,731.70.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Paulina Duran in Sydney Editing by Jonathan Oatis and Mark Heinrich)

 

 

Virtually Forever? Switch to Online AGMs Gains Pace Despite Concerns

The pandemic prompted an overhaul of the way companies meet investors, with those in Britain relying on emergency laws to allow them to hold online AGMs in the 2020 season.

But in the second year of the pandemic, there are concerns that permanently virtual meetings could limit investors’ ability to hold executives to account.

From January through July, 40% of AGMs globally were fully virtual, compared with 27% in the whole of 2020, data from Computershare showed.

In continental Europe the jump was particularly high, with 753 of 878 going fully virtual in the first seven months of 2021, compared with 548 of 918 in 2020. The United States did not see the same shift – around half of the 2021 meetings up to July were virtual, a similar proportion to all of 2020.

Several companies including British Airways owner International Airlines Group this year sought permission to go fully virtual in future and mostly faced shareholder rebellions of between 10% and 20%, although all such motions passed.

While many companies allowed a live discussion with management during virtual meetings, others shielded bosses from tough questions, said Kalina Lazarova, director and analyst in the Responsible Investment team at BMO Global Asset Management.

Tactics included requiring questions to be submitted in advance, cherrypicking which were answered, stopping follow-up questions, and limiting the time for questions.

“We have recently heard from companies in Germany that the lack of live Q&A removes a degree of scrutiny and pressure from directors at the AGM,” said Lazarova. “We worry that if these practices become widespread … shareholder democracy, particularly retail investors’ access to boards, will be eroded.”

In Britain, Thomson Reuters Practical Law “What’s Market” data showed that, so far in 2021, 85 FTSE 350 companies had proposed amending their articles of association’s rules about the format of shareholder meetings in 2021, up from 41 in 2020.

Among them, three sought to allow fully-virtual meetings: IAG, Sanne Group, an asset management service provider, and Diversified Energy Co (DEC).

NOT SUPPORTIVE

At its June AGM, IAG’s resolution to allow virtual meetings to the extent there are reasons that make it advisable passed with 81% of the vote.

Advisory group ISS opposed the change, saying that while virtual meetings are warranted in the current environment, they were concerned the company did not commit to returning to physical or hybrid meetings when it becomes possible again.

Britain’s Aviva Investors, a top-60 investor in IAG according to Refinitiv data, said it had voted against the motion. “As a matter of principle, we are not supportive of virtual-only AGMs,” an Aviva spokesperson said.

IAG did not comment beyond confirming the results of the vote.

Sanne saw a rebellion of 15% against its resolution in May to allow directors to choose a fully-virtual AGM in future, though advisory firm Glass Lewis recommended voting against the proposal because there was not enough disclosure on the circumstances in which a virtual meeting could be held or how shareholders’ rights to participate would be protected.

Sanne “remains committed to holding physical AGMs for the foreseeable future”, a spokesperson said.

Glass Lewis said it also opposed attempts to allow virtual-only meetings at Deutsche Wohnen and the Moscow Stock Exchange.

But DEC’s change to its articles to allow virtual-only meetings passed by 99% of the vote. ISS said it supported DEC’s switch because the company said it had no intention of holding fully-virtual AGMs except in extenuating circumstances.

An association of employee shareholders at the Siemens AGM put forward a resolution to allow shareholders to ask questions while virtual meetings are ongoing (rather than in advance), but the company’s board recommended against it.

With 56% of the votes, the resolution did not reach the 75% threshold required to pass.

Diana Lee, director of corporate governance and engagement at AllianceBernstein (AB), said the asset manager’s stance depended on the manner in which shareholders can ask questions.

“We’re not necessarily against (virtual-only meetings),” Lee said, “as long as companies continue to allow shareholders to ask all the questions and answer all of the questions in a way that really mimics in-person meetings, as opposed to having a framed or prepared answers”.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Elizabeth Howcroft and Simon JessopEditing by David Holmes)

Stocks Marginally Higher as Gold, Oil Declines Spook Sentiment

European shares ticked slightly higher after a mixed start in early trading, as a fall in commodity prices weighed on Britain’s blue-chip index, while other regional indexes stayed near recent highs with earnings season winding down.

The pan-European STOXX 600 index rose 0.06% by 11:35 GMT, after having spent most of the morning in negative territory. Britain’s FTSE 100 index dipped 0.3% and Germany’s DAX 30 edged 0.1% lower.

MSCI’s All Country World Index, which tracks shares across 49 countries, was marginally higher, up 0.06% on the day.

Nasdaq futures slipped 0.1% and S&P 500 futures 0.2%.

Markets were shaken early by a sudden dive in gold, as a break of $1,750 triggered stop-loss sales to take it as low as $1,684 an ounce. It was last down 1% at $1,745.

Brent also sank 2% on concerns the spread of the Delta variant of the coronavirus could temper travel demand.

Holidays in Tokyo and Singapore made for thin trading conditions, adding to the volatility. Yet after an initial fall, MSCI’s broadest index of Asia-Pacific shares outside Japan recovered to be up 0.1%.

They were helped by China’s blue-chip index which added 1.3%. Japan’s Nikkei was shut but futures were trading a modest 20 points below Friday’s close.

Chinese trade data out over the weekend undershot forecasts, while figures out Monday showed inflation slowed to 1% in July, offering no barrier to more policy stimulus.

The U.S. Senate came closer to passing a $1 trillion infrastructure package, though it still has to go through the House.

Investors were still assessing whether Friday’s strong U.S. payrolls report would take the Federal Reserve a step nearer to winding back its stimulus.

“What we’re seeing is a little bit of early profit-taking on the back of fear that tapering will come in earlier in September,” said Sebastien Galy, senior macro strategist at Nordea Asset Management. “But as you can see, it has little impact because the effect of a better economy far outweighs the substitution effect of higher interest rates.”

LONGER TAPER

However, the pace of tapering was still up in the air and would decide when an actual rate increase comes, he said. The Fed is buying $120 billion of assets a month, so a $20 billion taper would end the programme in six months while a $10 billion tapering approach would take a year.

The spread of the Delta variant could argue for a longer taper, with U.S. cases back to levels seen in last winter’s surge with more than 66,000 people hospitalised.

Figures for July CPI due this week are also expected to confirm inflation has peaked, with prices for second-hand vehicles finally easing back after huge gains.

Four Fed officials are speaking this week who will no doubt offer enough grist for markets looking for clues on the timing of tapering.

In the meantime, stocks have been mostly underpinned by a robust U.S. earnings season. BofA analysts noted S&P 500 companies were tracking a 15% beat on second-quarter earnings with 90% having reported.

“However, companies with earnings beats have seen muted reactions on their stock price the day following earnings releases, and misses have been penalized,” they wrote in a note.

“Guidance is stronger than average but consensus estimates for two-year growth suggest a slowdown amid macro concerns.”

Financials firmed on Friday as a steeper yield curve is seen benefiting bank earnings, while also penalising the tech sector where valuations are sky high.

Yields on U.S. 10-year notes were up at 1.28% in the wake of the jobs report, having last week hit their lowest since February at 1.177%.

That jump gave the dollar a broad lift and knocked the euro back to $1.1760, and briefly to its lowest since April at $1.1740. The dollar likewise climbed to 110.22 yen and away from last week’s trough of 108.71.

That took the U.S. currency index up to 92.922 and nearer to the July peak of 93.194.

Oil prices eased further after suffering their largest weekly drop in four months amid worries coronavirus travel restrictions will threaten bullish expectations for demand.

Brent fell 3.7% to $68.09 a barrel, while U.S. crude lost 3.8% to $65.66.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Ritvik Carvalho; Additional reporting by Wayne Cole in Sydney; Editing by Robert Birsel and David Holmes)

 

 

The Week Ahead – Economic Data, Central Bank Chatter, and COVID-19 in Focus

On the Macro

It’s quieter week ahead on the economic calendar, with 46 stats in focus in the week ending 13th August. In the week prior, 50 stats had also been in focus.

For the Dollar:

JOLT’s job openings for June get things going. With increased sensitivity to labor market numbers, expect interest in the June openings.

The focus will then shift to inflation and jobless claims on Thursday, with both sets of numbers key.

At the end of the week, consumer sentiment figures for August will also draw attention.

On the monetary policy front, expect plenty of sensitivity to any FOMC member chatter in the week.

In the week ending 6th August, the Dollar Spot Index rose by 0.68% to 92.800.

For the EUR:

It’s a busy week on the economic data front.

German trade data for June will be in focus on Monday.

The focus will then shift to ZEW Economic Sentiment figures for Germany and the Eurozone on Tuesday.

In the 2nd half of the week, industrial production and trade data for the Eurozone wrap things up.

Finalized inflation figures for France, Germany, and Italy are also out in the week but should have a muted impact on the markets.

For the week, the EUR fell by 0.91% to $1.1762.

For the Pound:

It’s a busy week ahead on the economic calendar.

2nd quarter GDP, trade, industrial production, and manufacturing production figures are due out on Thursday.

Expect the GDP and production figures to be key.

With the number of daily COVID-19 cases in decline last week, a continued downtrend would also be positive for the Pound.

The Pound ended the week down by 0.23% to $1.3872.

For the Loonie:

It’s a particularly quiet week ahead on the economic calendar.

There were no material stats due out of Canada to provide the Loonie with direction.

A lack of stats will leave the Loonie in the hands of market risk sentiment and crude oil prices in the week.

The Loonie ended the week down 0.63% to C$1.2554 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

Business and consumer confidence figures will be the key stats in the 1st half of the week.

The markets will be looking to assess the damage from fresh lockdowns on confidence.

At the end of the week, employment figures will also have plenty of influence on the Aussie Dollar.

The Aussie Dollar ended the week up by 0.16% to $0.7356.

For the Kiwi Dollar:

It’s a quiet week ahead. Business PMI figures at the end of the week will be the only numbers to consider.

Economic data from New Zealand has been impressive of late. Upbeat numbers would give the Kiwi a boost.

The Kiwi Dollar ended the week up by 0.52% to $0.7010.

For the Japanese Yen:

It’s a particularly quiet week ahead, with no material stats for the markets to consider.

A lack of stats will leave market risk sentiment and yield differentials as the key drivers.

The Japanese Yen fell by 0.48% to ¥110.250 against the U.S Dollar.

Out of China

It’s a relatively quiet week ahead. Inflation figures for July will be in focus at the start of the week.

The markets will be looking for softer inflationary pressures. Expect plenty of interest in the numbers on Monday.

From the weekend, while the trade data will set the tone going into the week.

The Chinese Yuan ended the week down by 0.34% to CNY6.4831 against the U.S Dollar.

Geo-Politics

Iran and China continue to be the main areas of interest for the markets. News updates from the Middle East, in particular, will need continued monitoring…

The Weekly Wrap – U.S Nonfarm Payrolls and the Greenback Steal the Show

The Stats

It was a quieter week on the economic calendar, in the week ending 6th August.

A total of 50 stats were monitored, which was down from 71 stats in the week prior.

Of the 50 stats, 24 came in ahead forecasts, with 23 economic indicators coming up short of forecasts. There were 3 stats that were in line with forecasts in the week.

Looking at the numbers, 24 of the stats reflected an upward trend from previous figures. Of the remaining 26 stats, 24 also reflected a deterioration from previous.

For the Greenback, impressive nonfarm payroll figures delivered a Dollar rally at the end of the week. In the week ending 6th August, the Dollar Spot Index rose by 0.68% to 92.800. In the previous week, the Dollar had fallen by 0.79% to 92.174.

Out of the U.S

Key stats in the week included private sector PMI figures for July and labor market data.

While the ISM Manufacturing PMI fell from 60.6 to 59.6, the Non-Manufacturing PMI jumped from 60.1 to 64.1.

The marked increase in the non-manufacturing PMI raised the prospects of a sooner rather than later move by the FED.

Labor market figures mid-week tempered a Dollar surge, however.

According to the ADP, nonfarm payrolls increased by just 330k in July, falling well short of a forecasted 715k rise.

Weekly jobless claims fell from 399k to 385k in the week ending 30th July.

The key numbers of the week, however, were the July nonfarm payroll figures on Friday.

In July, the U.S added 943k jobs, with nonfarm payrolls having risen by an upwardly revised 938k in June. As a result of the marked increase, the unemployment rate fell from 5.9% to 5.4%.

Out of the UK

It was a relatively quiet week on the economic data front. Finalized private sector PMIs were in focus in the week.

Finalized manufacturing and service sector PMI figures affirmed softer private sector growth in July.

The only positive was an upward revision to the services PMI. In July, the services PMI fell from 62.4 to 59.6, which was up from a prelim 57.8.

Of greater significance in the week, however, was the BoE monetary policy decision.

In line with expectations, the BoE left policy unchanged, with no dissent from the hawks.

For the Pound, the BoE intimated a likely tightening over the next 12-months, which was not enough to deliver $1.40 levels.

In the week, the Pound fell by 0.23% to end the week at $1.3872. In the week prior, the Pound had risen by 1.13% to $1.3904.

The FTSE100 ended the week up by 1.29%, following a 0.07% gain from the previous week.

Out of the Eurozone

Private sector PMIs and the German economy were in focus.

While the private sector PMIs were mixed in the week, the Eurozone’s composite PMI rose from 59.2 to a 15-year high 60.2. This was down from a prelim 60.6%, however.

Non-survey-based stats from Germany in the week were also skewed to the positive.

The numbers were aligned with Germany’s private sector PMI figures that saw Germany rise to the top of the euro bloc PMI table.

In June, retail sales jumped by 4.2%, with factory orders up 4.1%, month-on-month.

Industrial production was negative, however, with production down 1.3% in June. Following a 0.8% fall in May, economists had forecast a 0.5% rise in spite of factory orders having fallen in May.

From the ECB, the Economic Bulletin was also in focus. While the Bulletin talked of a strong economic rebound, with stronger growth to come, the ECB did talk of downside risks stemming from the Delta variant.

The ECB also continued to reiterate its unwavering support on the monetary policy front.

For the week, the EUR fell by 0.91% to $1.1762. In the week prior, the EUR had risen by 0.84% to $1.1870.

The CAC40 rallied by 3.09%, with the DAX30 and the EuroStoxx600 ending the week up by 1.40% and by 1.78% respectively.

For the Loonie

It was a relatively busy week on the economic data front.

Manufacturing PMI and trade data drew attention of ahead of employment and Ivey PMI numbers on Friday.

The stats were mixed. While manufacturing sector growth slowed, Canada saw its trade balance rise from a C$1.58bn deficit to a C$3.23bn surplus.

Employment figures were also upbeat, with the unemployment rate falling from 7.8% to 7.5%. Following a 230.7k increase in employment in June, employment rose by 94k in July. Full employment reversed a 33.2k fall from June, rising by 83k.

Following the fall in the manufacturing PMI, however, the Ivey PMI slid from 71.9 to 56.4.

In the week ending 6th August, the Loonie fell by 0.63% to C$1.2554. In the week prior, the Loonie had risen by 0.71% to C$1.2475.

Elsewhere

It was a bullish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar rose by 0.16% to $0.7356, with the Kiwi Dollar ending the week up by 0.52% to $0.7010.

For the Aussie Dollar

Manufacturing sector data at the start of the week disappointed. In July, the AIG Manufacturing PMI fell from 63.2 to 60.8.

Housing sector data also failed to impress. Building permits slid by 6.7%, with home loans falling by 2.5%.

Things were not much better on the consumption front, with retail sales falling 1.8%, which was in line with prelim figures. Sales had risen by just 0.4% in the month prior.

On the positive, however, were trade figures, with Australia’s trade surplus widening from A$9.681bn to A$10.496bn in June. The increase came off the back of a large rise in exports than imports in the month.

While the stats were of influence, the RBA was also in action early in the week.

In line with market expectations, the RBA left monetary policy unchanged. There were no major surprises in the Rate Statement to provide the Aussie Dollar with direction,

At the end of the week, the RBA also released its quarterly Statement on Monetary Policy.

While acknowledging that the economy was recovering faster than expected, the RBA noted that the recent Delta variant outbreaks are interrupting the recovery. The statement highlighted that the near-term outlook remained highly uncertain and dependent upon health outcomes.

The RBA also expects the economy to contract in the 3rd quarter and for unemployment to rise for a time as a result of lockdown measures.

For the Kiwi Dollar

It was a quiet week, with employment figures the key numbers for the week.

The numbers were Kiwi positive, with employment rising by 1% in the 2nd quarter of this year. As a result of the increase, New Zealand’s unemployment rate fell from 4.7% to 4.0%.

For the Japanese Yen

It was a quiet week. Finalized private sector PMIs for July were in focus.

Upward revisions from prelim numbers were of little consequence, however.

The Manufacturing PMI rose from 52.4 to 53.0 in July, up from a prelim 52.2. For the services sector, the PMI fell from 48.0 to 47.4, which was up from a prelim 46.4.

The Japanese Yen fell by 0.48% to ¥110.25 against the U.S Dollar. In the week prior, the Yen had risen by 0.75% to ¥109.72.

Out of China

It was also a quiet week on the economic data front, with economic data limited to private sector PMIs.

It was a mixed set of numbers from China. While manufacturing sector growth slowed, service sector activity accelerated in July.

The Caixin Manufacturing PMI fell from 51.3 to 50.3, while the Services PMI rose from 50.3 to 54.9.

In the week ending 6th August, the Chinese Yuan fell by 0.34% to CNY6.4831. In the week prior, the Yuan had ended the week up by 0.31% to CNY6.4614.

The CSI300 and the Hang Seng ended the week up by 2.29% and by 0.84% respectively.

UK Takeovers Hit 14-Year High in First Seven Months of 2021

The total value of UK deals in the seven months was $198 billion, a more than threefold increase on the same period last year, which included the onset of the COVID-19 pandemic.

Deals involving a British target totalled $34.9 billion in July, 5% less than June but more than seven times the value in July 2020.

The increase has coincided with the British economy’s faster than expected rebound from the coronavirus crisis and reduced Brexit uncertainty since leaving the European Union.

British companies have been relatively cheap compared with U.S rivals when measured on a price-to-earnings ratio, with the FTSE 100 trading at 15.6 against 26.9 for the S&P 500, Refinitiv data shows. The FTSE 250 index of mid-cap companies is trading at 9.9 times.

One of those FTSE 250 constituents could be about to leave after defence and aerospace company Meggitt agreed to a 6.3 billion pound ($8.77 billion) takeover by U.S. rival Parker-Hannifin on Monday.

Britain’s fourth-largest supermarket group Morrisons has also agreed to be bought for the same price by the Softbank-owned Fortress group and could yet receive a counter-bid from CD&R.

“The UK takeover spree continues to move at pace, with yet another FTSE 250 stock receiving a bid,” said AJ Bell investment director Russ Mould after Meggitt recommended the takeover.

“UK stocks have long been considered cheap and this year’s M&A spree shows that overseas investors have finally got enough confidence to pounce on opportunities after years of showing little interest in the market.”

One deal that completed in the first half of 2021, boosting M&A numbers, was the $11 billion purchase by National Grid of Western Power Distribution, England’s largest electricity distribution business.

($1 = 0.7184 pounds)

(Reporting by Paul Sandle and Abhinav RamnarayanEditing by Kate Holton and David Goodman)