European Shares Bounce After Worst Session in Two Months; UMG Soars in Debut

The pan-European STOXX 600 was up 0.9% by 07:43 GMT after sinking to a two-month low in the previous session.

Media, mining and energy stocks led early gains, while Germany’s DAX rebounded from its lowest level since late-July.

U.S. stock futures also bounced a day after global markets were roiled by concerns the potential default by Evergrande, the world’s biggest property developer, could hurt China’s real estate sector, banks and the global economy.

Evergrande, struggling for cash, owes $305 billion.

Focus this week is also on policy meetings at a slate of central banks, including the U.S. Federal Reserve, with investors expecting some of them to indicate they were ready to ease their pandemic-era stimulus to combat high inflation.

“Concerns about Evergrande remain but for now there appears to be a wait-and-see approach being adopted,” said Michael Hewson, chief market analyst at CMC Markets UK.

“The bigger question given the risks from events in China is whether the Fed adopts a less hawkish stance tomorrow in order to buy itself some time until the situation becomes clearer.”

Europe’s benchmark STOXX 600 has fallen from record highs in September after seven straight months of gains on fears of persistently high COVID-19 cases and signs of a slowdown in the global economic recovery.

However, helping sentiment on Tuesday, travel-related stocks including British Airways-owner IAG, cruiseliner Carnival Corp and InterContinental Hotels Group jumped between 2% and 5% following the relaxation of U.S. travel curbs.

Britain’s National Express rose 4% after rival Stagecoach Group said it was in talks with National Express about a possible all-share merger.

Stagecoach’s shares jumped 17.3%.

Universal Music Group, the business behind singers such as Lady Gaga, Taylor Swift and The Weeknd, surged 38% in its first day of trading, giving it a market capitalisation of more than 46 billion euros ($54 billion).

Shares of owner Vivendi sank 16.7%.

Sweden’s gardening power tools group Husqvarna tumbled 5.4% after warning it could potentially lose top line sales of up to around 2 billion crowns ($230.7 million) due to a supplier dispute.

All major European bourses were up in morning trading, with the UK’s FTSE 100, Spain’s IBEX and Italy’s FTSE MIB gaining between 0.7% and 0.9%.

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

(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Arun Koyyur)

European Stocks Make Strong Start to September, Record High in Sight

After seven straight months of gains, the pan-European STOXX 600 rose 0.5% to end at 473.12 points, and was within striking distance of its record high of 476.16.

Retail and travel & leisure stocks were the top sectoral gainers, rising 1.8% each.

Airline SAS gained 2.4% after reporting a smaller quarterly loss as air travel gradually picked up.

Consumer-exposed sectors benefited from data that showed euro zone unemployment fell as expected in July.

Spain’s Inditex, which owns fashion brand Zara, was among the best performing retail stocks after JP Morgan forecast strong second-quarter results for the firm. The stock rose 3.1%.

A survey also showed euro zone manufacturing growth remained strong in August, but supply chain issues drove up prices and fed into inflation, which could affect monetary policy in the near term.

Investors were unsettled after data on Tuesday showed euro zone inflation surged to a 10-year-high in August, while an European Central Bank policymaker called on the bank to reduce its emergency bond purchases as soon as the next quarter.

The bloc’s banks continued to benefit from rising government bond yields.

“Elevated inflation in the U.S. and Europe, weak retail sales in Germany and a slowdown in China all suggest that the market should be factoring in a temporary slowdown in economic activity,” Sebastien Galy, senior macro strategist at Nordea Asset Management, said.

“What the market is focused on instead is that liquidity should remain very ample from the People’s Bank of China to a slow pace of tapering from the Fed and eventually one from the ECB.”

Supermarket group Carrefour was the worst performer on the STOXX 600, down 5.5% as luxury goods billionaire Bernard Arnault sold the 5.7% stake he owned in the company.

French spirits maker Pernod Ricard rose 3.7% after it posted a stronger-than-expected rise in full-year operating profit, driven by a strong rebound in demand in China and the United States.

French diagnostics specialist BioMerieux climbed 4.0% after it confirmed its full-year earnings target.

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

(Reporting by Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta and Mark Potter)

European Shares End Flat as Fed Fears, Virus Concerns Weigh

The pan-European STOXX 600 index closed largely unchanged at 471.79 points, following a selloff last week that knocked it off record levels.

Commodity-linked sectors continued to outpace the general market, as oil and metal prices rose on expectations of a recovery in major importer China.

Basic resources stocks were the best performers for the day, rising 2.0%.

Travel stocks also surged nearly 2% after U.S. health regulators granted full approval to the COVID-19 vaccine developed by Pfizer Inc and BioNTech SE in a move that could accelerate U.S. inoculations.

Global stocks wobbled last week after data from U.S. and Asian economies signalled a slowing global economic recovery, as a spike in the Delta variant of the coronavirus prompted fresh restrictions in several parts of the world.

Investors are awaiting U.S. Federal Reserve chief Jerome Powell’s speech at the annual Jackson Hole symposium on Friday for hints on the central bank’s asset purchases tapering plans.

“Since the release of the Fed minutes last week, the consensus for the start of tapering has moved slightly forward, from the beginning of 2022 to December 2021,” Unicredit analysts said.

“A hawkish surprise from Jackson Hole appears less likely and the next topic of major relevance is probably the U.S. labour market report on Sept. 3.”

Meanwhile, German stocks rose 0.3% as data showed Germany’s gross domestic product grew by 1.6% on the quarter from April to June, slightly up from its previous estimate of 1.5%, helped by private consumption and state spending.

Marks and Spencer Group rose 4.1% after Berenberg and Credit Suisse raised their price targets on the UK retailer’s stock.

“Despite it being a moderate environment for UK consumption…, M&S is enjoying favourable positioning, market share gains from peers disappearing,” Credit Suisse analysts said in a note.

Norwegian salmon farmer Bakkafrost gained 1.9% following its second-quarter results.

Novartis slipped 1.7% after the Swiss drugmaker said its Kymriah CAR-T therapy did not meet the primary endpoint in a late-stage study.

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

(Reporting by Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta 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)

 

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)

 

Europe Shares Mark Biggest Daily Drop in a Month as Miners, Luxury Stocks Tumble

The pan-European STOXX 600 was down 1.6% at a two-week low, with mining stocks sliding 4.2% in their biggest one-day decline since March.

Luxury stocks with a large exposure to China’s economy such as LVMH, Kering and Richemont dropped between 5.8% and 9.2% on Beijing’s plans to target excessive corporate profits and wealth inequalities.

“The increasing determination on the part of China to pour sand in the wheels of its own recovery story with a crackdown on various sectors, including tech and luxury, also appears to be weighing on sentiment, as well as on demand for raw materials,” said Michael Hewson, chief market analyst at CMC Markets UK.

Stocks around the globe fell earlier in the day, as minutes published Wednesday from the U.S. Federal Reserve’s latest policy meeting gave the impression of a looming cut in its massive, pandemic-era bond-buying programme.

Although the European Central Bank has held steady, rising inflation has prompted some policymakers to say it must begin to rein-in its easy money policies that have been instrumental in lifting the STOXX 600 to record highs.

Focus will turn to the high-profile annual U.S. Jackson Hole conference of central bankers in late August, where Fed Chair Jerome Powell could signal he is ready to start easing monetary support.

ECB President Christine Lagarde will not attend the conference, an ECB spokesperson said this week.

Banking stocks including Asia-focused HSBC, as well as Spain’s BBVA and France’s BNP Paribas fell about 3% each.

The travel and leisure index declined 2.5% as a surge in cases of the Delta variant of the coronavirus added to concerns of slowing global growth and took the shine off a solid second-quarter corporate earnings season.

With the European earnings season nearly at the halfway mark, profit for STOXX 600 companies is expected to have surged 150% in the second quarter, the best since Refinitiv IBES records began in 2012.

Among individual stocks, Swedish heating technology specialist Nibe Industrier jumped 10.1% after posting a 64% jump in first-half profit.

Swiss building materials supplier Geberit, on the other hand, fell 1.7% as it warned about rising raw materials prices.

Utilities , considered a safe bet at a time of economic uncertainty, were the only sector in the green.

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

(Reporting by Sagarika Jaisinghani and Shreyshi Sanyal in Bengaluru; Editing by Barbara Lewis and David Holmes)

European Stocks Snap 10-Day Rally as China Data Drags

The pan-European STOXX 600 index fell 0.5% to 473.45, easing from a record level scaled last week.

Oil and mining stocks fell about 1.5% each as commodity prices took a hit after Chinese data raised concerns about faltering demand in the world’s major consumer of metals and oil.

China’s factory output and retail sales growth slowed sharply and missed expectations in July as new COVID-19 outbreaks and floods disrupted business operations.

China-exposed luxury names such as LVMH, Gucci-owner Kering and Cartier-maker Richemont fell between 2.1% and 4.6%.

“European markets will pay attention to U.S. and China growth concerns… especially as Europe’s data calendar is almost empty today,” Jeffrey Halley, a senior market analyst at OANDA, wrote in a note.

Optimism around the second-quarter earnings season, a revival in dealmaking and the pace of vaccinations in Europe drove the benchmark STOXX 600 to record highs last week.

“Having seen European markets eke out incremental gains on an almost daily basis since the beginning of the month, it shouldn’t have been too much of a surprise to see a little bit of a pullback at some point,” said Michael Hewson, chief market analyst at CMC Markets UK.

However, major money houses are mixed about the outlook for equity markets, with Bank of America setting a year-end target of 420 points for the STOXX 600, while Goldman Sachs lifted its 12-month target to 520 points.

All eyes now will be on U.S. economic data due this week and the Federal Reserve’s minutes from its July policy meeting to gauge when and how the central bank will start tightening its monetary policy.

A Reuters poll of economists showed the European Central Bank is likely to announce long-awaited plans to reduce its pandemic-related asset purchases in the next quarter.

French car parts supplier Faurecia SE jumped 12.1% after it agreed to acquire a majority stake in German automotive lighting group Hella, trumping rival bidders with a 6.7 billion euros deal.

Hella, whose shares hit a record high last week on anticipation of a deal, slipped 3.4%.

Lufthansa fell 3.6% after the German finance agency unveiled plans to sell up to a quarter of its 20% stake in the airline.

The broader travel and leisure index was down 1.6% as the fast-spreading Delta variant of COVID-19 remained a concern, particularly as many Asian economies imposed movement restrictions.

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

(Reporting by Sruthi Shankar and Shreyashi Sanyal in Bengaluru; Editing by Shounak Dasgupta and Subhranshu Sahu)

European Stocks Log Best Winning Streak Since 2006, Fourth Week of Gains

The pan-European STOXX 600 index inched up 0.2% to a record high of 476.16, for the tenth straight session. The index has now matched its best winning streak since December 2006.

While the pace of gains has slowed due to thin summer trading, the index has logged nine-day gaining streaks seven times in the past fifteen years.

Germany’s DAX index ticked above 16,000 points for the first time ever, while France’s CAC 40 index index touched its highest level in nearly 21 years.

Both European and U.S. stocks hit record levels this week, supported by rising earnings expectations and improving economic data, even as Asian equities were held back by worries about Chinese regulation and the fast-spreading Delta variant of the coronavirus.

“If investors are concerned about rising Delta variant cases globally there’s little evidence that it is prompting any undue worry, although markets in Asia have been a little more cautious,” said Michael Hewson, chief market analyst at CMC Markets UK.

Meanwhile, speculation that the U.S. Federal Reserve could soon start to unwind its bond-buying stimulus calmed a bit following tame U.S. consumer prices data this week.

Focus will be on the minutes from the U.S. central bank’s last policy meeting next week for clues on the outlook for monetary policy.

“With equity markets almost doubling since the start of the pandemic and a bull market lasting over a decade, investors are questioning how far the bull market can rally,” said Geir Lode, head of global equities at the international business of Federated Hermes.

“With higher inflation and regulatory risk we believe value stocks will outperform growth stocks,” said Lode, adding that he expects stronger earnings growth among mid-cap and smaller companies versus the mega-cap growth companies.

Italian shares were also trading near their highest since September 2008.

Adidas rose 2.3% after it said it was selling Reebok to Authentic Brands Group for up to 2.1 billion euros ($2.5 billion).

Pet supplies retailer Zooplus shot up 41.1% after it accepted a takeover offer worth around 3 billion euros ($3.5 billion) from U.S. private equity firm Hellman & Friedman.

French healthcare company Ipsen tumbled 12.7% after it withdrew a U.S. application for palovarotene, its treatment for an extremely rare disease that causes muscles and tissue to turn to bone.

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

(Reporting by Sruthi Shankar and Shreyashi Sanyal in Bengaluru; Additional reporting by Sagarika Jaisinghani and Susan Mathew; Editing by Shounak Dasgupta and Dan Greber)

Marketmind: Muddied Waters

That confusion was evident in global markets too.

World stocks are set to sign off the week on a record high while the U.S. Treasury yield curve is still trading near its flattest levels this year, a sign that bond punters remain concerned about inflation.

For now, the Federal Reserve can maintain its assertion that inflation rises are temporary.

But a majority of economists polled by Reuters expect the Fed to taper its asset purchases in September — the jobs market is stronger and Fed officials appear to be more willing to discuss tapering the $120 billion monthly asset purchases.

Until fresh data adds to the taper debate, markets will likely remain in summer torpor mode.

Even a widening regulatory crackdown in China has failed to ignite broader market unease with the VIX “fear gauge” dropping to a five-week low, and a U.S. equity put/call ratio slipping below already very low levels.

European and U.S. stock futures are generally flat, with the second quarter earnings season supporting sentiment. U.S. investment grade companies have recorded an impressive 30% earnings growth in the June quarter compared to the similar period two years ago, Citibank estimates.

Favourable readings were evident in Europe too with banks, historically laggards, posting impressive results.

The spoiler in the cautiously optimistic markets outlook remains the surging Delta variant of COVID-19, especially in Asia. Malaysia’s central bank on Friday slashed its 2021 economic outlook due to the COVID surge. Australia’s two largest cities – Sydney and Melbourne – remain in extended lockdown.

Elsewhere, oil prices fell for a second day, while the U.S. dollar held near four-month highs against its rivals.

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

– Europe macro: France unemployment, final July CPI, euro June trade balance.

– U.S. macro: Import price index, Michigan University sentiment readings.

– British engineering firm Babcock to sell its consultancy unit Frazer-Nash for 293 million pounds ($404.5 million) in cash.

– Adidas is selling Reebok to Authentic Brands Group(ABG) for up to 2.1 billion euros.

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

(Reporting by Saikat Chatterjee; Editing by Dhara Ranasinghe)

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)

Stalling Signs? Taking a Look Under the Hood of US Equities

Greetings. I hope this article finds you and yours well. Today, we are taking a look at some additional market indicators and internals to get an unbiased perspective on things.

First, I want to preface things by mentioning that I am not suggesting that I am fully bearish on the S&P 500 or stocks right now. However, I am taking more of a cautious stance at the moment.

 

Figure 1 – S&P 500 Index April 15, 2021 – July 21, 2021, Daily Candles Source stockcharts.com

Nothing new to see here. Just another pedestrian pullback to the 50-day SMA and a bounce back. This pattern has repeated itself several times since the pandemic lows in the $SPX. It won’t repeat itself forever – that would be too easy.

Since it is earnings season, let’s talk earnings multiples.

Feeling bullish? It can be challenging to get excited about an $SPX at 4400 with an estimated 46.40 P/E ratio (trailing twelve months). We are in the middle of earnings season, so we will have a clearer figure soon.

Figure 2 – S&P 500 PE Ratio 1870 – July 22, 2021. Source multpl.com

Stocks are not cheap by any measure, folks. However, with easy monetary policy and low rates, this is to be expected. What could be the catalyst to derail this freight train?

How about the Dow Transports? This index used to be talked about much more frequently and is followed closely by students of Dow Theory. We just don’t hear much analysis about it on Fox Business, CNBC, or Bloomberg these days.

The Dow Transports (Dow Jones Transportation Average) $TRAN is an index comprised of 20 companies.

Here are the index components and weighting as of December 2020:

Alaska Air Group, Inc. 2.55%

American Airlines Group Inc. 0.76%

Avis Budget Group, Inc. 1.80%

C.H. Robinson Worldwide, Inc. 4.61%

CSX Corporation 4.39%

Delta Air Lines, Inc. 1.94%

Expeditors International of Washington, Inc. 4.61%

FedEx Corporation 13.10%

J.B. Hunt Transport Services, Inc. 6.70%

JetBlue Airways Corporation 0.70%

Kansas City Southern 9.73%

Kirby Corporation 2.51%

Landstar System, Inc. 6.60%

Matson, Inc. 2.79%

Norfolk Southern Corporation 11.42%

Ryder System, Inc. 3.12%

Southwest Airlines Co. 2.26%

Union Pacific Corporation 9.91%

United Airlines Holdings, Inc. 2.11%

United Parcel Service, Inc. 8.39%

Figure 3- Dow Jones Transportation Index January 4, 2021 – July 21, 2021, Daily Candles Source stockcharts.com

Here, and in contrast to the Dow Jones Industrial Average, we can see that the Transports topped back on May 10, 2021. Proponents of Dow Theory would argue that this creates a lack of confirmation and that the subsequent highs in the Dow Jones Industrial Average are not valid due to this lack of confirmation.

What could be the reason for the stall in the Transports? Input Costs? While fuel costs have risen, what about the rise in retail spending? Is the stimulus-powered consumer pocket not enough to counterbalance the rising input costs?

If input costs are the reason for the stalling, what about the other companies that rely on raw materials to make their products? Recent inflationary data has not affected these companies’ stock prices yet (for the most part).

What if the Fed eases off the gas pedal?

While it is very difficult (if not impossible) to pick market tops (and I don’t advocate trying to do that), it is wise to look at certain market indicators to get an understanding of what is going on beneath the surface.

It is easy to look at the chart of the $SPX and see that it is moving higher, from the bottom left-hand corner of the chart to the top right-hand corner. However, that does not tell the whole story of what is happening in the US equity markets.

We will be monitoring the above and previously mentioned market internals and indicators for more clues in the coming days, weeks, and months. I think it is critical to be aware of metrics such as the above as the broader indices trade near all-time highs.

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

Rafael Zorabedian
Stock Trading Strategist

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Inflation Nation: Pressure Builds, Underwater Beach Ball

Did you watch Fed Chair Powell testify in front of the Senate and House last week? It seemed to be like watching certain angry congresspeople calling for interest rates to be kept lower for longer. Do they want hyperinflation? Other groups of Senators reflected on what the inflationary environment was like in the early 1980s.

As Chair Powell testified, bonds rose (yields fell), and the S&P 500 was mostly lower. Clearly, there was a bid under the bonds (keeping interest rates lower). All of this came over a two-day period following the monstrous CPI print.

Recapping Tuesday through Friday in the E-Mini S&P 500 Futures Last Week:

Figure 1 – E-Mini S&P 500 Futures July 12, 2021 – July 16, 2021, 10:00 PM ET, 30 Minute Candles Source stooq.com

A. Tuesday 8:30 AM: CPI Data 0.9% vs. 0.5% expected, highest run rate ex-food and energy in 30 years.

B. Tuesday 1:00 PM: Weak 30-Year bond auction offered at 2.00% yield

C. Wednesday: Fed Chair testimony

D. Thursday: Fed Chair testimony

E. Friday: NY Cash Market Open

We can see the large CPI print was bearish for the index, and the market recovered. Then, we had the bond auction, which had very weak demand at 2.00%, and the index sold off again. It recovered once again, tested the highs, and was rejected. The Fed testimonies on Wednesday and Thursday kept the S&P 500 bid and sideways.

As all of this was occurring last week, I was eyeballing the index all day, each day, wondering when it would all become too much to keep the index afloat.

On Friday, we got a bullish Retail Sales number at 8:30 AM before the NY cash open, and then a bearish UoM Consumer Sentiment Print at 10:00 AM. The NY open was lower even before the bearish UoM print at 10:00 AM. It seemed like the index finally couldn’t bear the inflation data. The weak bond auction, and the congressional rhetoric during the Fed 2-day testimony any further and had to break. It actually made sense.

I want to illustrate the above A through E points in terms of interest rates last week.

Taking a look in terms of the 10-Year note yield:

Figure 2 – 10-Year Treasury Yield July 12, 2021 – July 16, 2021, Daily Candles Source stockcharts.com

The question I pose here: What if interest rates were rising towards the end of last week?

It doesn’t seem like the current market would be able to handle it. However, the Fed must use tools to curb inflation. This inflation seems anything but transitory or temporary at this point.

If bond yields were going higher on Friday with the market lower, how much would the INdex have dropped? That is the million-dollar question.

Rates do need to rise. But, if the Fed is not going to begin tapering (slowing bond purchases) or raising rates incrementally, what will happen with inflation?

If you hold a beach ball underwater, it eventually will pop up. You can’t keep it underwater forever.

This is food for thought as we begin the week.

Now, let’s cover all nine markets we are following for Premium Subscribers.

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

Rafael Zorabedian
Stock Trading Strategist

Sunshine Profits: Effective Investment through Diligence & Care

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This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits’ employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.

 

Inflation Woes, Travel Stocks Drag Europe Shares Lower

The pan-European STOXX 600 index fell 0.3% after hitting a record high in the previous session.

Travel & leisure slid 0.8%, with TUI shedding 2.9% on reports that the world’s largest holiday company had cancelled more holidays until August.

UK’s FTSE 100 dropped 0.4% on a stronger pound after data showed British inflation jumped to 2.5% in June, further above the Bank of England’s target and hitting its highest since August 2018.

“The creeping UK headline inflation rate is likely to add to the sense of unease pervading the financial markets about the impact higher prices will have on economies around the world,” said Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown.

“Although much of the increases are related to the unusually low level of prices last year due to the pandemic effect, it appears genuine price inflation is also occurring.”

Investors were already nervous after data on Tuesday showed U.S. inflation ran hotter than expected in June, leading many traders to price in faster interest rate hikes.

All eyes now will be on Federal Reserve Chairman Jerome Powell’s congressional testimony starting later in the day.

European Central Bank policymakers have stressed in recent weeks that they will not remove support measures prematurely as the economic recovery is still underway.

Along with euro zone bond yields, the bloc’s banks rallied after sharp falls in the previous session.

Swedish telecoms operator Tele2 gained 4% after it reported an 8% rise in quarterly core earnings, helped by cost savings and lesser pandemic-related headwinds.

German fashion house Hugo Boss jumped 5.1% after it forecast its revenue to grow by 30% to 35% this year.

Italian luxury group Brunello Cucinelli underperformed despite raising its 2021 sales guidance for the second time this year.

German airline Lufthansa slipped 0.6% after it said passenger numbers were currently around 40% of pre-pandemic levels and it was aiming to reach 60%-70% by the end of the year.

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

(Reporting by Sruthi Shankar in Bengaluru; editing by Uttaresh.V and Subhranshu Sahu)

 

Will The Markets Lead Us To Temptation Or Back To Work?

Headed into the July 4th holiday weekend, we have 5 more trading days in Q2:2021. We are starting to see a continual grinding higher in the US major indexes and various market sectors.  The one thing my team and I believe is happening in the markets right now is “moderate complacency”.

After the FOMC statements just a few weeks ago and the continued support of the US Fed, the markets entered a period of moderate volatility.  Currently, the markets appear to be settling in for moderately strong earnings expectations as Q2:2021 comes to a close.  That means the markets will start to react to earnings and profit data as well as forward expectations presented by corporate statements along with the continued economic recovery attempt.

NASDAQ Grinds Higher – Breaks Upper Flag Channel Level

This NASDAQ Daily chart shows how the NQ has rallied above a Flag channel high and has begun to grind higher. Traders continue to expect upward price trending in expectation of stronger technology and other earnings data.  This broad Flag pattern, shown on this chart by the CYAN lines, should highlight the level of volatility currently active in the NQ right now. The range between the upper and lower boundaries is more than 6%.  Therefore, any surprise volatility may prompt a price rotation within this volatility range.

Retail Breaking Resistance And Attempting A Rally Above $100 – Get Ready

Retail will likely surge as earnings data is delivered showing a moderate increase in consumer spending.  Additionally, as we are well into the start of Summer, there are likely a large number of consumers that are making big-ticket purchases (boats, cars, RVs/Trailers, toys) in support of Summer vacation plans.  This surge of consumer spending after many months of lockdown and saving may prompt a wave of spending throughout the end of 2021 and into 2022.  The stimulus checks also continue to help drive additional savings and spending.

Retail may surge to levels above $105 if profits and earnings data comes in strong over the next few weeks for Q2:2021.

MIDCAPS Show Us Where Resistance Is Likely To Contain The Upward Grind

This Monthly chart of the SPDR S&P 400 Midcap Futures shows the resistance level that we believe will continue to act as a ceiling for the markets.  The trends that started in 2016 and continued through early 2018 created a Standard Deviation channel range that trends almost perfectly to the current price highs.  My researchers believe this upper Standard Deviation channel will continue to act as strong resistance as earnings data pushes the markets into a continued grind higher.

So, as we start to see the markets trend after the July 4th holiday weekend, stay keenly aware of where the current resistance/price ceiling is in the charts.  It is likely that prices may attempt to reach above this level briefly, then stall sideways, or correct lower, as this upward trending channel represents extreme bullish trending.

The strongest market sectors are likely to continue to try to grind higher and attempt a 4% to 7% rally (or possibly more) as the markets prepare for Q2:2021 earnings and continued US economic recovery data.  Traders are expecting solid earnings and further economic growth, and are thus putting their capital behind these expectations – grinding the markets higher right now.  There is a very strong potential the strongest sectors will rally 5% to 8%, or more, over the next 25+ days.  Are you ready?

Or, are you trying to make sense of where the opportunities are in these market trends?  Are you still trapped in the thinking that guessing when and where to enter the markets will help you identify good trades?

My team and I have been building and developing fully systematic algorithmic trading strategies for many years and can tell you that unless you have a solid foundation related to knowing when and where opportunities exist in market trends, you are likely churning your money in and out of failed trades. I will be presenting my two favorite strategies at the July Wealth365 Summit on July 13th at 4 pm and July 16th at 12 pm. The Summit is free to attend and offers unparalleled opportunities for learning…plus a potential prize or two!

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

Have a great day!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Stocks clamber up from 4-week lows, dollar eases from 10-week high

By Ritvik Carvalho

LONDON (Reuters) – Global stocks recovered some losses after hitting a four-week low on Monday as investors continued to digest last week’s surprise hawkish shift by the U.S. Federal Reserve, while the dollar stood just below a 10-week high.

Shares of banks, energy firms and other companies that tend to be sensitive to the economy’s fluctuations have fallen sharply since the Fed’s meeting on Wednesday, when the central bank caught investors off guard by anticipating two quarter-percentage-point rate increases in 2023.

Stocks in Asia took their cue from Wall Street’s falls on Friday but European shares bucked the trend, with the pan-European STOXX 600 index up 0.2% by afternoon trade in London. [.EU]

U.S. stock futures also moved firmly into positive territory, suggesting gains at the open on Wall Street later in the day. S&P 500 E-mini futures were up [.N]

“The interesting part about this correction is that it was lagged, so it took a while for the market to sort through the news,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.

“The situation in reality is actually pretty good – the Fed is stabilizing inflation…Cyclical sectors may have overshot the market in the short term and so you may have a bit of pressure on the sector.”

Britain’s FTSE 100 was down 0.1%, France’s CAC 40 index gained 0.3% and Spain’s IBEX 35 fell 0.3%. Germany’s DAX was up nearly half a percent, while Italy’s FTSE MIB index rose 0.2%.

MSCI’s All Country World Index, which tracks shares across 49 countries, was down 0.2%, trimming some losses after hitting its lowest since May 24.

Benchmark 10-year U.S. Treasury yields recovered to 1.4414% after falling to their lowest since Feb. 24 at 1.3540%.

The yield curve – measured by the spread between two- and 30-year yields – earlier hit its flattest since late January, and as investors brought forward rate hike expectations while lowering the longer-term outlook for growth and inflation.

The U.S. dollar index hovered just below the 10-week high of 92.408 touched on Friday, following its biggest weekly advance in more than a year.

“Last week’s dollar rally is a combination of expectations and positioning (sold dollars), a concern that the Fed is ‘behind the curve’ (and therefore must do more and earlier than expected), and that stock markets have started to lose ground which makes the dollar strengthen as the most defensive currency,” Filip Carlsson, junior quantitative strategist at SEB, said in a morning note.

“We still see this as a correction and not the beginning of a new trend.”

St. Louis Fed President James Bullard further fuelled the sell-off on Friday by saying the shift toward faster policy tightening was a “natural” response to economic growth and particularly inflation moving quicker than anticipated as the country reopens from the coronavirus pandemic.

“The Fed’s pivot to begin the tightening discussion caught most by surprise, but markets began discounting this inevitable process months ago in our view,” Morgan Stanley analysts wrote in a report.

“It’s exactly what the mid-cycle transition is all about, and fits nicely with our narrative for choppier equity markets and a 10-20% correction for the broader indices this year.”

Earlier in Asia, Japan’s Nikkei led declines with a 3.6% drop and dipped below 28,000 for the first time in a month, while MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.4%. Chinese blue chips lost 0.7%.

Several Fed officials have speaking duties this week, including Chair Jerome Powell, who testifies before Congress on Tuesday. European Central Bank President Christine Lagarde speaks before the European Parliament on Monday.

The euro traded above its lowest against the dollar since April 6 at $1.1896 on Monday, dropping from as high as $1.21457 last Tuesday.

Sterling recovered some ground, to trade 0.6% higher at $1.3880 after sliding to its lowest since April 16 on Friday. [GBP/]

Commodity-linked currencies have also suffered, with the Australian dollar hovering above a six-month low at $0.7495.

A stronger greenback has pressured cryptocurrencies too, with bitcoin falling 10% to around $31,930, while smaller rival ether lost 15% to around $1,903.

In commodities, gold rebounded 1.1% to $1,783 an ounce on Monday, looking to snap a six-day losing streak, but remained near the lowest since early May.

Three-month copper on the London Metal Exchange fell to its lowest since April 15, following an 8.6% drop last week, the biggest weekly fall since March 2020.

Crude oil rose for a second day, underpinned by strong demand during the summer driving season and a pause in talks to revive the Iran nuclear deal that could indicate a delay in resumption of supplies from the OPEC producer.

Brent crude futures rose 0.1% to $73.56 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 0.1% to $71.74 a barrel.

(Reporting by Ritvik Carvalho; Additional reporting by Kevin Buckland in Tokyo; Editing by Catherine Evans and Peter Graff)

European Stocks Hit Two-Week low ahead of PMI data

The pan-regional STOXX 600 index fell 0.6% by 0810 GMT after the prospect of U.S. tax hikes to pay for the large stimulus package spooked Wall Street overnight. [.N]

Meanwhile, the European Union is set to extend COVID-19 vaccine export curbs to Britain and other areas with much higher vaccination rates, and to cover instances of companies backloading contracted supplies, EU officials said.

All eyes will turn to IHS Markit’s March business surveys for the euro zone and the United Kingdom.

Chipmakers, including ASM International, ASML and BE Semiconductor, were the top gainers on STOXX 600, up between 3% and 5.3% after U.S. firm Intel Corp announced a $20 billion plan to expand its advanced chip manufacturing capacity.

Banks, retailers and travel stocks declined the most on recovery worries.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Arun Koyyur)

Spain’s Stock Market Supervisor Expects Record Six IPOs in 2021

“We could be speaking about half a dozen IPOs, which, if successful, would be the highest number since we have records at the commission,” Rodrigo Buenaventura, the head of the CNMV supervisor, said on Wednesday.

The rate of new listings is unlikely to continue though, Buenaventura added.

“It’s a positive phenomenon and great news for the Spanish market to have IPOs after two years with only two,” he said.

Spanish green energy producer Grenergy and solar equipment maker Soltec were the latest companies to debut on the local market in late 2019 and late 2020 respectively.

Other companies in the renewables industry, such as OPDEnergy, may follow suit, while larger companies such as Repsol and Acciona are planning to spin off and list their green energy assets.

(Reporting by Jesús Aguado; additional reporting by Emma Pinedo. Editing by Inti Landauro and Mark Potter)

European Supranationals Outlook: Path Clears for Euro-Denominated Green and Social Safe Assets

Download Scope Ratings’ 2021 Supranationals Outlook.

We believe the momentous shift in availability of safe assets in Europe reflects the national and supranational European fiscal stimulus to counter the Covid-19 shock, providing comprehensive safety nets for households, businesses and governments amid the pandemic, and financing a sustainable recovery in the coming years.

A sustainable recovery, green transition are Europe’s main policy priorities

European supranationals are adapting mandates and operating guidelines to ensure carbon neutrality by 2050, which, given the weight they carry in capital markets and policy making, will influence industry standards and affect investors and the private sector globally.

The EIB and EBRD, for example, are aligning their financing activities with Paris Agreement terms and raising their climate-finance-related objectives, while the EU, via its EUR 750bn Next Generation EU recovery fund of which about EUR 225bn will be issued in green bonds, will play a pivotal role in providing a safe, green asset in Europe.

Social bond issuance is also set to rise

But EU safe assets will not only be green. Social bond issuance is also set to rise markedly. The EU’s Support to mitigate Unemployment Risks in an Emergency (SURE) scheme of up to EUR 100bn has completely changed the landscape for supranational social bond issuance.

Of the EUR 100bn, EUR 53.5bn has already been borrowed and disbursed to 15 member states since an inaugural bond issue on 20 October 2020. With EUR 90.3bn requested overall, EUR 36.8bn is still to be raised, which is likely to be mostly concluded by the end of Q2 2021.

These programmes underpin the EU’s emerging role as a major contributor to sustainable finance in capital markets and, depending on varying investor demand for the different types of programmes, there is a possibility of distinct social, green and conventional curves in the future.

Open questions remain

Open questions remain: how much will the EU ultimately issue in bonds, how much will be green or conventional, and to what extent will it be more than matched by a greener greenback under the new US administration?

The Covid-19 outbreak also entails risks through possible deterioration in asset quality and higher leverage.

Still, while risks remain, European supranationals have strong credit profiles based on robust balance sheets and sizeable buffers, as well as rock-solid shareholder support. We expect credit profiles to remain resilient in 2021 as reflected in our current Stable Outlooks for supranational borrowers.

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

Alvise Lennkh is the Deputy Head of Sovereign and Public Sector ratings at Scope Ratings GmbH.

Indices in Europe Start This Week With a Correction

American Indices continue the buying fiesta.

European indices, on the other hand, undergo a bearish correction.

Gold tries to create a right shoulder of the inverse head and shoulders formation.

EURUSD pair continue the correction inside a flag formation.

GBPUSD pair drop below 1.37 again.

AUDCHF with a triple top formation but so far without a proper sell signal.

GBPJPY bounces from the 142.2 again.

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

2020 Kicks off with US-Iran and Climate Change Crisis

The start of the year was marred by the escalating tensions between the US and Iran while extreme weather conditions across the global triggered fierce debates about climate change.

What do we know so far about the tensions between Iran and the US?

  • Iranian-backed militia killed an American Defense Contractor
  • The US retaliated with missile strikes
  • The American Embassy in Baghdad was attacked
  • US airstrikes killed top Iranian military official, General Qassem Soleimani
  • Iran responded by launching missile strikes at two bases hosting U.S. forces in Iraq

As the world witnesses the rising tensions between the US and Iran, and a uniting Iran over the assassination of one of the most influential and powerful men, the downing of Ukraine International Airlines flight PS752 has caused an international outrage and brought internal division within Iran.

Beyond Economic War

The existential conflict between the US and Iran moved beyond an economic war. In 2019, the US announced further economic sanctions on Iran which brought the latter into a deeper recession. As a significant buyer of crude from Iran, China sees the situation as an impediment that can hurt its economy. The Iran risks may therefore overshadow the trade deal.

Investors have already pricedin some extent of the risks associated with Iran since President Trump pulled out of the 2015 nuclear deal and started to impose sanctions. Even though the headlines brought Iran back on the geopolitical risks radar and caused a spike in volatility, we do not see the conflict changing the investment landscape at this stage.

Climate Change

2020 is set to be the confirmation of a new era for climate change. As we entered a new decade, the extreme weather conditions around the world have forced leaders of many countries to reassess their actions over climate change and transform the global energy system.

In Australia, the unprecedented and raging bushfires across the country act as a warning to the world and has even challenged a reluctant Prime Minister to take more action

Energy Sector

Oil prices experienced their largest weekly drop since July 2019 despite the tensions in the Middle East. Coincidently, markets were hit by two contradictory themes for the oil and gas industry: Iran Risks and Climate Change.

Source: Bloomberg Terminal

It should be highlighted that the energy sector emerged as the worst-performing sector of S&P500 in the last decade. Investors are stepping into 2020 being accustomed to the global oil glut and the gradual shift in the oil and gas industry.

Iran risks fuelled expectations of a reduction in supply while the “green” shift lowers demand expectations.

Eyes are now on the US-China trade deal!

Stock Markets

Despite an erratic few weeks of trading, global stock markets have performed quite well:

  • Major equity benchmarks traded at a record high
  • US stock indices are trading higher by 1% and above
  • Most European Bourses are also experiencing similar gains
  • Australian benchmark outshines its peers with more than 4% gain
  • FTSE100 is lagging slightly behind with 1% gain

Brexit will remain the dominant factor for the UK markets. Despite the volatile year 2019, the FTSE100 posted two-digit gains. The Tory win had pushed the index above the 7,500 mark. Looking ahead, the Footsie is expected to rebound and investors are eyeing the next target at 8,000 level for 2020.

However, given that a large amount of earnings of the index is derived from overseas, an appreciation of the Sterling may hinder the performance of the FTSE100 to play catch up with its global peers.

Source: Bloomberg

Are Re-Pricing Risks Required?

The killing of the Iranian key commander took the markets by surprise. Heightened geopolitical risks have somehow become the new normal and unless there is any serious escalation, medium to long-term effect on the markets would be limited. In a new world of higher tariffs, de-globalisation, and historic low levels of interest rates, the most significant risks for 2020 are:

  • Trade deal outcome.
  • Central Banks.

Deepta Bolaky, Market Analyst at GO Markets.

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Disclaimer: Articles and videos from GO Markets analysts are based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs.  Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.