Market movers today
- The key market movers today are mainly from the US. A key release is the retail sales for July, which is expected to drop back amid the spreading of the delta variant.
- The US industrial production data for July is also released. The data should show higher production as companies seek to catch up with the order backlog that has emerged over the pandemic.
- This afternoon, Fed Chair Jerome Powell will in a virtual town hall meeting with teachers and students give his verdict on the US economy and monetary policy, but he will probably wait for the Jackson Hole next week to give his verdict on the timing and length of the upcoming tapering of quantitative easing.
- Overnight, the Reserve Bank of New Zealand (RBNZ) is widely expected to hike the official cash rate by 25 basis points on the back of strong domestic economic developments and rapid labor market recovery. Markets have fully priced in the hike along with one additional hike before year-end, which leaves little upside potential for NZD even if RBNZ takes a very hawkish stance.
The 60 second overview
Weakening manufacturing momentum in the US: In the US, the regional cyclical indicator Empire State business dropped back more sharply than expected in August following a significant jump in July. Despite the drop, the indicator still points to expansion. On the price side, prices received edged up while prices paid for inputs fell (suggesting that the commodity price pressures are softening). Finally, delivery times lengthened further suggesting that the supply chain problems are not easing yet.
China data is also weaker than expected: In China, data on industrial production and retail sales disappointed significantly yesterday. Industrial production dropped to 6.4% y/y (consensus 7.9% y/y, previous 8.3% y/y) and retail sales declined to 8.5% y/y (consensus 10.9% y/y, previous 12.1% y/y). Effects of previous policy tightening feeding through in combination with recent new lockdowns and severe flooding are likely the main drivers behind the slowdown. Export growth also seems to be fading judging from PMI’s.
Equities: Global equities fell yesterday although US stocks made a big turnaround during the day and ended at day high with a couple of major indices in green. The underlying tone was still slightly negative as investors showed a strong preference for defensive stocks. S&P500 also posted fifth-straight record close yesterday and its 48(!) all-time this year. Health care stocks outperformed with consumer staples while energy was the biggest loser yesterday as oil price dropped further. Asian markets are mostly in red though Japan going against the trend with a small gain. Covid-19 news from Asia are still worsening with Japan set to declare a state of emergency in seven more prefectures. European futures are flat this morning while US futures are 0.2% lower.
FI: The risk appetite was sour yesterday which led to the classical bond market response of lower Bund yields and wider spreads.
FX: EUR/USD and Scandies dropped further yesterday. Despite general risk-off sentiment in markets, EUR/PLN edged slightly lower following a higher-than-expected Polish core inflation print. For a broad dollar, the focus today turns to US retail sales.
Credit: Credit was under pressure yesterday where iTraxx Xover widened 2bp (to 234bp) and Main 0.2bp (to 46.2bp). HY bonds widened 4bp on average while IG only widened marginally.
