Sample Category Title

Asian stock markets kicked off the week on a positive note, although the US indices had nothing more exciting than mixed performance after the announcement of strong jobs data on Friday.

The US nonfarm payrolls printed a strong 943’000 nonfarm job additions in the US during the month of July, strong than 870’000 expected by analysts and 850’000 printed a month earlier. The latest data helped cement the thinking that the Federal Reserve (Fed) is moving towards the ‘substantial’ progress that it is looking for to start easing the bond purchases.

As a result, the US 10-year yield jumped above the 1.30% mark after the data release and is now set to recover towards the 2% threshold to the end of the year.

The US jobs data gave a small boost to the Dow and the S&P500 which closed Friday’s session 0.41% and 0.17% higher respectively. Yet Nasdaq slid 0.40% to the weekly closing bell, to my surprise, as I would expect the strong jobs data to boost the tech stocks to a certain extent as well, because even though the strong economic data and prospects of a tighter US policy are better for value stocks, the rising Covid cases should keep the tech stocks in demand, regardless of a tighter Fed policy. But apparently, and curiously, investors are not too concerned with the delta crisis just yet. They are, to some extent, as we see the stock markets somewhat moody time to time, but the S&P500 chart doesn’t necessarily hint that there is any kind of stress in the US big caps. Why is that?

It sure has something to do with the vaccination. There is the general belief that the vaccination and the introduction of the Covid certificate will prevent businesses from going through strict lockdown measures yet again. The ‘certificate’ setup will allow them to stay opened instead and continue functioning with those who can present a valid Covid certificate. The idea is obviously to get as many as people vaccinated and get out of the crisis as soon as doable. But the delta variant is now taking lives and represents a higher risk for stocks that are sensitive to the economic recovery. In this sense, the risk of a sharp drawback in cyclical stocks increases, meanwhile the Fed safety net weakens.

In commodities, the prospect of higher yields is becoming a serious headache for gold. Gold is not doing well, and Friday’s strong US jobs figures has come as a slap on gold’s face. Moving forward, higher US yields will continue increasing the opportunity cost of holding the non-interest-bearing gold, which didn’t even fully benefit from the overshooting inflation and the ultra-low US yields recently. So, there were clear signs that the more likely scenario was a further selloff, and the latest death cross formation on the daily chart, where the 50-day moving average slipped below the 200-day moving average, is a solid sign that there is more downside for gold in horizon. The speed at which investors dumped their gold holdings after the NFP print was rather impressive, but we should see a short-term support forming near the $1680/1700 area, with those investors who would still benefit from the latest slump to enter a long position in gold as a hedge for inflation and an eventual retreat in stock prices.

About inflation. The latest update on the US consumer price inflation is due on Wednesday, and the expectation is a certain steadying in the US consumer prices near last month’s 5.4% print. China released softer-than-expected consumer prices this Monday, while producer prices advanced to 9%, as an indication that the pressure on factory-gate prices remains strong.

We shall see a similar print on US inflation figures this week. But the inflation numbers tend to surprise to the upside rather than to the downside these days. And, what would a stronger-than-expected number do? Combined with the strong jobs figures, it should further revive the Fed hawks, push the US yields higher and apply a certain pressure on the US stock prices.

Market movers today

• Today a couple of Fed members speak (Bostic (non-voter, neutral) and Barkin (non-voter, neutral)), which will be interesting to follow to see if a consensus is emerging on the Fed Board with regard to conditions and potential timing of tapering of the Fed's QE.
• Later this week, a key focus will be on the US CPI inflation release, where consensus is expecting a slight fall in the inflation momentum both in core and headline inflation.
• Sweden (Friday), Norway and Denmark (both Tuesday) will publish inflation data this week.

The 60-second overview

Strong US labour market: US non-farm payrolls rose by 943k in July. It was the highest job growth in 11 months and above the consensus forecast of 870k. After the surprisingly weak ADP job number earlier in the week the market had prepared itself for a relatively weak number. The unemployment rate fell by half a percentage point to 5.4% and annual wage growth rose by 4.0% compared to 3.6% the month before. The market now awaits the US inflation data on Wednesday to see if the higher wage growth pushed up inflation. The market expects a 0.4 monthly gain (5.3 % y/y) down from 0.9 % m/m and 5.4 % y/y.

Encouraging report: The report is encouraging specifically in two ways. Firstly, it underlines that despite fading government support the labour market continued to improve. Secondly, the US labour market so far sees little impact from the spread of the Delta-variant and the surge in infections in the US.

Market reaction: The report immediately pushed US Treasury yields higher by roughly 5bp to 1.30%. The 10Y yield earlier last week traded briefly below 1.15%. US equities reacted overall positively to the report with S&P500 up 0.4% on Friday, though the "duration-sensitive" growth stocks at NASDAQ fell 0.4%. EUR/USD dropped below 1.18.

Infrastructure package: The USD 550bn US infrastructure package moved a step closer Sunday as the last procedural hurdles in the Senate were cleared. It paves the way for a vote on the final passage on Wednesday. The Biden administration hopes for bipartisan support in the Senate to speed up the process. The infrastructure package still has to go through the House.

German election: Support for Merkel's CDU/CSU bloc fell in the latest INSA poll released over the weekend. The poll shows the challenge facing Armin Laschet approval ratings especially after his appearance during the flooding in July.

Gold and silver drops. The US labour market and the stronger US dollar slowed demand for safe-havens such as gold and silver. Gold dropped 2.3% right after the report and tumbled another 4% at the opening in Asia this morning, though prices recovered some of the losses later in the session. Bitcoin and other cryptocurrencies on the other hand reached a two-month high over the weekend.

Bytedance IPO: The regulatory crackdown from China on especially tech companies has attracted a lot of negative market attention over the last month. In that respect, it should be encouraging for risk appetite that Bytedance - the owner of TikTok - has revived a plan to go public according to FT.

Equities: Equities ended flat Friday while a huge sector rotation took place after the very solid non-farm payroll report. Sharply higher yields and steeper curves made banks and rest of the financials outperform while growth stocks were lower. Interesting to see the VIX index dropping a full index point despite markets overall being flat. Yields are a little higher again this morning and some of the rotation continuing in Asia in a generally positive session. The Japanese market is closed today. European and US futures are lower led down by growth stocks.

FI: US Treasury yields continued to rise on Friday with 10Y rising 7.8bp on the back of the stronger than expected US labour market report on Friday. Yields had already begun to rise after the comments from Fed's Clarida on Thursday. The rise in US yields also had a spillover effect to European yields and 10Y Germany rose 5-6bp, and is again above -50bp.

FX: EUR/USD dropped firmly below 1.18 on Friday after the US jobs report surprised the market. Scandi currencies saw temporary strength but failed to break out of recent ranges. EUR/NOK ended the week around 10.45 and EUR/SEK close to 10.20.

Credit: Friday saw positive sentiment in credit markets where iTraxx Xover tightened 2½bp (to 231½bp) and Main 0.3bp (to 46bp). HY bonds tightened 2bp while IG saw a small widening of around 1bp.

General trend

• Metal prices all decline and USD strengthens after stronger US payrolls data Friday boosts view that recovery is here to stay.
• Modest equity moves have been seen thus far.
• Chinese markets have gained after the lower opens; Property and Financial shares rise; Chipmakers drop on state media warning.
• S&P ASX 200 has remained slightly higher [Financials supported by higher 10-yr yields; Resources index drops amid lower iron ore prices].
• Companies due to report during the NY morning include Air Products, BioNTech, DISH Network, Elanco Animal Health, Barrick Gold, Hertz Global, Kandi Technologies, Scientific Games, Sohu.com, TEGNA, Tyson Foods, The Trade Desk, US Foods.
• Softbank Group is due to report earnings on Tues. (Aug 10th).
• Analysts comment on expectations for China Q3 GDP growth.
• More analysts call for 50bps rate hike at Aug RBNZ meeting [Aug 18th].

Headlines/Economic data

Australia/New Zealand

• ASX 200 opened 0.0%.
• SUN.AU Reports FY21 (A$) Cash profit 1.06B v 749M y/y, Rev 14.19B v 14.8B y/y; to pay A$0.08/shr special dividend, planning A$250M share buyback.
• WBC.AU Confirms to sell domestic life insurance business to Dai-ichi Life for A$900M.
• (AU) Australia PM Morrison popularity rating declines to 47% [lowest level since the pandemic started], cites Newspoll - press.
• HUO.AU To be acquired by JBS at A$3.85/shr cash, A$425M.
• REG.AU Identified possible underpayments to some current and past employees going back 6 years, total seen A$30-40M, impact seen on FY21 A$6-7M.

Japan

• Nikkei 225 closed for holiday.
• (JP) Japan PM Suga support rating falls below 30% (for the first time) after Olympics fail to give a boost – press.

Korea

• Kospi opened -0.4%.
• (KR) South Korea July Card Spending KRW14.1T, +7% y/y, +11.4% from 2019 - Yonhap.

China/Hong Kong

• Hang Seng opened %; Shanghai Composite opened %.
• (CN) CHINA JULY CPI M/M: 0.3% V 0.2%E; Y/Y: 1.0% V 0.8%E.
• (CN) CHINA JULY TRADE BALANCE: $56.6B V $52.0BE; Exports Y/Y: 19.3% v 20.0%e; Imports Y/Y: 28.1% v 33.6%e, July Trade Balance with US: $35.4B v $32.6B prior.
• (CN) CHINA JULY TRADE BALANCE (CNY): 362.7B V 340.7BE; Exports Y/Y: 8.1% v 9.6%e; Imports Y/Y: 16.1% v 21.9%e.
• (CN) CHINA JUN FOREIGN EXCHANGE RESERVES: $3.236T V $3.214T PRIOR.
• (CN) China Q2 Preliminary Current Account Balance: $52.8B v $69.4B prior (Friday after the close).
• (CN) China State Researcher: Expects Q3 GDP ~6.3% y/y (prior 7.9% ).
• BYTEDANCE.IPO Said to be working on addressing data security concerns brought up by China regulators in order to move forward with IPO in Hong Kong early 2022 – press.
• (CN) China PBOC sets Yuan reference rate: 6.4840 v 6.4625 prior.

North America

• BRK.A Reports Q2 Net EPS (Class A) $18,488 v $16,314 y/y, Rev $69.1B v $56.8B y/y.
• (US) JULY CHANGE IN NONFARM PAYROLLS: +943K V +858KE (highest print since Aug 2020 numbers) (Friday).

Europe

• (DE) ECB's Weidmann (Germany): If inflation outlook rises sustainably, ECB will have to act in line with its price stability objective - press.
• (UK) Ministers said to have warned PM Johnson not to remove Chancellor of the Exchequer Sunak even though they have conflicting views on spending and lockdowns - press.

Levels as of 01:15ET

• Hang Seng +0.6%; Shanghai Composite +1.0%; Kospi -0.2%; Nikkei225 closed for holiday; ASX 200 +0.1%.
• Equity Futures: S&P500 -0.2%; Nasdaq100 -0.2%, Dax -0.2%; FTSE100 -0.2%.
• EUR 1.1764-1.1743; JPY 110.36-110.18; AUD 0.7361-0.7329; NZD 0.7021-0.6981.
• Commodity Futures: Gold -1.2% at $1,741/oz; Crude Oil -2.0% at $66.94/brl; Copper -0.4% at $4.32/lb.

Daily Pivots: (S1) 1.2506; (P) 1.2544; (R1) 1.2593; More...

Intraday bias in USD/CAD remains neutral for consolidation above 1.2421 temporary low. Further decline is expected with 1.2605 resistance intact. Below 1.2421 will resume the fall from 1.2805 to 1.2301 cluster support (61.8% retracement of 1.2005 to 1.2805 at 1.2311). On the upside, break of 1.2605 will turn bias back to the upside for retesting 1.2805 high instead.

In the bigger picture, fall from 1.4667 is seen as the third leg of the corrective pattern from 1.4689 (2016 high). It should have completed after hitting 1.2061 (2017 low) and 50% retracement of 0.9406 to 1.4689 at 1.2048. Sustained break of 38.2% retracement of 1.4667 to 1.2005 at 1.3022 will pave the way to 61.8% retracement at 1.3650 and above. Overall, medium term outlook remains neutral at worst with 1.2048/61 support zone intact.

Daily Pivots: (S1) 0.7332; (P) 0.7369; (R1) 0.7392; More...

Intraday bias in AUD/USD remains neutral as consolidation from 0.7288 is extending. Outlook stays bearish as long as 0.7443 resistance holds. On the downside, break of 0.7288 will resume the fall from 0.8006 to 161.8% projection of 0.8006 to 0.7530 from 0.7890 at 0.7120 next. On the upside, break of 0.7443 will bring stronger rebound to 0.7530 support turned resistance instead.

In the bigger picture, rise from 0.5506 medium term bottom could have completed at 0.8006, after failing 0.8135 key resistance. Correction from there could target 0.6991 cluster support (38.2% retracement of 0.5506 to 0.8006 at 0.7051). We'd look for strong support from there to bring rebound. However, sustained break of this level would argue that the whole medium term trend has indeed reversed.

Daily Pivots: (S1) 1.1732; (P) 1.1784; (R1) 1.1814; More...

Break of 1.1751 support suggests that fall from 1.2265 has resumed. Intraday bias is back on the downside for further decline. We'd look for strong support from 1.1602/1703 support zone to bring rebound. But break of 1.1907 resistance is needed to confirm short term bottoming. Meanwhile, sustained break of 1.1602 will argue that it's already reversing the trend from 1.1603, and target 61.8% retracement of 1.1603 to 1.2348 at 1.1888.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally could be seen to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). This will remain the favored case as long as 1.1602 support holds. Reaction from 1.2555 should reveal underlying long term momentum in the pair. However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again.

Daily Pivots: (S1) 1.3845; (P) 1.3890; (R1) 1.3919; More...

Intraday bias in GBP/USD remains neutral first. Further rise is expected as long as 1.3766 support holds. Corrective pattern from 1.4240 could have completed with three waves down to 1.3570. On the upside, break of 1.3982 will resume the rise from 1.3570 to retest 1.4248 high. However, break of 1.3766 support will dampen this bullish view and bring retest of 1.3570.

In the bigger picture, as long as 1.3482 resistance turned support holds, up trend from 1.1409 should still continue. Decisive break of 1.4376 resistance will carry larger bullish implications. However, firm break of 1.3482 support will argue that the rise from 1.1409 has completed. GBP/USD would then be seen in another leg of long term range pattern between 1.1409 and 1.4376. Deeper fall could then be seen to 61.8% retracement of 1.1409 to 1.4248 at 1.2493, and even below.

Daily Pivots: (S1) 0.9092; (P) 0.9124; (R1) 0.9183; More....

Intraday bias in USD/CHF stays mildly on the upside at this point. Corrective fall from 0.9273 should have completed with three waves down to 0.9017. Further rally would be seen to retest 0.9273 first. Break there will resume rise from 0.8925 to 100% projection of 0.8925 to 0.9273 from 0.9017 at 0.9365. On the downside, below 0.9085 minor support will turn bias back to the downside for 0.9017 support instead.

In the bigger picture, the failure to sustain above 55 week EMA (now at 0.9183) retains medium term bearish in USD/CHF. Break of 0.8925 support should resume the whole decline form 1.0342 (2016 high) through 0.8756 low. However, break of 0.9273 resistance and sustained trading above 55 week EMA will be an early sign of bullish trend reversal. Focus will then turn to 0.9471 resistance for confirmation.

Daily Pivots: (S1) 109.84; (P) 110.09; (R1) 110.49; More...

Intraday bias in USD/JPY remains on the upside for 110.58 resistance. Decisive break there will confirm that correction from 111.65 has completed with three waves down to 108.71. Stronger rise would then be seen to retest 111.65 high. On the downside, though, below 109.39 minor support will bring retest of 108.71 support instead.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. The pattern from 101.18 could still extend with another falling leg. Sustained trading below 55 day EMA will bring deeper fall to 107.47 support and below. Nevertheless, strong break of 111.71 resistance will confirm completion of the corrective decline from 118.65 (2016 high). Further rise should then be seen to 114.54 and then 118.65 resistance.

While the currency markets are rather quite, big surprise is found in gold price, which smashed to as low as 1684, hitting the lowest level since March. Silver also tumbled to as an eight-month low of 22.5. The move was, for certain, exaggerated by the ultra thin Asian morning. Yet, the near term bearishness is there as markets are starting to take the expectations of Fed tapering seriously. Attention will turn to comments from Fed officials this week to get a better view on the hawk/dove split in the FOMC.

Technically, 1676.56 support could provide a floor to Gold for now. But there is little prospect to reclaim 1800 handle. We'd likely see some sideway consolidations first. But a strong break of 1676.56 could be a sign of strong Dollar buying. If that happens, we'd turn our attention to EUR/USD, to see if it break through 1.1602/1703 support zone in tandem.

In Asia, at the time of writing, Hong Kong HSI is up 0.94%. China Shanghai SSE is up 0.95%. Japan and Singapore are on holiday.

Bundesbank Weidmann: I do not rule out higher inflation rates

Bundesbank President Jens Weidmann told the Welt am Sonntag newspaper, "I do not rule out higher inflation rates." He added, "In any case, I will insist on keeping a close eye on the risk of an excessively high inflation rate and not only on the risk of an excessively low inflation rate."

He also said that the emergency asset purchase program, known as PEPP, must end when the Covid-19 crisis is over. "The first P stands for pandemic and not for permanent. It's a question of credibility," he added.

On the plan of stimulus exit, "the sequence would then be: first we end the PEPP, then the APP is scaled back, and then we can raise interest rates," he said.

China PPI rose to 9.0% yoy in Jul, CPI slowed to 1.0% yoy

China's PPI accelerated to 9.0% yoy in July, up from 8.8% yoy, above expectation of 8.8% yoy. "The price increase of industrial products expanded slightly in July as prices of crude oil, coal and related products rose sharply," said senior NBS economist Dong Lijuan.

CPI slowed to 1.0% yoy, down from 1.1% yoy, above expectation of 0.8% yoy. Core CPI, excluding food and energy prices, rose 1.3% yoy. Pork prices dropped -43.5% yoy, dragging down food prices down -3.7%. Non-food prices, on the other hand, rose 2.1% yoy.

UK GDP, German ZEW, US CPI and Fedspeaks to be watched

The upcoming week is relatively light in terms of data flow. UK GDP would likely catch most attention. US CPI will also be watched, but it's a bit early to judge how "transitory" inflation is. Meanwhile, Eurozone Sentix investor confidence and Germany EW economic sentiment would provide some insights on the sustainability of current recovery.

The main focuses would indeed be on a number of Fed speaks. Markets could be either to hear FOMC members' view on the timing of tapering, given the strong job data released last week.

Here are some highlights for the week:

• Monday: China CPI, PPI; Swiss unemployment rate; Germany trade balance; Eurozone Sentix investor confidence.
• Tuesday: Japan current account, economy watcher sentiment; Australia NAB business confidence; Germany ZEW economic sentiment; US non-farm productivity, unit labor costs.
• Wednesday: Australia Westpac consumer sentiment; Germany CPI final; US CPI.
• Thursday: Japan PPI; UK GDP, trade balance, productions; Eurozone industrial production; US PPI, jobless claims.
• Friday: New Zealand BusinessNZ manufacturing index; Swiss PPI; Eurozone trade balance; US import prices, U of Michigan consumer sentiment.

USD/JPY Daily Outlook

Daily Pivots: (S1) 109.84; (P) 110.09; (R1) 110.49; More...

Intraday bias in USD/JPY remains on the upside for 110.58 resistance. Decisive break there will confirm that correction from 111.65 has completed with three waves down to 108.71. Stronger rise would then be seen to retest 111.65 high. On the downside, though, below 109.39 minor support will bring retest of 108.71 support instead.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. The pattern from 101.18 could still extend with another falling leg. Sustained trading below 55 day EMA will bring deeper fall to 107.47 support and below. Nevertheless, strong break of 111.71 resistance will confirm completion of the corrective decline from 118.65 (2016 high). Further rise should then be seen to 114.54 and then 118.65 resistance.

Economic Indicators Update