As We Approach The Open. - 9/7/21

As We Approach The Open... - 9/7/21

Please excuse typos.

Did a Labor Day update if you missed it.

Labor Day Update - 9/6/21

As we approach the open of US equity trade in NY, risk assets trade mixed with U.S. equity markets reflecting that, vacillating between mild gains and losses. Currently they are red but SPX, RUT, and NDX all down less than a tenth of a percent.

In today's U.S. corporate news (Argus):

Match Group (MTCH 165.00, +16.81): +11.5% on news it will join the S&P 500 along with Ceridiam HCM (CDAY 115.96, unch), and Brown & Brown (BRO 59.04, +0.10, +0.2%) prior to the open on Sept. 20. Johnson & Johnson (JNJ 173.69, -1.35): -0.8% after Morgan Stanley downgraded the stock to Equal-Weight from Overweight. The firm did the same to Merck (MRCK 77.00, -0.26, -0.3%) and Amgen (AMGN 2225.55, -0.82, -0.4%). Boeing (BA 217.16, -1.01): -0.5% after Ryanair said it's walking away from talks over a potential new order for the 737 MAX in a dispute over pricing, according to The Wall Street Journal. Spotify (SPOT 258.50, +9.46): +3.8% after the stock was reportedly upgraded to Overweight from Sector Weight at KeyBanc Capital Markets. State Street (STT 93.05, +0.16): +0.2% after agreeing to acquire Brown Brothers Harriman's Investor Services business for $3.5 billion in cash.

As FinTwit enters the week still bullish but much less so than last week.

Over the past 18 months when this poll has been within 3 points of 50/50 the next week was at least a move of 1.8% one way or the other (normally up (last column)).

And this uncertainty is also seen in BofA's bull/bear indicator which remained at 5.4 so also just a slight tilt to the bullish side there. "[L]ower bond yields, IG outperforming HY, weak EM components [and] less exuberant global equity inflows,” were the reason for the pullback from February's elevated levels.

As investor flows last week saw an overall net redemption as money was pulled as investors moved money out of money markets. Excluding that, another week of positive flows as flows to equity and fixed income were positive with the largest flow into equity ETF's (and largest outflow from Treasuries) in six months. Emerging markets saw the largest inflow since April. Also while overall bond flows were positive there was a notable rotation from investment grade to higher yield which took in the most in 10 weeks. Seeking Alpha.

ETFs that invest in stocks attracted $19.2B in the week ended Sept. 1 -- the largest weekly inflow in nearly six months, new figures show.

However, while equity ETFs made substantial gains, the investment community was still a overall net redeemers of fund assets for the first time in six weeks, removing $1.1B, according to the latest Refinitiv Lipper U.S. fund-flow insight report. Fund assets include ETFs, traditional mutual funds ETNs and closed end funds.

Breaking down the data, investors will notice that equity funds garnered $12.7B, taxable bond funds pulled in $5.3B and tax-exempt fixed income funds took in $1B. On the other hand, money-market funds lost $20.1B to capital outflows for the week.

SPDR S&P 500 ETF (NYSEARCA:SPY) and Invesco QQQ Trust 1 (NASDAQ:QQQ) attracted the most inflows among equity ETFs, adding $6.9B and $3.8B, respectively.

Meanwhile, Invesco S&P 500 High Beta ETF (NYSEARCA:SPHB) and Direxion Daily Semiconductor Bull 3x Shares (NYSEARCA:SOXL) retracted the greatest, with outflows totaling $391M and $321M.

The top inflows for fixed-income ETFs included $386M in new money for the SPDR Bloomberg Barclays High Yield Bond ETF (NYSEARCA:JNK) and $365M for the the iShares TIPS Bond ETF (NYSEARCA:TIP).

At the other end of the spectrum, iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA:LQD) and iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) witnessed the largest outflows, totaling $818M and $328M, respectively.

More on traders pushing money towards the reflation trade. BBG.

Asia

Major Equity indices in the Asia-Pacific region ended Tuesday on a mostly higher note, as the post-Suga resignation rally continued in Japan. Japan's Nikkei: +0.9% Hong Kong's Hang Seng: +0.7% China's Shanghai Composite: +1.5% India's Sensex: UNCH South Korea's Kospi: -0.5% Australia's ASX All Ordinaries: UNCH.

In news, China Securities Times reported that Chinese banks are being pressured to lower exposure to real estate. Former Bank of Japan official Yamaguchi said that the central bank needs a more realistic inflation target to avoid constant stimulus. The Reserve Bank of Australia left its cash rate at 0.10%, as expected. The central bank announced that it plans to continue purchasing assets at the current pace until at least February. That Australian CB decision to push off tapering was an unknown coming into the meeting.

In economic data, Chinese trade data came in ahead of expectations. Japanese h/h spending came in below estimates and LEI's pulled back. Australian services index and July building approvals also came in weak.

China's August trade surplus $58.34 bln (expected surplus of $51.05 bln; last surplus of $56.59 bln). August Imports 33.1% yr/yr (expected 26.8%; last 28.1 %) and Exports 25.6% yr/yr (expected 17.1%; last 19.3%)

From RTRS - "I think it's expected that China's robust export growth will extend until the end of this year (around Christmas) or even into the beginning of the next year," Meng Xianglong, founder of Heji Trade & Credit Research Centre based in the port city of Ningbo said, adding that some factories are fully booked until the first quarter of 2022.

Japan's July Household Spending -0.9% m/m (expected 1.1%; last -3.2%); 0.7% yr/yr (expected 2.9%; last -5.1%). July Overall Wage Income +1.0% yr/yr (last 0.1%). July Leading Index -0.5% m/m (last 1.5%) and Coincident Indicator -0.1% m/m (last 2.1%)

Australia's August AIG Services Index 45.6 (last 51.7). July Building Approvals -8.6% m/m, as expected (last -5.5%)

Europe

Major European indices trade in the red. STOXX Europe 600: -0.3% Germany's DAX: -0.2% U.K.'s FTSE 100: -0.2% France's CAC 40: UNCH Italy's FTSE MIB: -0.5% Spain's IBEX 35: -0.1%.

In news, the latest pre-election poll from Germany showed SPD with a six-point lead over Chancellor Merkel's CDU/CSU coalition. Bank of England policymaker Saunders expressed concern about inflationary risks resulting from continued stimulus. The U.K.'s leadership received an indefinite extension of a grace period as negotiations regarding the Northern Ireland protocol continue. Also in later breaking news Boris Johnson has proposed new taxes to fund health and social services.

In economic data, EU 2QGDP was revised up a bit on stronger consumption and government spending, employment also beat expectations while ZEW sentiment contracted. German ZEW also missed with a big contraction but July IP beat estimates although remained "weak" compared with pre-pandemic. UK house prices hit new record highs.

Eurozone's Q2 GDP 2.2% qtr/qtr (expected 2.0%; last 2.0%); 14.3% yr/yr (expected 13.6%; last 13.6%). Eurozone Gross Fixed Cap (Q/Q) Q2: 1.1% (est 1.3%; prevR -0.2%; prev 0.2%), Eurozone Household Consumption (Q/Q) Q2: 3.7% (est 3.0%; prevR -2.1%; prev -2.3%), Eurozone Gvt Expenditure (Q/Q) Q2: 1.2% (est 0.6%; prevR -0.5%; prev 0.0%)Q2 Employment Change 0.7% qtr/qtr (expected 0.5%; last 0.5%); 1.8% yr/yr, as expected (last 1.8%). September ZEW Economic Sentiment 31.1 (last 42.7)

On the EU sentiment numbers, ZEW President Achim Wambach said. “Although financial market experts expect further improvements of the economic situation over the next six months, the expected magnitude and the dynamics of the improvements have decreased considerably.... [The] global chip shortage in the automobile sector and shortage of building material in the construction sector have caused a significant reduction in profit expectations for these sectors.”

Germany's September ZEW Economic Sentiment 26.5 (expected 30.0; last 40.4) and Current Conditions 31.9 (expected 34.0; last 29.3). July Industrial Production 1.0% m/m (expected 0.9%; last -1.0%)

Germany’s Federal Statistics Office - “Compared with February 2020, the month before restrictions were imposed due to the coronavirus pandemic in Germany, production in July 2021 was 5.5% lower in seasonally and calendar-adjusted terms.”

U.K.'s August Halifax House Price Index 0.7% m/m (expected 1.1%; last 0.4%); 7.1% yr/yr (last 7.6%)

Commodities/Currencies/Bonds

Bonds - 10-year yields have continued their rise from last week pushing over the short term trendline to highest level since 8/12 at 1.373% up five basis points. 2-year yield is trading up a bit at 0.216% so some good curve steepening this morning. Should help financials.

Dollar (DXY) - Fundamentals here trumping technicals as strong bond yields giving a lift to the dollar which is testing the underside of its recent downtrend line. Has a lot of resistance between here and $93. Currently at $92.42. Technicals remain negative.

VIX - Up a point to 17.36.

Crude (/CL) - With the headwind of a strong dollar and the surprise Asia price cut by the Saudis discussed yesterday, WTI fell below the 100-DMA earlier this morning and tested the 20-DMA this morning which held for now. Currently at $67.96 WTI down almost 2%. Technicals remain positive for now.

Also not helping are headlines that Lukoil chief wants to keep prices between $65-75 Brent (Brent currently around $72).

Although it appears that China buying has resumed.

And most of the production in the Gulf remains offline. Cumulative losses there are around 18mb.

Natural Gas (/NG) - Volatile trading in a bigger range already than the last few days. Currently down 1% at $4.665. Technicals remain positive but overbought.

And have I mentioned that nat gas and power prices are crazy high in Europe? Another story from BBG as they hit new highs on Monday. As we've seen with Brazil's power crisis due to hydro issues, renewables are only helpful if whatever the renewable source is (water, wind, etc.) is following normal patterns.

Gold (/GC) - Weak this morning (dollar?) pulling back to support at the 100/200-DMA confluence and uptrend line at $1813. Technicals remain positive.

Copper (/HG) - Also trading down to support (20-DMA) down just under 1%. Technicals remain favorable.

US Data

No U.S. data today.

Misc.

Random stuff:

Appears some concensus among Democrats on a 25% corporate tax.

To see more content, including summaries of most major U.S. economic reports and my morning and nightly updates go to Cbus Neil's Blog Posts for more recent or Sethi Associates for the full history.