As We Approach The Open... - 9/21/21
Please excuse typos. As a side note, after talking with some followers, I'm going to try to make this a little more digestible for those who are not as familiar with the markets, lingo, etc. Feel free to leave your thoughts in the comments section, they are appreciated.
Will start a small glossary at the start also.
SPX = S&P 500
Naz = Nasdaq Composite
NDX = Nasdaq 100 (100 largest stocks in the Naz)
RUT = Russell 2000 (smaller stocks)
DMA = Daily Moving Average (the moving average over the given time period (20, 50, 100, 200 days normally)).
MACD = Moving Average Convergence Divergence (basically a trend indicator)
RSI = Relative Strength Index (basically what it sounds like)
BBG = Bloomberg
WSJ = Wall Street Journal
As we approach the open of US equity trade in NY, global risk assets look to recover somewhat from yesterday's selloff trading mostly in the green, with U.S. equities up modestly (compared with yesterday's action) with SPX, NDX, and RUT all up between five and seven tenths. We sort of knew a bounce was coming for US equities after our almost 90% down volume day. Question is where we go after the open. I'd like to see a little more bounce than we're getting. A reversal would obviously be bearish.
In today's U.S. corporate news (Argus):
Johnson & Johnson (JNJ 165.00, +1.19): +0.7% after announcing that a booster shot at two months provided 94% protection against COVID-19 in the U.S. Uber (UBER 41.94, +2.15): +5.2% after narrowing its Q3 gross bookings guidance and updating its Q3 adjusted EBITDA guidance. ConocoPhillips (COP 58.00, +0.93): +1.6% after agreeing to acquire Royal Dutch Shell's Permian Business for $9.5 billion in cash. COP also increased its quarterly dividend by about 7%.U.S. Bancorp (USB 56.48, +0.80): +1.4% after agreeing to acquire MUFG Union Bank for $8 b illion in cash and stock. Lennar (LEN 96.79, -1.51): -1.5% after missing revenue estimates. AutoZone (AZO 1585.16, unch): UNCH despite beating top and bottom-line estimates.
As Brian Gilmartin updates us on S&P earnings trends noting that despite some companies lowering guidance, we're still seeing them move upwards. And with the SPX declining, we're seeing the earnings yield move higher.
Major equity indices in the Asia-Pacific region ended Tuesday on a mostly higher note (Japanese shares played "catch up" to the selling yesterday) while markets in China and South Korea remained closed for holidays. Japan's Nikkei: -2.2% Hong Kong's Hang Seng: +0.5% China's Shanghai Composite: CLOSED India's Sensex: +0.9% South Korea's Kospi: CLOSED Australia's ASX All Ordinaries: +0.3%.
In news, the Shanghai Composite will reopen tomorrow while the Hang Seng will be closed. Reports from China suggest that Chinese authorities are likely to withhold aid from Evergrande. There are reports that Evergrande missed two scheduled payments today. Chinese state media warned about potential coal shortages during the winter heating season. The Reserve Bank of Australia's September policy minutes showed that the central bank does not expect conditions for a rate hike to be met until 2024.
In economic data,
Australian ANZ Roy Morgan Consumer Confidence Sep-10: 103.3 (prev 103.1)
New Zealand's Q2 Westpac Consumer Sentiment 102.7 (last 107.1). August Credit Card Spending -6.3% yr/yr (last 6.9%)
And we've mentioned that property makes up 25% of the Chinese economy. As a result, SocGen was out with a note yesterday where they put the chances of a Chinese "hard landing" at 30% if “disorderly debt restructuring at Evergrande spill[s] over into downward pressure on property investment, prices and sales.” A hard landing scenario would also require “policy misjudgments causing an outright contraction in housing sales and investment.”
While Fitch says they are not concerned about the recent y/y fall in property prices due to "high base" effects.
But does express similar concern about the impact of an outright decline in prices.
As BofA cuts its Chinese growth forecast through 2023 this morning, continuing to see easing coming in 4Q2021. BBG.
Major European indices trade on a firmly higher note. STOXX Europe 600: +1.0% Germany's DAX: +1.5% U.K.'s FTSE 100: +1.1% France's CAC 40: +1.5% Italy's FTSE MIB: +1.4% Spain's IBEX 35: +1.2%.
In news, British Prime Minister Johnson is visiting Washington today. Bank of France Governor Villeroy de Galhau said there is "no doubt" that the region's inflation will return below 2.0% by 2023. European Central Bank policymaker De Guindos repeated that he expects strong GDP growth in Q3 and that inflation will peak around 3.4% to 3.5% in November.
In economic data, UK industrial trends survey increased above expectations (which were for a decrease), but as we've seen in the US were held back by supply chain issues.
U.K.'s September CBI Industrial Trends Orders 22 (expected 15; last 18). August Public Sector Net Borrowing GBP19.78 bln (expected GBP14.75 bln; last GBP6.21 bln)
From the report: "Today's survey highlights how amidst a variety of supply challenges, companies are beginning to struggle to meet high demand. Despite close to half of manufacturers surveyed reporting order books above normal, output growth has slowed sharply, albeit remaining relatively robust. As well as skill and labor shortages, sharply increasing material costs and shortages of key components, producers now face rocketing energy prices."
Swiss August trade surplus CHF5.055 bln (expected CHF4.50 bln; last CHF5.304 bln)
And missed this yesterday, but part of the reason for the big nat gas spike in Europe was Russia saying it would not increase its exports above its prior commitments. BBG.
As steelmakers become the latest to throttle operations. This won't help the supply chain issues noted by the CBI.
Bonds - With the risk on tone, yields moving a bit with 10-year yields remaining in the middle of their range from the past couple of months at 1.33% up two basis points. 2-year yield is unchanged at 0.22%.
As the 5s-30s curve has flattened to the lowest in more than a year.
Dollar (DXY) - With the more risk on tone falling a bit but remaining towards the highs of this year's trading range. Currently at $93.15. Daily technicals remain positive.
VIX - Pulling back but remaining well above 20 at 223.43. My bet would be for this to continue to settle back but could spike back up depending on how Wednesday goes.
Crude (/CL) - Joining risk asset rebound with a 1% gain to $70.86 WTI trading right on support. Technicals remain positive on daily chart for now.
And we've talked a little about how oil can be used for heating. In that regard, Goldman noted yesterday that it saw likely $5/bbl of switching demand in the event of a colder than average winter. That's over and above it's $80 Brent target.
Natural Gas (/NG) - Continues to pull back, now at lowest levels in two weeks down 13% from the intra-day high on Thursday. Currently at $4.90. Daily technicals have now rolled over and flipped to negative with a "sell longs" MACD crossover. 20-DMA test is upcoming. Not sure it holds, but fundamentals haven't really changed (low inventories) so maybe it does.
As major commodity trading firm head sees nat gas growth being strong for another two decades.
Gold (/GC) - Pushing a little higher this morning up a half percent. Has some room still before it hits resistance. Daily technicals remain negative.
Copper (/HG) - After falling to the 200-DMA yesterday found support but very meager bounce so far up less than half percent. Technicals remain negative daily chart.
August building permits and housing starts are out. Both came in well above expectations which should give some lift to homebuilding shares today (I'm a long term bull on homebuilders FWIW). I'll have a more detailed report out this morning.
US Housing Starts Aug: 1615K (est 1550K; prev 1534K)
US Building Permits Aug: 1728K (est 1600K; prevR 1630K; prev 1635K)
US Housing Starts (M/M) Aug: 3.9% (est 1.0%; prev -7.0%)
US Building Permits (M/M) Aug: 6.0% (est -1.8%; prevR 2.3%; prev 2.6%)
We also got Philly Fed services PMI which unlike the manufacturing saw a big drop for September falling from 37.2 for the firm-level component to 21.9 (and for the region from 39.1 to 9.6). I'll put out something on this also today.
We've mentioned this before, but the "record cash in money markets" is actually at 15 year lows when measured against the SPX.
As ING estimates that the lifting of travel restrictions could be a $140B benefit to the U.S. economy.
As Canadian elections result in pretty much status quo with Justin Trudeaue's Liberal Party having a "stable minority" which "gives the prime minister license to continue pursuing a pre-election big-spending agenda that had already received parliamentary backing earlier this year. In addition, Trudeau should easily find support in the legislature to press ahead with new campaign pledges such as raising taxes on financial institutions and imposing stricter emission rules for the oil and gas sector." BBG.
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