As We Approach The Open. - 9/24/21

As We Approach The Open... - 9/24/21

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

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As we approach the open of US equity trade in NY, global risk assets are mixed with US futures trading solidly in the red with the RUT (small cap) and NDX (big tech) down a little over seven tenths and the SPX down just over a half percent.

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

Nike (NKE 152.15, -7.43): -4.7% after missing revenue estimates, guiding NovQ revenue below consensus, and lowering its full-year revenue guidance due solely to supply chain issues. Costco (COST 455.51, +2.73): +0.6% after beating EPS estimates. McDonald's (MCD 245.90, +1.12): +0.5% after raising its quarterly dividend by 7% and resuming share repurchases. Meredith (MDP 55.00, +10.11): +22.5% after The Wall Street Journal reported that the company is in talks to be acquired by IAC (IAC 135.00, +1.29, +1.0%). Progress Software (PRGS 49.70, +3.49): +7.6% after beating top and bottom-line estimates, although it guided quarterly EPS and revenue below consensus.

As global equity funds saw their first weekly outflow of the year in the week through Wednesday according to BofA, with a good sized $24.2B outflow from equity funds which went mostly to cash (+$40B) to replenish money market funds that had been drawn down significantly last few weeks while $10B went to bond funds. Tech funds saw their first weekly outflow since June.

Asia

Major equity indices in the Asia-Pacific region ended the week mixed with Japan's Nikkei (+2.1%) outperforming after reopening from a holiday. Japan's Nikkei: +2.1% (-0.8% for the week) Hong Kong's Hang Seng: -1.3% (-0.4% for the week) China's Shanghai Composite: -0.8% (UNCH for the week) India's Sensex: +0.3% (+1.8% for the week) South Korea's Kospi: -0.1% (-0.5% for the week) Australia's ASX All Ordinaries: -0.4% (-0.7% for the week). India's Sensex topped 60,000 for the first time today.

In news, Evergrande bondholders have not received interest payments that were due yesterday, but the company has a 30-day grace period before a default is triggered. The People's Bank of China said that all cryptocurrency-related transactions are illegal (story below). Nomura cut China 2021 growth forecast to 7.7% from 8.2%.  China did add another 70B yuan new net liquidity Friday bringing the total for the week to 460B yuan.  Overnight borrowing costs in turn fell to the lowest in two months. 

In economic data, Japan's Manufacturing PMI expanded for the eighth consecutive month in the flash reading for September while Services PMI contracted for the 20th month in a row. CPI there also fell from July. Singapore industrial production beat.

Japan's August National CPI -0.2% m/m (last 0.2%); -0.4% yr/yr (last -0.3%). National Core CPI 0.0% yr/yr, as expected (last -0.2%). Flash September Manufacturing PMI 51.2 (last 52.7) and flash Services PMI 47.4 (last 42.9)South Korea's August PPI 0.4% m/m (last 1.0%); 7.3% yr/yr (last 7.4%)

Singapore's August Industrial Production 5.7% m/m (expected 3.1%; last -2.8%); 11.2% yr/yr (expected 8.8%; last 16.4%)

New Zealand's August trade deficit NZD2.144 bln (last deficit of NZD397 mln)

More on the Chinese cryptocurrency ban. BBG.

While China remains silent for today on the Evergrande situation. BBG.

Europe

Major European indices are on track to end the week on a lower note. STOXX Europe 600: -0.9% (+0.3% week-to-date) Germany's DAX: -0.7% (+0.3% week-to-date) U.K.'s FTSE 100: -0.2% (+1.5% week-to- date) France's CAC 40: -0.9% (+1.1% week-to-date) Italy's FTSE MIB: -0.3% (+1.1% week-to-date) Spain's IBEX 35: -0.1% (+1.2% week-to-date).

In news, Germany's federal election is scheduled for Sunday with the latest polls showing SPD with a four-point lead over Chancellor Merkel's CDU/CSU coalition (more on that below). U.K.'s Transport Secretary Shapps responded to growing concerns about fuel shortages stemming from truck driver shortages, saying that refineries have "plenty of petrol" (which of course isn't the problem). Italy will spend EUR3bln to offset higher energy prices. S&P Global lifted Eurozone 2021 growth forecasts to 5.1% from 4.4% previously.

In economic data, German Ifo business survey for September fell a little with economists from the IFO Institute observed worsening supply shortages in September with no signs of impending improvement. “Problems in the procurement of raw materials and intermediate products are putting the brakes on the German economy,” Ifo said. “Manufacturing is experiencing a bottleneck recession.” UK retail survey fell dramatically and consumer confidence also fell. Confidence did improve in Italy.

Germany's September ifo Business Climate Index 98.8 (expected 98.9; last 99.6), September Current Assessment 100.4 (expected 101.8; last 101.4), and September Business Expectations 97.3 (expected 96.5; last 97.8)

U.K.'s September CBI Distributive Trades Survey 11 (expected 35; last 60). September GfK Consumer Confidence -13 (expected -8; last -8)

Italy's September Business Confidence 113.0 (expected 112.6; last 113.2) and Consumer Confidence 119.6 (expected 115.8; last 116.2)

And we talked about the windier weather in the UK helping things out, and it looks set to continue into next week. BBG.

But the big event in Europe before Monday is the German elections where a replacement for long-time PM Angela Merkel is at stake. From LiveSquawk:

The centre-left Social Democrats (SPD) are in the lead with 25% of voter support, the party’s peak for this election cycle, according to a Forsa poll released Tuesday. But their partner in Germany’s current and oft-fractious grand coalition, the centre-right alliance of Merkel’s Christian Democrats and Bavaria’s Christian Socialists known as the “Union”, has been clawing back ground. Despite having the worst-polling chancellor candidate from a major party, the Union scored 22% in the Forsa survey, a rise of one percentage point in a fortnight. Additionally, the poll has margin of error of 2.5 points on either side, so the election in Europe’s largest economy looked like a virtual toss-up just four days before voting ends.

Polling says the most popular replacement for Merkel is the SPD’s Olaf Scholz, the country’s vice-chancellor and finance minister. But he has seen his party’s lead slip as of late, and his ministry was searched last week by authorities investigating the German customs service’s Financial Intelligence Unit, which is bad timing for anyone running for office.

The shifts in Germany’s political power dynamic since 2017 make predicting the next Berlin government about as easy surfing the Eisbach stream in Munich’s landlocked English Garten (yeah, that’s a thing) while juggling machetes. And because the parties here are colour-coded for voter (and journo) pleasure and shorthand, terms like “Traffic Light”, “Jamacia”, and “Kenya” are being used to describe possible coalitions, with plenty of vivid charts to entertain.

But don't expect any quick resolution to this morass according to UBS - It will likely take weeks, possibly months, before coalition talks are complete and the new government takes office.” And barring a massive, unexpected landslide, analysts see little change in the markets in the aftermath of the elections, especially since it could take months for a new government to assume office. "JPMorgan, for example, said the results are unlikely to derail EU equities."

Commodities/Currencies/Bonds

Bonds - Bonds trade a little softer again this morning with longer yields moving up a bit further. 10-year yields up another couple of basis points after rising eight yesterday now over the 100-DMA and hitting the highest levels since early July. Currently at 1.43%. 2-year yields trade around flat levels steepening the curve a bit further.

Dollar (DXY) - Bouncing back today trading in the range of the last few days. Remains in short term uptrend. Currently at $93.36. Daily technicals remain positive but starting to roll over.

VIX - Back up over 20 this morning so I guess my feeling that we'd see a continued fall is at risk. Currently at 20.37.

Crude (/CL) - Trading down four tenths of a percent to $73.05 WTI but remaining at the highest levels since early August and heading for a third week of gains. Technicals remain positive on daily chart for now.

As floating storage finally starts to get back to pre-pandemic levels. Relatedly, data firm Kayrros reported that onshore storage fell by over 20mb last week with the Chinese a big portion of that.

And another trading house reaffirms its $100 oil "potential" price. Argus.

Natural Gas (/NG) - Continues its bounce off the 20-DMA up another almost 2% this morning to to $5.07. Daily technicals remain negative for now.

Gold (/GC) - After falling yesterday continued to pull back today although remaining precariously above yesterday's lows. Currently at $1742. Daily technicals remain negative.

Copper (/HG) - Continues to struggle with resistance trading around flat levels. Technicals remain negative daily chart but are turning.

US Data

Only data point today will be new home sales which I'll put a report on later this morning.

Misc.

Random stuff:

Traders bet that the "greening" of the economy will pay off for commodities investors. WSJ

As Jim Paulsen sees support for "another leg up". BBG.

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.