Market movers today
- The key market movers today are mainly from the United States. A key release is the retail sales for July, which are expected to decline amid the spread of the delta variant.
- The U.S. industrial production data for July are also released. The data should show higher production as companies aim to reach the ordered backlog emerged over the pandemic.
- This afternoon, Fed Chairman Jerome Powell in a virtual city hall meeting with teachers and students will give his verdict on the U.S. economy and monetary policy, but he will likely wait until next week for Jackson Hole to give his verdict on the timing and duration of the next decrease in quantitative attenuation.
- Overnight, the Reserve Bank of New Zealand (RBNZ) is widely expected to raise the official monetary rate by 25 basis points on the back of strong domestic economic developments and a rapid recovery in the labor market. Markets were fully priced in the migration along with one additional migration before the end of the year, which leaves little high potential for NZD even if RBNZ takes a very sharp stance.
The 60-second overview
Weakening manufacturing momentum in the US: In the US, Empire State’s regional business cycle indicator fell more sharply than expected in August after a major jump in July. Despite the fall, the indicator is still showing expansion. On the price side, received prices increased while prices paid for inputs fell (suggesting that commodity pressures are decreasing). Finally, delivery times have lengthened, suggesting that supply chain problems are not yet mitigating.
Chinese data also weaker than expected: In China, data on industrial production and retail sales were significantly disappointing yesterday. Industrial production fell to 6.4% y / y (consensus 7.9% y / y, previous 8.3% y / y) and retail sales decreased to 8.5% y / y (consensus 10.9% y / y, previous 12.1% y / y). Effects of previous policies tightening along with recent new blockades and severe flooding are likely to be the main reasons behind the slowdown. Export growth also appears to be disappearing judging by PMI.
Stocks: Global stocks fell yesterday although US stocks made a big turnaround during the day and ended highest with some major indices in green. The underlying tone was still slightly negative as investors showed a strong preference for defensive stocks. S & P500 also posted a fifth-straight record yesterday and its 48 (!) All-time this year. Health supplies outperformed consumers, while energy was the biggest loser yesterday as oil prices fell further. Asian markets are mostly red although Japan opposes the trend with a small gain. Covid-19 news from Asia is even worse, with Japan declared a state of emergency in seven more counties. European futures are flat this morning while US futures are 0.2% lower.
FI: The risk appetite was sharp yesterday, which led to the classic bond market response of lower Bund yields and wider spreads.
FX: EUR / USD and Scandies fell further yesterday. Despite a general risk sentiment in markets, EUR / PLN declined slightly after higher-than-expected Polish core inflationary pressures. For a broad dollar, the focus today is on U.S. retail sales.
Credit: Credit was squeezed yesterday when iTraxx Xover widened 2bp (up to 234bp) and Main 0.2bp (up to 46.2bp). HY bonds widened 4bp on average while IG only widened marginally.