Friday, August 16, 2019

Plunging bond yields keep investors jittery

TradeTheNews.com Weekly Market Update: Plunging bond yields keep investors jittery
Fri, 16 Aug 2019 16:03 PM EST

Global markets spent the week beholden to the specter of crumbling interest rates amid ongoing global uncertainty. Volatility rose and volumes retreated likely amplifying how reversals in sentiment manifested in a whipsawing market. Monday saw Hong Kong’s international airport effectively shut down by protestors, resulting in continued speculation about a potential intervention by the mainland. Also, the Argentine peso, bonds, and stocks all dropped precipitously following a primary defeat for the business-friendly incumbent Macri. On Tuesday, equities rose sharply on what was viewed as a positive development in the US/China trade negotiation. Namely, the US Trade Rep’s office announced that the impending fourth round of China tariffs scheduled to take effect on September 1 will be delayed until December for some key consumer goods, with the explanation that the White House didn’t want to crimp consumers’ holiday spending. Apple and its suppliers along with other key cogs in the consumer electrics chain surged higher. The SMH jumped 3% on the news and USD/CNY dropped 1.5% back toward the key 7.00 level. Gold and silver prices slumped as safe haven trades unwound.

Wednesday stock markets essentially gave back all of the previous day’s gains after global growth concerns resurfaced in force. Weak data out of China and Germany led to further inversions along sovereign yield curves. The widely followed US 2/10-year spread finally dipped into negative territory flashing a well-established recession warning signal for the US economy. Risk assets came under significant pressure, led by selling in stocks. US banking names dropped 2-3% on the day of the inversion, while the Dow finished down a whopping 800 points. Oil prices moved lower alongside weakness in emerging markets and some high yield debt as well. By Thursday, global interest rates continued to move lower. The US 30-year bond yield dipped below 2% for the first time ever, but the 2/10-year spread managed to stay in positive territory. Strong July retail sales data changed the outlook for the Q3 consumption spending data considerably while productivity accelerated higher. The numbers in aggregate will likely resulted in forecasters raising US Q3 GDP forecasts but overall had little effect on trading. Separately, the Euro moved lower and European bond yields dropped to fresh record negative levels following dovish commentary from the ECB’s Rehn underscoring the belief the ECB will do “whatever it takes.” The US 10-year yield subsequently dipped below 1.5% first time since 2016 before moving higher into the Thursday’s closing bell. On Friday, stocks, yields and risk assets continued to bounce back, helped in part by renewed press speculation that Germany could give up balanced budget goals and resort to deficit spending in the event of a recession. For the week, the S&P lost 1%, the DJIA dropped 1.5%, and the Nasdaq gave up 0.8%.

As earnings season wound down, retailers and tech hardware were in focus this week. Walmart reported above consensus and guided higher as its US SSS remained close to 3% and e-commerce sales surged. Macy’s shares plummeted after the company slashed its EPS outlook and noted that rising inventories remain an issue. Applied Materials came under pressure despite beating on the top and bottom line after forecasting a gradual industry recovery starting next year with flattish margins in a challenging environment. Nvidia jumped after posting an earnings and revenue beat, despite seeing weaker than expected data center revenue. Cisco Systems shares fell on declining business in China, saying it is being “uninvited” from bidding on contracts with state-owned enterprises in that country. Deere earnings came up short and the equipment company cut its outlook, citing delayed purchases from farmers amid the US-China trade dispute. Viacom and CBS finally consummated their long-discussed reunion, merging in an all-stock deal to contend within the increasingly competitive media sector.


SUN 8/11
(AR) Argentina Presidental opposition candidate Fernandez beats President Macri in primary vote

MON 8/12
2330.TW Reports Jul (NT$) Rev 84.8B v 74.4B y/y
(HK) Hong Kong closes airport citing serious disruptions in operation; activate emergency center
*(US) JULY MONTHLY BUDGET STATEMENT: -$119.7B V -$120.0BE

TUES 8/13
*(UK) JUN AVERAGE WEEKLY EARNINGS 3M/Y: 3.7% V 3.7%E; WEEKLY EARNINGS (EX-BONUS) 3M/Y: 3.9% V 3.8%E (fastest pace since the 2008-09 global financial crisis)
*(UK) JULY JOBLESS CLAIMS CHANGE: +28K V +31.4K PRIOR; CLAIMANT COUNT RATE: 3.2% V 3.2% PRIOR
(DE) GERMANY AUG ZEW CURRENT SITUATION SURVEY: -13.5 ( lowest level since May 2010.) V -6.5E; EXPECTATIONS SURVEY: -44.1 (lowest since Dec 2011)) V -28.0E
*(US) JULY CPI M/M: 0.3% V 0.3%E; CPI (EX-FOOD/ENERGY) M/M: 0.3% V 0.2%E; CPI NSA: 256.571 V 256.411E
*(CN) CHINA JULY INDUSTRIAL PRODUCTION Y/Y: 4.8% V 6.0%E (slowest growth since Feb 2002); YTD Y/Y: 5.8% V 6.0%E
*(CN) CHINA JULY RETAIL SALES Y/Y: 7.6% V 8.6%E; YTD Y/Y: 8.3% V 8.4%E

WEDS 8/14
*(DE) GERMANY Q2 PRELIMINARY GDP Q/Q: -0.1% V -0.1%E; Y/Y: 0.4% V 0.1%E
*(EU) EURO ZONE Q2 PRELIMINARY GDP: Q/Q: 0.2% V 0.2%E; Y/Y: 1.1% V 1.1%E
700.HK Reports Q2 (CNY) Adj Net 23.5B v 21.1Be, Op 27.5B v 21.8B y/y, Rev 88.2B v 93.4Be
*(US) 2/10-YEAR YIELD CURVE INVERTS FOR FIRST TIME SINCE MAY 2007
M Reports Q2 $0.28 v $0.46e, Rev $5.55B v $5.63Be; strategic initiatives on track
992.HK Reports Q1 Net $162.2M v $152Me, Op 343M v 180M y/y; Rev $12.51B v $12.5Be
*(AU) AUSTRALIA JULY EMPLOYMENT CHANGE: +41.1K V +14.0KE; UNEMPLOYMENT RATE: 5.2% V 5.2%E

THURS 8/15
*(UK) JULY RETAIL SALES (EX-AUTO/FUEL) M/M: +0.2% V -0.2%E; Y/Y: 2.9% V 2.3%E
*(CN) China Finance Ministry State Council Tariff Committee: Will have to take countermeasures on US moves; US actions violates consensus reached in Osaka at G-20 meeting in Jun
(HK) Hong Kong Govt cuts 2019 GDP growth forecast from 2.0-3.0% to 0.0-1.0% citing ongoing political unrest; confirms stimulus measures of HK$19.1B
WMT Reports Q2 $1.27 v $1.21e, Rev $130.4B v $130.5Be
*(US) Q2 PRELIMINARY NONFARM PRODUCTIVITY: 2.3% V 1.4%E; UNIT LABOR COSTS: 2.4% V 2.0%E
*(US) JULY ADVANCE RETAIL SALES M/M: 0.7% V 0.3%E; RETAIL SALES (EX-AUTO) M/M: 1.0% V 0.4%E
*(US) AUG PHILADELPHIA FED BUSINESS OUTLOOK: 16.8 V 9.5E
*(US) JULY INDUSTRIAL PRODUCTION M/M: -0.2% V 0.1%E; CAPACITY UTILIZATION: 77.5% V 77.8%E
(US) Pres Trump: any China trade deal has to be on "our terms" - syndicated radio interview
(EU) ECB's Rehn (Finland): ECB needs to have significant and impactful easing package in Sept; weakening economy justifies a monetary policy response - press interview
(US) Atlanta Fed raises Q3 GDP growth to 2.2% from 1.9%
*(MX) MEXICO CENTRAL BANK (BANXICO) CUTS OVERNIGHT RATE BY 25BPS TO 8.00%; NOT EXPECTED
(US) Fed's Bullard (dove, voter): Would like to take action to make sure we hit our inflation target; doesn't want to prejudge what action Fed might take at next meeting, but wants to take action - Fox Business interview
(US) White House Trade Adviser Navarro: thinks Fed's Bullard virtually guaranteed rate cut at next meeting - Fox Business interview
AMAT Reports Q3 $0.74 v $0.70e, Rev $3.56B v $3.53Be
NVDA Reports Q2 $1.24 v $1.15e, Rev $2.58B v $2.55Be
(JP) Japan Investors Net Buying of Foreign Bonds: ¥173.1B v ¥292.0B prior week; Foreign Net Buying of Japan Stocks: -¥187.0B v -¥339.9B prior week
(CN) China NDRC: To roll out plan to boost population's disposable income for 2019-2020; will stick to deleveraging and avoiding risks, which is not in conflict with stabilizing growth; keep pushing for companies bond-to-equity swap

FRI 8/16
OPEC Monthly Report: cuts outlook on 2019 global demand growth (2nd cut in last 3 months)
*(US) JULY HOUSING STARTS: 1.191M V 1.256ME; BUILDING PERMITS: 1.336M V 1.270ME
*(US) AUG PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 92.1 V 97.0E (lowest since Jan)
(DE) Germany govt reportedly is prepared for deficit spending if recession hits - Der Spiegel