Weekly Market Update: Evergrande worries roil markets, while Fed confident tapering can start soon
Trading commenced this week with a thud, as worries about contagion from a potential debt default by China’s Evergrande caused a flight from risk assets, notably stocks. At one point on Monday the Dow lost nearly 1,000 points and US equity markets saw a roughly 5% drawdown from the recent highs intraday. Adding to the consternation, conservative Democratic Senator Machin noted he thought Congress should take a “strategic pause” until 2022 before taking up President Biden’s $3.5T social spending package, casting doubts on the fate of the infrastructure bill that is being moved in parallel. Simultaneously, time was running out for a deal to raise the debt ceiling leaving a potential US government shutdown looming. Stocks rebounded somewhat late in Monday’s session and steadied as investors turned their attention the mid-week FOMC meeting.
On Wednesday, the US Federal Reserve signaled it could start reversing its pandemic stimulus programs in November and affirmed market expectations that the central bank could also begin raising interest rates next year. Chairman Powell’s tone was somewhat more hawkish than previous as he seemed to downplay emphasizing the transitory nature of rising inflation while noting it was his view that the taper test had been “all but met”. The next day the BOE statement acknowledged some recent developments have strengthened the case for modest tightening. Global treasury yields started to track significantly higher and stock markets roared back. News that the FDA formally authorized a booster dose of Pfizer-BioNTech COVID-19 vaccine for expanded populations may have aided the sharp rebound in sentiment. Before the opening bell on Friday US indices were up on the week and US Treasury yields had broken above key levels that had served as resistance throughout the summer. Commodity prices had come back from Monday’s weakness and the US dollar held at firmer levels. Crypto markets experienced modest downside pressure, hurt in part by concerned concerns about Chinese regulation. For the week, the S&P gained 0.5% and the DJIA added 0.6%, while the Nasdaq was flat.
In corporate news this week, Nike’s Q1 results weighed on the Dow after management indicated they expect to continue to struggle with supply chain constraints through the holiday season. Shares of FedEx also dropped as higher wages hit its Q1 earnings, and the shipping giant said it planned to further increase US prices. Carnival Cruises said it would likely be able to restart over 50% of its fleet capacity by Oct and that its cumulative bookings for H2’22 were ahead of its 2019 pace. Uber upgraded its outlook, saying it will hit positive adj EBITDA in July and August and was tracking positive for Q3, ahead of its prior guidance. Pfizer released encouraging topline results from the trial of its COVID-19 vaccine in children 5 to 11 years, and expects data from 2-5 year old and 6 months-to-2 year old cohorts as soon as Q4’21.
SUN 9/19 3333.HK Next interest payments due Thursday, Sept 23rd, to be closely watched for possible default and spillover (US) US investigating 30M vehicles over possible Takata airbag defects - press
MON 9/20 (US) Reportedly Senator Manchin (D-WV) believes Congress should take a "strategic pause" until 2022 before voting on Pres Biden’s $3.5T social-spending package - Axios (UK) UK meat industry said to have warned about carbon dioxide (CO2) shortage; some meat firms have 5 days of available CO2 supply - press PFE Announces positive topline results from pivotal trial of COVID-19 vaccine in children 5 to 11 Years; Data from children 2-5 years of age and children 6 months to 2 years of age expected as soon as Q4-2021 DHI Cuts Q4 Rev $7.7-7.9B v $8.23Be (prior $7.9-8.4B), homes closed 21.3-21.7K (prior 23-24.5K), raises home sales gross margin 26.5-26.8% (prior 26.0-26.3%) *(US) SEPT NAHB HOUSING MARKET INDEX: 76 V 74E (US) White House Covid adviser Zients: Confirms U.S to reopen travel to fully vaccinated foreign nationals, CDC to determine what will be deemed fully vaccinated APD Announces N.A. price increase for liquid and bulk industrial gas products for merchant customers, effective Oct 1 FDX Shipping rates to increase on average by 5.9% for US domestic, US export, US import services; Effective Jan 3 ,2022 LEN Reports Q3 $3.27 v $3.24e, Rev $6.94B v $7.27Be; Q4 guidance implies FY21 deliveries 60K (guided 62-64K) RDSA.UK Signs agreement to sell Permian interest for $9.5B to ConocoPhillips (US) Senators Durbin and Cantwell sent letters to DOJ and FAA urging them to take tougher action on dangerous airline passengers (CA) Canada PM Trudeau projected to win 3rd term; Liberal party to form Govt (minority) - CTV
TUES 9/21 (CN) Due to concerns on Evergrande debt repayment, Ashmore, BlackRock and Pacific Investment Management said to be selling property sector holdings in China - US financial press (CZ) Czech Central Bank's Holub (chief economist): likely to support a 50bps hike at Sept 30's meeting UBER Narrows Q3 gross bookings $22.8-23.2B (prior $22-24B); Says achieved positive adj EBITDA in July and Aug and tracking positive for Q3 (ahead of prior guidance) ENT.UK Confirms cash and stock proposal from DraftKings (NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: +1.0% v +4.0% prior (US) SEC Chair Gensler: Securities rules give the SEC great authority over crypto assets; Do NOT see much long-term viability for cryptocurrencies - WSJ (US) TREASURY $24B 20-YEAR BOND REOPENING DRAWS 1.795%, BID-TO-COVER 2.36 v 2.33 PRIOR COIN CEO: Confirms plans to submit proposals to regulators by next month - Techcrunch conf comments (US) House of representatives agrees on bill to suspend debt ceiling through 2022 via date method only, funds Govt through Dec 3rd; the final vote was 217 to 207
WEDS 9/22 HUN Implements €125/t Natural Gas Surcharge on MDI Sales in Europe, effective Oct 1st (CN) Morgan Stanley analysts see China to potentially initiate a managed debt restructuring of Evergrande next week PFE PFE-BNTX expands collaboration with US to provide 500M additional COVID-19 vaccine doses, for a total of 1.0B doses, at not-for-profit price for donation to poorest countries *(US) AUG EXISTING HOME SALES: 5.88M V 5.89ME *(US) DOE CRUDE: -3.5M V -2.5ME; GASOLINE: +3.5M V -1ME; DISTILLATE: -2.6M V -1ME *(US) FOMC LEAVES TARGET RANGE UNCHANGED BETWEEN 0.00-0.25% (AS EXPECTED); POLICYMAKERS EXPECT FIRST RATE HIKE IN 2022; BOND TAPER MAY SOON BE WARRANTED (US) Fed Chief Powell: We discussed pace of tapering and generally agreed that if economy plays out as expected we could finish tapering by middle of next year - post rate decision press conference (US) Fed Chief Powell: We could reach conclusion that both tests have been met for tapering as soon as the next meeting; Taper test is 'all but met'- rate decision Q&A PFE FDA Authorizes Booster Dose of Pfizer-BioNTech COVID-19 Vaccine for Certain Populations
THURS 9/23 EO.FR Cuts FY21 Rev €15.5B (prior >€16.5B) cites major cut by IHS Markit of global auto production forecast for H2 2021 MRNA CEO: COVID-19 pandemic could be over in a year with increased vaccine production ensures global supplies - Swiss press interview *(FR) FRANCE SEPT PRELIMINARY MANUFACTURING PMI: 55.2 V 57.0E (10th month of expansion but lowest reading since Jan 2021) *(DE) GERMANY SEPT PRELIMINARY MANUFACTURING PMI: 58.5 V 61.4E (15th month of expansion but lowest reading since Jan 2021) *(CH) SWISS NATIONAL BANK (SNB) LEAVES KEY RATES UNCHANGED AT -0.75%; AS EXPECTED *(EU) EURO ZONE SEPT PRELIMINARY MANUFACTURING PMI: 58.7 V 60.3E (15th month of expansion but lowest reading since Feb 2021) *(NO) NORWAY CENTRAL BANK (NORGES) RAISES DEPOSIT RATES BY 25BPS TO 0.25%; AS EXPECTED; Most likely to raise Deposit Rate further in Dec; First G10 to hike post-pandemic *(UK) SEPT PRELIMINARY MANUFACTURING PMI: 56.3 V 59.0E (16th straight expansion but lowest reading since Feb 2021) 3333.HK China's financial regulators said to have given instructions to Evergrande in order to avoid near-term dollar bond default - press 3333.HK (CN) China authorities said to have asked local governments to prepare for potential fall of Evergrande Group - US financial press (EU) ECB members reportedly see risk of inflation exceeding projections; Some said to be open to increasing APP buying (conventional QE) temporarily to avoid cliff effect - press 3333.HK (CN) Evergrande dollar bondholders said to still have not received interest payment on 5-year bond due Thursday, Sept 23rd - press *(UK) BANK OF ENGLAND (BOE) LEAVES INTEREST RATES UNCHANGED AT 0.10%; AS EXPECTED *(TR) TURKEY CENTRAL BANK (CBRT) CUTS ONE-WEEK REPO RATE BY 100BPS TO 18.00%; NOT EXPECTED *(UK) BOE SEPT MINUTES: VOTED 9-0 TO LEAVE INTEREST RATES UNCHANGED AT 0.10% AAPL Reportedly iPhones may need to be redesigned following push from the EU on a common USB-C charger - press CRM Raises again FY22 Rev $26.3-26.4B (prior $26.2-26.3B) - PR ahead of investor day *(US) INITIAL JOBLESS CLAIMS: 351K V 320KE; CONTINUING CLAIMS: 2.85M V 2.60ME CCL Reports on pace to restart over 50% of fleet capacity by Oct; Plans for additional ship restarts to reach overall goal to return 65% of capacity by Dec 31st *(US) SEPT PRELIMINARY MARKIT MANUFACTURING PMI: 60.5 V 61.0E (US) NY Fed takes $1.35T in RRP program (record high) at 0.05%; 77 participating and accepted counterparties PFE (US) CDC Advisory Committee on Immunization Practices (ACIP) votes unanimously (15 votes yes; 0 votes No; 0 votes to Abstain) unanimously, in favor of a single PFE-BNTX COVID-19 vaccine booster dose being recommended for persons aged >= 65 years, and LTCF* residents, at least 6 months after the primary series under the FDA's Emergency Use Authorization (EUA) NKE Reports Q1 $1.16 v $1.12e, Rev $12.2B v $12.5Be\ COST Reports Q4 $3.76 v $3.55e, Rev $62.7B v $62.8Be NKE CFO: Expects Q2 Rev growth to be flat to down low single digits as factory closures impact production and delivery for the holiday and spring seasons; Expect all geographies to be affected by supply chain issues - earnings call comments 3333.HK *USD BONDHOLDERS SAY HAVE NOT YET RECEIVED INTEREST PAYMENTS [in line with report that circulated during the NY morning on Thurs]
FRI 9/24 *(DE) GERMANY SEPT IFO BUSINESS CLIMATE SURVEY: 98.8 V 99.0E (CN) China State Planner NDRC: Declares all crypto related activities and transactions illegal; To strictly prohibit financial support for new cryptocurrency mining projects (US) Fed's Mester (non-voter, hawk): Supports QE tapering in Nov and concluding over H1 2022; See conditions for rate liftoff met by end of 2022 CCL Reports cumulative advanced bookings for H2'22 are ahead of a very strong 2019 (US) AUG NEW HOME SALES: 740K V 715KE