ON DECK FOR WEDNESDAY, JULY 15
KEY POINTS:
- Risk-on driven by elixir hopes
- BoC could offer impactful surprises today
- The US move on HK is like shooting the hostage…
- …but markets may not be treating it too seriously
- BoJ is just passing the time
- Gilts underperform post CPI upside
- CDN manufacturing, home sales should add to recovery vibe
- US releases should advance the recovery tracking
INTERNATIONAL
Another risk-on session is sweeping through global markets. Possible catalysts include various positive vaccine headlines, minus the nasty side effects that have apparently gone with some of them during trial phases. Thrill-seeking early adopters please apply! Another massive US bank earnings beat is also assisting the market bias.
HK stocks were flat but mainland China sold off by about 1–2% across the exchanges after Trump announced the US would end HK’s special status. China threatened to retaliate. It's doing a lot of that these days it seems as western powers circle the wagons against its tactics on multiple fronts. One reason that local stocks may not have sold off more is that there is a year-long fuse on the decision, kind of like the US decision to pull out of the WHO in about a year’s time. Take a look at Trump’s polling and perhaps discount both moves accordingly. Ending HK’s status seems to hurt Hong Kong residents more than mainland China as it’s kind of like shooting the victim to end a hostage taking.
- US equity futures are up by between ¾% (Nasdaq) and nearly 2% (DJIA) with the S&P in the middle. TSX futures are up by about ¾%. European cash markets are up by between 1¾% and 2½%. Asian markets were mixed overnight as Tokyo was up 1½%, Seoul was up ¾% and India was flat but mainland China sold off as noted.
- The USD is broadly lower as most major and semi-major crosses rally against it. CAD is appreciating but less so than the leading crosses ahead of the BoC.
- Sovereign bond curves are bear steepening in the US, with Canada putting in a milder version of that performance and the UK curve cheapening by 3bps across shorter maturities toward a 7bps sell off in 30s. 10 year EGBs are slightly cheaper on average.
- Oil prices are up by over 1%. Gold is trying to cling onto over US$1800/oz but is little changed.
The Bank of Japan was a total yawner as it left everything unchanged overnight other than updating forecast guesswork. Overall the results were generally as expected.
UK CPI inflation was low, but a little higher than guesstimated. Headline ran at 0.8% y/y (consensus 0.6%, prior 0.7%) and 0.1% m/m (0% consensus and prior). Core CPI was up 0.6% y/y (0.4% consensus, 0.5% prior) and 0.1% m/m (0% consensus and prior). Gilts are underperforming this morning and sterling is appreciating a touch more than average on a general down day for the USD.
CANADA
The Bank of Canada statement and MPR land at 10amET and the Macklem/Wilkins presser will be at 11amET. See my full preview (here) and the section in the week ahead for more. Obviously no policy rate change is expected as Governor Macklem defines the effective lower bound at 0.25%, at least for now, but balance sheet guidance could be material and we could see innovative new approaches.
Canada will update manufacturing figures for May (8:30amET) that should rebound smartly after the prior 29% m/m drop. Estimates are all over the map from a 5% to 20% gain and a median call of about 10% (I’m at 15%). We’ll see, but I went higher because manufacturing components to export figures were very strong, like a 76% m/m jump in autos and parts and a 15% rise in the petrochemicals category.
Canada also updates existing home sales at 9amET for last month. A very large gain is likely given local real estate board reporting including Toronto’s 80%+ m/m jump.
UNITED STATES
Another US bank earnings beat was delivered, but this one was massive. Goldman smashed consensus expectations with a nearly 60% earnings beat. EPS of US$6.26 compared to the average analyst forecast of US$3.95. Trading revenues—especially on the FICC side—were the main driver. Notch another bit of evidence that US analysts tend to lowball expectations into each earnings season ever since SOX legislation.
The US updates industrial readings including output in June (9:15amET) and the Empire gauge for July (8:30amET). The Beige Book snoozer will be at 2pmET. Recovery evidence is expected to continue.
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