July 13, 2021

Markets Today: Stocks high on earning hopes; times changing for ECB

Following a positive lead from Asia, US and EU equities have kick started the new week with a positive tone.

Todays podcast


Overview Start Me Up

  • US and EU equities start the new week with a positive tone
  • Banks lead US eq gains ahead of JPM and Goldman reporting tonight
  • UST yields edge a little bit higher. 10y UST auction well received
  • USD a tad stronger, AUD and NZD recover ground late in the session
  • Coming Up: NAB Business Survey, China Trade, US CPI and NFIB

If you start me up, If you start me up I’ll never stop –

The Rolling Stones

Following a positive lead from Asia, US and EU equities have kick started the new week with a positive tone. UST yields have edged a little bit higher with the 10y UST auction greeted with solid demand. The USD is broadly stronger, although the AUD and NZD managed to recover some ground in the latter part of the session.

Yesterday Asian equity markets closed in the green with investors reflecting an improvement in sentiment following the PBOC’s cut to the reserve requirement post the market close on Friday. China’s CSI 300 index gained 1.3% and the Nikkei closed 2.3% higher. After an initial wobble at the open, European equities traded higher with a notable preference for defensive sectors . The Stoxx Europe 600 climbed 0.69% with real estate (+1.6%), utilities (+1.4%) and health-care (+1%) outperforming.

Financials and communication have led the gains in the US with the US earnings reporting season getting underway in earnest tonight as JP Morgan and Goldman Sachs report their numbers tonight. Analysts expect earnings for the S&P 500 to be 64% above the year-ago levels, although the annual increase is flattered by the comparison to the Covid-depressed levels of Q2 last year.  The S&P gained 0.35% and the NASDAQ added 0.21% with the latter boosted by Tesla and Alphabet. Both US indices recorded new fresh highs.

UST yields edged up a little with the 2y rate 1.7bps higher to 2.27% and after trading to an overnight low of 1.3242%,  the 10y note is +1bps to 1.3662%. The US Treasury sold $58bn of 3y Notes at yields slightly higher than before the auction, but demand for the 10y auction was well received. The $38bn 10-year auction cleared at 1.371%, the lowest level since February and below the 1.374% yield before the bidding deadline. The auction’s 2.39 bid-to-cover ratio was in line with average for past six reopenings.

Yesterday, in an interview with Bloomberg ECB President Christine Lagarde told investors to prepare for new guidance on monetary stimulus in 10 days and signalled that fresh measures might be brought in next year to support the euro-area economy after the current emergency bond program ends . Lagarde said the July 22 Governing Council session — previously expected to be relatively uneventful — will now have “some interesting variations and changes.” She expects the ECB’s current 1.85 trillion-euro ($2.2 trillion) bond-buying plan to run “at least” until March 2022. That could then be followed by a “transition into a new format,” she said, without elaborating.

The comments suggest Lagarde wants to distance herself from any notion that the ECB could follow the likes of the Fed down the tapering path any time soon, presumably to add credibility to the new policy framework.  For the ECB, getting core inflation up to 2% in the first place (a feat it has managed just once in the past eighteen years) is a challenge in and of itself, especially when it has effectively exhausted its current range of policy instruments.  This morning the FT is running another interview with Lagarde, highlighting that the ECB President does not expect “unanimous consent and universal acceptance” at monetary policy meetings.

Moving onto the FX market, the USD is broadly and modestly stronger. The intraday chart shows USD gains accelerated during the European session, but then run out of steam as the US started the new week.  Both the DXY and BBDXY indices are ~0.15% higher relative to this time yesterday.

Looking at G10, CHF is the best performing pair just 0.05% down vs the USD while the other 9 pairs are down between 0.13% and 0.32%. NOK is at the bottom of the pile with AUD ( -01.6% @0.7476) and NZD (-.013% @0.6981) doing a little bit better. Both antipodean currencies recovered a bit ground in the latter part of the US session, after trading to overnight lows of 0.7449 AUD) and 0.6948 respectively.

In other news, US Treasury Secretary Janet Yellen made a new push to repair US ties with the EU, calling on the bloc to join forces to “counter threats to the principles of openness, fair competition, transparency and accountability.”. Adding that “These challenges include China’s unfair economic practices, malign behavior, and human rights abuses; the Lukashenka regime’s ongoing abuses in Belarus; and Russia’s continued and growing malign behavior,”

Coming Up

  • This morning Australia gets the NAB Business survey for June and then at midday Sydney time China releases trade data, also for June ($44.75bn surplus exp. vs $45.5 prev.). US CPI and the NFIB survey are out tonight
  • The June US CPI reading is expected to reveal some easing in inflation with the consensus for core at 0.4% m/m from 0.7% ( 4%yoy vs 3.8% prev.). The June NFIB headline index is expected to print at a solid 99.5, one tenth below its May reading.
  • Fed Kashkari, Bostic and Rosengren are on speaking duties and the US earnings reporting season gets underway in earnest with JP Morgan, Goldman Sachs and Pepsi on the reporting schedule tonight.

Market Prices

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