In this July 9, 2021 morning market commentary, the host provides a comprehensive wrap of the week’s financial market dynamics. He notes a recent pullback in US equity indices, highlighting support around the 4,269 level and a rebound to the 4,300 range, while attributing the volatility to weaker global economic data, notably a lower‑than‑expected ISM Services PMI and a contracting employment sub‑index. The discussion moves to COVID‑19 developments, emphasizing rising case numbers in the UK, the Far East, and the US, the impact of vaccination rates, and emerging booster data from Pfizer. US Treasury yields are examined, with the 10‑year yield having fallen sharply from June support but now stabilising, influencing sector rotation that favours mega‑cap tech over financials. Asian market movements are covered, including a yuan rebound from a 2½‑month low, a weaker Korean KOSPI, and commodity price actions such as steady gold, a technical bounce in WTI crude, and the influence of OPEC indecision. Chinese inflation data (CPI 1.1% YoY, PPI 8.8%) suggest a modest slowdown, prompting speculation about policy easing. Geopolitical tension is highlighted by the US adding Chinese firms to an economic blacklist. The host also touches on a speculative shift toward Amazon after a Pentagon contract loss to Microsoft, and notes a dovish tone from Fed Governor Daly, contrasting with prior hawkish rhetoric. The segment concludes with a brief calendar of upcoming events (ECB minutes, Lagarde speech, G20 meeting) and a nod to the upcoming England‑Italy football match.
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Very good morning to you. It is Friday the 9th of July. Hope you're doing well. And as per always at the end of the week, just a reminder to check out the Market Watch podcast by Amplify. You just need to go on Apple Podcasts or Spotify, whichever platform you prefer, and just search for Amplify Live Market Watch. New episode coming out later on today where Piers, the head of trading, and I will have a chat about some of the main things that happened in markets this week. And certainly it's been quite an interesting and important week because we've had a considerable movement in a lot of different asset classes. And yesterday the US equity indices, as you saw, came under some considerable selling pressure, but I don't think it's yet room to quite panic, um, at this present point in time, because in the greater context of things, again, when you look at the daily chart on the S&P, even a pullback back down here to 4269.25, which would be a pretty decent, a strong area of support at that level, and the market got close to that, but we've managed to rebound and we're trading firmly back a 4300 handle at the moment. And, you know, why is this happening? There's a couple of different things that people are looking at. For one, prospects for the global economy have somewhat been pared back. We have seen some economic data earlier this week that seemingly acted as a bit of a catalyst, which was that ISM Services PMI figure was considerably lower than expected. The employment subcomponent was in contractionary territory after quite a significant decrease against the prior month. And this kind of feeds into perhaps a couple of data points just rolling over a little bit from that sharp acceleration that we were seeing. And people have started to unwind a little bit of that reopening trade and then layer in with that this idea that COVID and the Delta variant is still very much globally spreading at this point in time. And I'll talk about an update in the US. We're obviously seeing that in the UK. The Health Secretary, Sajid Javid, has been very clear that we are going to push ahead. There's going to be the, the reopening of the economy as planned on the 19th, of which, if England win the Euros, could also be a bank holiday, is what some people are talking about. But the point being there is he said the cases are going to go up at least into 50,000 in a few weeks' time, and then possibly up to 100,000 elsewhere as well. In underdeveloped countries, the same thing happening. And in the Far East, COVID is also seeing case rate upticks. So perhaps a bit of apprehension. And we know that so far vaccines still remain largely effective. However, various studies have also circulated this week suggesting that definitely your— how immune you are to symptomatic reaction to catching COVID if you've only had one vaccine is, is reportedly much lower than if you've had a double shot. And so, yeah, there's definitely things to consider and there's quite a bit of subsequent knock-on effect from a correlation point of view. US yields, in fact, Treasuries, they have pared a little bit this ramp that they've seen really initiated from Tuesday. This is the move that we can see here with which was around the Tuesday NYSE open and the ISM figure I just mentioned. Since then, yields have just been collapsing. Technically important, around beginning of the week, the US 10-year yield broke through the June support area, and that, that kind of triggered a deeper move down to the February lows that we're trading at the moment in US 10-year yields. But you can see here the 10-year's backed off, so yields just coming off the floor a little bit, but still on course for one of the biggest weekly slides in US 10-year yields. Um, since June of last year, to put that in comparison. And so from a sector perspective, we've seen mega-cap tech benefit, and financials have been one of the worst performing. So very much a reflection of the reversal of the general reopening trade that we were seeing just a few weeks ago, in fact. And then elsewhere overnight in Asia, the Chinese yuan rebounded overnight So with some of that yield move, um, yields picking up, that is, in the overnight session late yesterday, the dollar's also just picked up a touch. And so the Chinese yuan has rebounded overnight as well from a 2.5-month low, but it's still set for a 6th straight weekly loss, of course. And the South Korean KOSPI was weaker overnight as well, impacted by the virus, new record cases in fact in South Korea. for a second consecutive day, resulting in raising of restrictions in Seoul to the highest level for nearly 2 weeks, beginning from the 12th of July. So yeah, definitely quite a bit going on, but what I would say is that that's pretty much been the theme for the week. Actually, as far as this morning is concerned, I'd say things have stabilized to a large degree. And so yes, probably one of the most pronounced moves is the US T-note, which is actually down about 10 ticks at the moment going to the European Open, which is a decent drift south in the overnight session. But otherwise, currency markets are pretty flat. You've had a false move to the downside here through 7 AM this morning just gone in the British pound, which had a short foray beneath the overnight Asia-Pac low. And that came as the latest UK GDP number came out for May, month-on-month 0.8%. Versus expected 1.5%. So quite a bit weaker than expected. However, that move not being able to be sustained at this point in time. Otherwise, yeah, the currency pair is pretty quiet. Gold's basically unchanged, uh, sitting at the $1,800 handle. WTI crude, um, yeah, nice, nice technical move yesterday. Um, just looking at the trend line from the week to date um, high that we printed going back to the beginning of the week. We got retested there midweek, and then yesterday we broke above, and then you can see acted as nice support off that level to then see a bit of recovery late to the US session. A bit of volatility overnight, the APAC session, um, still quite a bit of concerns overnight in Asia about economic slowdowns. Um, there's some inflation numbers we'll look at in a moment. There's still a lot of friction between US and China, and then the crackdown that's going on with some of those tech names, uh, the car-hailing firm Didi being the one in focus this week, of course, as the Chinese authorities look to control more and more the data from some particularly these US-listed Chinese firms. But it's stabilized since, and all in all, you know, we're a decent amount off the lows that we've seen, um, only in yesterday's session. This time yesterday we are trading, you know, well over $2 above that current price. So bit of reversal being put in there for the crude oil market, which is not unusual after quite, quite a decent down week, of course, that we've seen in the crude space with the fallout generally with some of the OPEC indecision that we've seen. So let's get, let's get to it. Let's talk about some of the news and what's going on. Now, from a data perspective, I thought I'd talk about Chinese inflation first. We had the CPI number overnight, and perhaps just to give you bit of a visual cue. So both PPI and CPI slowed slightly from their levels in May, as you can see here. The CPI number for June came in year-on-year 1.1%, below the expected 1.3% and down from the previous 1.3%. And the PPI was in line at 8.8%, but a slight moderation from the peak of 9% that we saw last month. The pullback, quite a few people are saying, may well create a bit of a chance for authorities to ease i.e., i.e., ease policy. And that was because speculation yesterday, of course, was rife about the reduction potentially of the reserve requirement ratio, with commodity prices mostly flat in June after rallying for more than a year. And of course, commodity price pressures have been one of the reasons why perhaps it would have restricted the ability for the Chinese authorities to counteract that with higher rates. And so the fact that In June, commodity prices have, have moderated. The gap between PPI and CPI is narrowing, and part of the reason is regulators' measures that we've seen, of course, in recent weeks in China to stabilize commodity prices. But there's also the factor that consumer demand still remains relatively weaker as well. So definitely something to watch as we go further forward. Chinese economic data again like that global description that I was saying, has been moderating. But if commodity prices now start to come off the boil, definitely this idea of kind of focused on the more hawkish side of inflation, given market movement we've seen this week, is deteriorating the strength of that view as it plays more into the hand then that perhaps we go full tilt back into that idea of the Chinese looking to, to keep momentum going by finding ways to further support the market. The other thing that came out overnight, continued friction, of course, between the Biden administration, who has said as early as today to add more than 10 Chinese companies to its economic blacklist over the alleged human rights abuses and high-tech surveillance in Beijing, according to two sources speaking with Reuters in the overnight session. So just the latest, uh, their development that's going on. But Chinese equities, much with just the, the general Asia region, were lower following the handover from the US, which we did come off the lows, of course. Um, and so we didn't finish at the worst point of the day by, by a clear margin, but we were down around 0.9% in the S&P, 0.8% in the Dow, 0.6% in terms of the NASDAQ. Interestingly, and almost as a joke, some of the traders in the community talking this morning that You know, is Amazon the new kind of safe haven? And, uh, obviously benefiting earlier this week from the Pentagon contract being dropped with Microsoft, and that could potentially play into the hands of Amazon. That's a multi-double-digit billion-dollar contract. But the idea being that the new yield environment that's been developing over recent days plays favorable to big tech, and big tech have deep pockets and can navigate kind of economic volatility And so of all the companies, you know, even in a low-yield environment, is it the fact that, you know, corporates are good investment opportunities in that respect? And so big tech has really had a, a good couple of days in, in that respect. The other thing, of course, is COVID, as I mentioned, and US COVID cases are up around 11% against the previous week, almost entirely among young people. Who have not yet been vaccinated. And this, of course, is one of the, the things that we're likely to see in other Western developed nations as we go through this period of unlocking from the final parts of the— like what we've seen in the UK, the final step to dropping of a lot of the social distancing measures and other restrictions that have been in place. And so no doubt that case rates will pick up amongst the young, particularly the unvaccinated, with COVID and with the Delta variant very much in focus. How much of a surprise is that? Well, as I said earlier, it's not really a surprise. Um, the fact of the matter is, is that most people are anticipating these numbers to go north. I mean, as kind of prepared from the Health Secretary in the UK. But if you run the numbers in the US and you're modeling that of the Delta variant, which is more advanced in the UK and trying to extrapolate those numbers and translate it into America. America's probably got another 3 or 4 weeks worth of case rates going up. So that increase of 11% over the previous week is not surprising. It probably will continue to go up considerably in the period ahead. Um, at the moment, the markets, as you can see, it's, it's part of the variables that have weighed on sentiment this week for sure. Um, But one thing I would definitely be keeping an eye on as well going forward is the fact that, you know, vaccination rates have been moderating in the US. You know, the curve of vaccinations has been plateauing after that very fast, um, kind of pickup that we saw just 3 or 4 months ago. And so from that, from that perspective, there definitely will be a new wave in America. It's just a case of how high is that number. And how effective do these vaccines remain, and what, what does that look like in terms of the ability for the country to do, to go through this reopening phase, which is obviously economically very important. On the back of this, the other thing then is, uh, Fed's Daly, who is a voter but a well-known leaning dove, did come out and say, like, in an FT interview this morning, that low rates of vaccinations in some regions of the world pose a threat to the US as as well as the global economic recovery. So yeah, kind of a far cry from a lot of the hawkish commentary we were hearing last week. You know, very interesting in fact that this week, if you think about the Fed rhetoric you've had this week, it's been very quiet. And if you think about the week before, it was hawks talking every day about the idea of we should be tightening policy, talking about tapering, inflation. Nothing this week. And that's because the world has changed to a certain degree as far as investors see it reflected in market prices of where we are at the moment. And it would be much more in fitting with what Daly is saying at the moment. And this goes a large way to explain then why, you know, as far as Fed tightening is concerned, or panic about that being accelerated, I think has been put to bed, at least for the time being. The other thing, of course, that came out last night, which was Definitely quite interesting. Pfizer plans to request US emergency authorization as soon as next month for a third booster dose of its COVID-19 vaccine, based on early data showing it can sharply increase immune protection against the coronavirus. So the company has received initial data from the early human study showing that a third dose of its existing coronavirus vaccine is safe and can raise neutralized neutralizing antibody levels by 5 to 10-fold against the original vaccine. So booster shots has always been something that's been mentioned for a while. I think the CDC, it was, who said last night that at the moment they're not recommending a booster shot because at the moment the vaccines that exist are doing the job in terms of their efficacy rates. But I would anticipate authorities to really be saying that type of messaging in order to keep confidence high when there's still a large portion of population unvaccinated. And so booster shots, yeah, great. I mean, this, this, um, this data would suggest that, uh, for sure increasing neutralizing antibodies by 5 to 10-fold, I mean, that would be fantastic if that is the case, and certainly would then be more preventative from further mutations beyond that of the Delta variant. Um, looking at the calendar for today, it's really quiet. In fact, the UK data out of the way, we do get the ECB minutes which have been delayed and will be coming out at 12:30 later on today. Uh, there's some CAD jobs data coming out at 1:30, but no major US data really today. Um, we do have ECB's Christine Lagarde speaking at an OECD conference from 11 AM London time, and a group of G20 finance ministers and central bankers is going to be meeting in Venice today as well. So maybe look out for some comments over the weekend. But that is it. So I'll leave it with you. Good luck to the England football team, of course, kicking off against Italy on Sunday night, not only to, to win for the first time in a major tournament since 1966, but the fate of potentially having an unprecedented UK bank holiday on the day of which lockdown finishes on the 19th. Is all in the hands of the boys. So good luck, uh, enjoy the game, have a great weekend. Thanks very much, guys.
