Live Markets: And now some yell'n about rates
04/05/2021 17:24
* Major U.S. indexes slide; Nasdaq down >2%
* Tech weakest major S&P sector; energy leads gainers
* Dollar, crude rise; gold now off ~1%, Bitcoin off >5%
* U.S. 10-Year Treasury yield ~1.59%
May 4 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com
AND NOW SOME YELL'N ABOUT RATES (1208 EDT/1608 GMT)
Major U.S. indexes remain under pressure around the midday
mark of the trading day. .N
The tech-laden Nasdaq .IXIC continues to take the biggest
hit. The IXIC is now down more than 2.5% with Apple AAPL.O
providing the biggest negative impact. FANGs .NYFANG , chips
.SOX , and renewable energy .ECO plays are all especially
weak, with losses of around 3%-5%.
Value plays are now actually showing resilience, with energy
.SPNY , financials .SPSY , and materials .SPLRCM slightly
positive.
Meanwhile, adding to the mix of the weakness out of the
gate, stocks came under added pressure in the wake of Treasury
Secretary Janet Yellen remarks at a virtual event put on by The
Atlantic. urn:newsml:reuters.com:*:nL1N2MR1GC Among her comments on the economy was
that "reallocation may result in some small increases in
interest rates." urn:newsml:reuters.com:*:nN9N2JO02B
After dipping to a low of 1.5570% earlier, the U.S. 10-Year
Treasury US10YT=RR yield has now clawed its way back to around
1.59%, putting it down just slightly on the day. urn:newsml:reuters.com:*:nL1N2MM268
Here is where markets stand:
(Terence Gabriel)
*****
EUROPE: "MICRO FLASH CRASH" = MASSIVE LOSSES (1155 EDT/1555
GMT)
It's fair to say that morning trading in Europe qualified as
fairly boring with the STOXX 600 pretty much unchanged.
The only form of excitement was on travel and leisure
shares, lifted by hopes Europe's holiday season would actually
go ahead.
Then the unexplained "micro flash crash" occurred, sending
Bund yields, European equities and U.S. futures sharply lower.
As the dust settles at the close, the losses are quite
heavy, particularly on Germany's DAX, which just had its worse
day since last December, with a 2.5% fall.
The European tech index .SX8P got hammered in the same
way, losing 3.8%, its worse performance since October.
So, what really happened today? A brief 'sell everything'
event in which Big Tech took the biggest beating?
Analysts and traders have been listing lots of warning
signals in the previous days and it's not that surprising to see
a retreat occurring after stocks reach new record highs.
Valuations seem stretched and positioning fairly aggressive
so a little nervousness is to be expected.
While a trader said the Nasdaq looked like it was confirming
a double top pattern, some analysts mentioned tensions with
China, others algos possibly doing their thing and who knows,
why not a fat finger triggering a chain reaction?
Anyhow, the market action between stocks and bond yields
this morning is food for thought so here's a chart showing what
happened a few hours ago:
(Julien Ponthus, Danilo Masoni and Dhara Ranasinghe)
*****
TRADE BALANCE, FACTORY ORDERS: U.S. DEMAND OUTGROWS ITS
BRITCHES, FOR NOW (1100 EDT/1500 GMT)
Robust fiscal stimulus and an accelerated vaccine rollout
has fueled a robust demand renaissance in the U.S., but an
uneven global recovery and supply scarcity, as highlighted by
economic data released on Tuesday, present near-term hindrances.
The gap between the value of U.S. goods and services
exported internationally and those imported from America's
trading partners USTBAL=ECI widened by 5.6% in March to $74.4
billion - a record deficit - according to the Commerce
Department. urn:newsml:reuters.com:*:nL1N2MR0WF
While both imports and exports increased, domestic demand
for foreign goods, driven by a robust U.S. recovery from the
pandemic recession, is outpacing world demand for U.S. goods.
"Domestic demand will keep a strong pull on imports, thanks
to improved health conditions, reopenings, and historic fiscal
expansion," writes Oren Klachkin, lead U.S. economist at Oxford
Economics.
"Meanwhile, the softer global recovery will limit export
growth," Klachkin adds. "Supply chain and shipping bottlenecks
will drag on trade flows, but these challenges will gradually
resolve as global health and economic conditions improve."
The closely-watched trade deficit between the United States
and China widened by $3 billion to $27.7 billion.
A separate report from the Commerce Department showed new
orders for goods made at U.S. factories USFORD=ECI increased
by 1.1% in March, rebounding from February's 0.5% drop but
coming in below the 1.3% increase analysts expected.
COVID-19 fueled a shift in demand from customer-facing
services to goods, which helped the U.S. manufacturing sector
weather the health crisis. But spiking demand is bumping up
against scarcity of materials and compromised supply chains,
which in turn is capping output and sending prices higher.
This state of affairs was echoed on Monday by the Institute
for Supply Management (ISM) in its April PMI release, which
showed manufacturing activity held back by rising prices paid
and shrinking inventories.
On the positive side, new orders for non-defense capital
goods (ex-aircraft) USNDCG=ECI - considered a harbinger of
U.S. business spending plans - was revised higher, growing 1.2%
instead of the 0.9% originally reported.
Investors are in a risk-off mood in late morning trading. A
rotation out of megacap market leaders is pulling all three
major stock indexes into negative territory, with the Nasdaq
.IXIC down most.
(Stephen Culp)
*****
RED TIDE (1015 EDT/1415 GMT)
It was a sea of red in early U.S. trade on Tuesday with the
S&P 500 .SPX down more than 1%. The tech-laden Nasdaq .IXIC
is down more than 2%, and has broken below its April 20 trough,
suggesting significant chart damage. urn:newsml:reuters.com:*:nL1N2MR0W6
U.S. stock futures had broken lower out of an especially
tight range on the intraday charts during the 7:00 AM EDT hour
this morning on no apparent news-driven cause, but weakness has
intensified since the open.
At one point, all major S&P 500 sectors were down on the day
with tech .SPLRCT and growth names .IGX under the most
pressure. However, defensive groups such as consumer staples
.SPLRCS are now showing some resilience. .N
Indeed, with the break of the late-April low, the Composite
appears to have completed a 5-wave rise from early March on an
Elliott Wave basis. By this analysis, the IXIC's trend is
turning down, with risk now for greater losses.
Meanwhile, the U.S. 10-Year Treasury yield US10YT=RR ,
which also dipped slightly with stock futures ahead of the
equity market's regular session, is on track for a third
straight day of losses, and back down toward 1.55%. urn:newsml:reuters.com:*:nL1N2MM268
Gold XAU= is flat on the day.
Here us where markets stand in early trade:
(Terence Gabriel)
*****
EUROPEAN ZOMBIES (0957 EDT/1357 GMT)
Analysts at Generali Investments turn their attention today
to data showing a fall in European bankruptcies, a trend that
may be exacerbating corporate "zombification."
That's a situation where unproductive, loss-making companies
stagger on, propped up by cheap loans or government support.
So data showing a 25% decline in European bankruptcies last
year is arguably worrying, especially when contrasted with the
16% rise in U.S. Chapter Eleven filings, Generali say, asking if
"economic preservation at all costs will lead to Europe's
zombification in the coming years."
Zombification was a concern even before the pandemic and not
just in Europe -- the Bank for International Settlements
concluded last year that 15% of firms in developed countries had
been zombified, almost four times 1980s levels.
In normal times, GDP contractions on last year's scale would
have caused a 20% uptick in bankruptcies, research by Oxford
Economics suggests. Instead, bankruptcies declined by 12% on
average across 18 big economies.
Extra support for companies did avert mass unemployment. But
as Generali note, the test will come during "withdrawal of
fiscal support over the second half of this year".
How big a problem is it? The main argument is that zombies
crowd out productive businesses but that's not necessarily true
at a time when demand for capital remains low.
Fidelity International last year likened bankruptcies to
cleansing which is painful but ultimately leads to efficient
allocation of resources.
Zombification saddles weak firms with debt, burdens bank and
government balance sheets and slows future growth. Borrowed
money goes on non-productive causes, "paying wages while no work
is done" Fidelity said.
The other effect is disinflation. A 2020 paper by academics
Viral Acharya, Matteo Crosignani, Tim Eisert and Christian
Eufinger estimated that without zombie credit, European
inflation would have been 0.45% higher in the 2012-2016 period.
That's why the recent divergence in European and U.S.
bankruptcy rates is ominous; a signal perhaps that the former is
doomed to a longer period of slow growth and weak inflation.
(Sujata Rao)
*****
STRONGER THAN EXPECTED INFLATION (0919 EDT/1319 GMT)
Inflation remains one of the more discussed items as a
post-pandemic economic recovery is fuelling a price rise, while
some uncertainty remains about central banks' policy stances.
According to BlackRock, markets under-appreciate the
potential for medium-term price pressures.
"This may trigger some knee-jerk reactions and market
volatility,” BlackRock analysts say in a research note.
They closed their tactical overweight on inflation-linked
bonds as inflation expectations have risen sharply, but they
favor them strategically.
The fund manager expects: higher production costs as the
pandemic accelerates the rewiring of global supply chains;
central banks to let inflation overshoot their targets; high
debt levels to make it even harder for central banks to tighten
monetary policy.
“When looking at the concrete impact of higher debt
servicing costs due to tightening monetary policy, the risk of
loosening the grip on inflation expectations will likely pale in
comparison,” BlackRock analysts say.
The chart shows a recent decline in 10-year inflation-linked
Treasuries, while 10-year nominal yields were roughly stable.
(Stefano Rebaudo)
*****
NASDAQ COMPOSITE: READY FOR BED? (0900 EDT/1300 GMT)
The Nasdaq Composite made new highs over the past week or
so. That said, the tech-laden index appears to be tiring.
Over the past three months, the Composite has only managed
to gain around 2%. Last week's new closing and intraday highs
each lasted just one day before the index quickly reversed.
Meanwhile, in another sign of waning upside momentum
urn:newsml:reuters.com:*:nL1N2ME0Y3, the spread between the 50 and 200-day moving
averages (DMA) is contracting:
The 50-DMA has essentially gone flat, while the 200-DMA is
sharply rising. With this, the spread between these closely
watched intermediate and long-term moving averages has now
contracted for 47 straight trading days. urn:newsml:reuters.com:*:nL1N2MJ13O
With the recent weakness, the IXIC is already down around 2%
from last week's 14,138.78 closing and 14,211.57 intraday highs.
CME Nasdaq 100 Futures NQcv1 are red premarket on Tuesday,
and hitting an 18-day low. With this weakness, the Nasdaq 100
.NDX appears poised to fall nearly 1% in early trade.
In any event, the Nasdaq Composite's high is now see as
important resistance. The April 20 low, at 13,698.668, is seen
as support.
A Composite breakout of the range defined by the April 20
trough, and the highs, may offer an important clue as to the
next significant trend. urn:newsml:reuters.com:*:nL1N2MM1F5
Clearing the highs may allow for a more sustained advance.
Conversely, breaking the April 20 low can suggest the trend is
turning down. In that case, it could be good night for the
Composite with its March trough at 12,397.053 then seen as a
major swing level. urn:newsml:reuters.com:*:nL1N2MN157
(Terence Gabriel)
*****
FOR TUESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT
- CLICK HERE: urn:newsml:reuters.com:*:nL1N2MR0NO
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IXIC05042021 https://tmsnrt.rs/3eVJ0r4
TIPS https://tmsnrt.rs/2PNub1j
Default rates https://tmsnrt.rs/3h039iD
Earlytrade05042021 https://tmsnrt.rs/3eNwPwy
Trade balance https://tmsnrt.rs/33eENJW
Factory orders https://tmsnrt.rs/33bq02j
Capital goods https://tmsnrt.rs/3egDjFa
Stock futures vs German Bund future https://tmsnrt.rs/2Rmkfwn
MIdday05042021 https://tmsnrt.rs/2RpRbnH
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)