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ETHEREUM'S 'MERGE' TO GENERATE SIGNIFICANT REVENUE FOR EXCHANGES (1220 EDT/1620 GMT)
As the Ethereum mega-upgrade seems on track for a release on September 15, the "most significant events in the history of the cryptoecosystem" should generate far more revenue for crypto-exchanges, particularly Coinbase, said JP.Morgan in a note on Wednesday.
The broker estimates Coinbase Global holds a 15% market share of Ethereum assets, and expects annual incremental gross revenue of $650 million for the firm and incremental net income of $80-$100 million after the blockchain upgrade.
"Coinbase is bigger in Ethereum than was intuitive to us, thus leading directly to a bigger revenue opportunity," JPM says in the note.
Ethereum's "merge," represents the first step of the upgrade process to move the blockchain validation protocol from Proof-of-Work to Proof-of-Stake that would reduce energy consumption and enable greater scalability.
It will be followed by four additional steps, and should further drive cryptocurrencies to the mainstream, JPM says.
(Dina Kartit & Mehnaz Yasmin)
SNAP! THERE GOES EUROPE'S 5-DAY WINNING STREAK! (1140 EDT/1540 GMT)
European stocks looked as though they were set to extend their winning streak to six days, but slowly and surely the STOXX 600 gradually went deeper and deeper into the red and closed down about 1%.
This came as euro zone government bond yields jumped after data showed red-hot UK inflation and investors stayed on the side of caution while waiting for the Fed's minutes.
The trend was roughly the same over in the U.S. where stocks markets retreated and Treasury yields rose as traders braced for some more hawkish comments from policy makers.
After all, New Zealand delivering its seventh straight interest rate hike earlier brought in a fresh reminder that the tightening cycle is far from over and recession fears are here to stay.
Sure, the summer rally can still be credited for lifting the STOXX 600 10% from its June lows, but whether it still has some fuel to go further is anyone's guess.
At the end of play today, European shares are 10% lower than they were at the end of 2021.
The biggest drop among blue chips today in Europe - Uniper's 10% dive, illustrates quite well what the European economy is up against.
The German group, the highest-profile corporate victim of Europe's energy crisis so far, reported a 12.3 billion euro loss ($12.5 billion) due to Russian gas supply cuts and said it had become a "pawn" in the energy stand-off between the European Union and Moscow.
(Julien Ponthus)
HAS THE FOMO BUG BITTEN INSTITUTIONAL INVESTORS? (1100 EDT/1500 GMT)
While there have been short squeezes and significant short covering in some names and sectors, overall short interest in the U.S. market has actually increased since the major indexes hit their recent lows on June 16, according to S3 Partners.
In fact, the short-side has not been reducing their overall exposure to the market, says Ihor Dusaniwsky, managing director of predictive analytics at S3 in a note on Tuesday.
"This may indicate that institutions are looking at the recent upward market movements as a 'bear rally' and are expecting a pullback in share prices across the broad market if the recession continues or worsens and the Fed is forced to raise rates higher or quicker than expected," he said.
However, S3 says it can also indicate that institutions are building up their long books in anticipation of the rally continuing. In this case, increased short interest is just the associated short hedge growing along with the long side.
S3 believes that the size and breadth of the recent rally seems to be more than retail buying could support on its own, and therefore suggests larger institutional (hedge fund) activity. If so, it may mean "smart" money is getting into the market in size.
Thus, as Dusaniwsky sees it, "we may be seeing a case of institutional FOMO and institutional dollars joining the existing retail buy-side pressure driving up stock prices."
(Terence Gabriel)
WALL STREET DOWN ON TARGET, FED MINUTES FEAR (1008 EDT/1408 GMT)
Wall Street is trading lower early on Wednesday after glum earnings from Target highlighted weak consumer spending, while investors awaited minutes from the Fed's last meeting in July that could be harsh, a reason Treasury yields are higher.
Communication services and materials are among early S&P 500 sector losers, while utilities are now the sole gaining group. The Dow transports, small caps and semiconductors are also declining.
Target Corp reported a bigger-than-expected 90% fall in quarterly earnings and missed estimates for comparable sales as aggressive discounting fell short of reversing a slump in spending on discretionary goods.
U.S. retailers have slashed their profit forecasts in recent weeks as consumers squeezed by rising inflation curtailed spending on non-essential items such as apparel and electronics.
U.S. retail sales were unchanged in July as consumer spending appeared to hold up, which could further assuage fears that the economy was already in recession.
The Commerce Department said the flat reading of retailers' sales last month followed a downwardly revised 0.8% increase in June, when they were previously reported to have advanced 1.0%.
Fed officials are adamant they will keep raising interest rates until inflation is under control and the release of their minutes at 2 p.m. EDT (1800 GMT) could clarify what would prompt them to deliver a third straight 75-basis-point rate hike in September.
Here's a snapshot of early market prices:
(Herbert Lash)
RECENT EQUITY REBOUND - A 'SUMMER' OR 'SUCKER'S' RALLY? (0958 EDT/1358 GMT)
With U.S. markets rallying over 17% from June lows on cheery inflation numbers and softer rate hike expectations, analysts are divided on a big question: Is the summer rally about to fizzle out? Or is this just the beginning?
Not everyone is optimistic. Global stocks will struggle to go higher in the near-term, says Daniel Grosvenor, director of global equity strategy at Oxford Economics.
"A clear peak in bond yields has helped relieve pressure on equity valuation multiples, but a deterioration in earnings expectations will limit further upside."
Recent U.S. inflation data offers cause for optimism, but "EPS forecasts are still too high and equities will see a period of consolidation as the downgrade cycle continues," says Grosvenor.
Main concerns relate to the profit margin outlook in developed markets: "(Our models) point to an ongoing margin contraction over the next 12 months, which is likely to result in a mid-single digit decline in global EPS, even if a recession is avoided."
What, then, is a safe bet? Grosvenor favors markets where EPS forecasts could prove more resilient. "We are overweight on EM (emerging market) equities where the downgrade cycle is now moderating."
An ongoing recovery in China could offer support, while Japan's currency has helped boost EPS momentum, he adds.
Overall, Q2 earnings were somewhat disappointing, and analysts have lowered their estimates for the second half of the 2022 and beyond, Grosvenor notes. "We think there are further EPS downgrades to come... earnings could fall by almost 15% in the event of an advanced economy recession."
(Anisha Sircar)
S&P 500 TESTS 200-DAY MOVING AVERAGE, TURNS TIMID (0900 EDT/1300 GMT)
The S&P 500 has become the next major index to flirt with its 200-day moving average (DMA):
On Tuesday, with its 4,325.28 intraday high, the SPX came within one point of the 200-DMA, at 4,326.18. The benchmark index then backed away to close at 4,305.20.nearly 1%
And with CME e-mini S&P 500 futures quoted down more than 0.5% in premarket trade on Wednesday, the SPX appears poised to back away further from this closely watched long-term moving average.
The Dow Jones Industrial Average has now managed two-straight daily closes above its 200-DMA, while the small-cap Russell 2000 made it three straight days on Tuesday.
However, the NYSE Composite finished Tuesday around 1.5% shy of its 200-DMA, and the Nasdaq Composite ended 2.9% below its 200-DMA.
The S&P 500 index last closed above the long-term moving average on April 7. It then broke down into a mid-April low, before once again rising to challenge the 200-DMA on April 20 and 21. The SPX failed to reclaim it on a closing basis before then accelerating to the downside.
Of note, however, in April, the 100-DMA and 200-DMA were closely packed, adding to the significance of their status as hurdles. That, of course, is not the case now since the 100-DMA is support just over 4,100.
That said, this time the 200-DMA is backed up by another barrier in the form of the resistance line from the SPX's January 4 record intraday high. That line will reside around 4,335 on Wednesday.
Thus, traders will be watching closely to see if the S&P 500 will be the next major index to reclaim its 200-DMA, or if it will prove to be a barrier from which another bout of instability, of some form, kicks off.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)