* All three major U.S. stock indexes end red, Nasdaq down
most
* Cons disc weakest S&P sector; materials lead gainers
* Dollar, crude inch up; gold, bitcoin down
* U.S. 10-Year Treasury yield ~1.24%
July 30 - 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
WALL STREET ENDS LOWER, CLOBBERED BY AMAZON (1605 EDT/2005
GMT)
Wall Street ended the week on a sour note on Friday, pulled
down by Amazon after the technology heavyweight warned
of slower sales growth as consumers venture out of their homes
and the economy reopens in the wake of coronavirus lockdowns.
Amazon dropped almost 8% after late on Thursday reporting
quarterly revenue that was shy of the Street's expectations and
said sales growth would ease in the next few quarters.
Another stay-at-home winner last year, Pinterest
plunged 18% after saying U.S. user growth was decelerating as
people who used the platform for crafts and DIY projects during
the height of the pandemic were stepping out more.
Fresh economic data showed U.S. consumer spending rose more
than expected in June, although annual inflation accelerated
further above the Federal Reserve's 2% target.
The S&P 500 ended down about 0.4% for the week, and remains
up 17% in 2021.
Here is your final snapshot:
(Noel Randewich)
*****
LET'S TAPER (1415 EDT/1815 GMT)
The Federal Reserve announced on Wednesday the establishment
of two standing repurchase agreement (repo) facilities — a
domestic standing repo facility (SRF) and a repo facility for
foreign and international monetary authorities (FIMA repo
facility).
The Fed says that these facilities will serve as backstops
in money markets to support the effective implementation of
monetary policy and smooth market functioning.
In a research note, Zoltan Poszar, of Credit Suisse, says
that one recent concern has been who will buy Treasury
securities and MBS when the Fed starts to taper?
To this end, Poszar calls the SRF "a stroke of genius,"
because he believes it can serve to generate demand for
Treasuries and MBS. Poszar says this means it's basically
“financed” QE, as opposed to “funded” QE.
According to Poszar, “funded” QE is when the Fed buys bonds,
and creates permanent reserves, while “financed” QE is when the
Fed repos bonds, thereby creating temporary reserves.
As Poszar sees it, "financed QE rolled to infinity is like
funded QE." This is because he says that buying bonds on scale
and financing them on scale is the same thing – the central bank
absorbs collateral and puts cash in the system, and therefore,
the question of marginal buyers is resolved.
According to Poszar, with so many excess reserves already in
the system, the SRF is far from being used. However, he thinks
its existence will meaningfully improve demand for collateral.
The Fed has been draining liquidity in huge amounts, on
Friday conducting a daily Reverse Repo operation larger than $1
trillion for the first time ever. The Fed's repo program has
gone largely unused over the past year.
Poszar says that "SLR (supplementary leverage ratio) reform
and lifting Wells Fargo’s asset growth ban will improve the
picture but are now less urgent. The SRF improves demand for
bonds."
With that, he adds "Let’s taper…"
(Terence Gabriel, Alden Bentley)
*****
HOW ARE INVESTORS FEELING ABOUT THE DELTA VARIANT? (1320
EDT/1720 GMT)
As part of the most recent American Association of
Individual Investors (AAII) Sentiment Survey, AAII
polled its members for their thoughts on whether they feel that
the coronavirus delta variant is a risk to the economy.
AAII reported that a little under half of all respondents
(45%) said that they view the delta variant as an economic risk.
These respondents cite the "increased transmissibility of the
virus and inferred that it may cause more shutdowns, which would
in turn slow the economy."
This compares to 30% of respondents who said that the new
variant is not a risk to the economy because "the government is
now experienced in dealing with the coronavirus and more people
have been vaccinated."
About 12% of respondents believe the variant is a minor
risk, mainly to unvaccinated populations. About 7% of
respondents have adopted a neutral stance on the delta variant.
Here are a few quotes from investors on the matter:
“No, I expect the American people and/or economy will be
able to cope with this variant to minimize any further
disruption.”
“Yes, slightly. It may depress the rate of recovery, but I
don’t think it’ll cause another recession. Many people have
already been vaccinated and there are additional people who are
either resistant or have had the virus.”
(Terence Gabriel)
*****
AMAZON CLOBBERS ALREADY SMARTING NYSE FANG+TM INDEX (1235
EDT/1635 GMT)
Wall Street's NYSE FANG+TM index is down nearly 1%
on Friday and on track to end the week at a loss, pulled lower
not only by Amazon, but by all but two of its other
components.
The index captures action in a basket of some of the
largest, most well known tech titans, as well as other highly
traded growth stocks in the U.S. market.
The NYSE FANG+TM index has gained 13% in 2021, lagging
behind the S&P 500's 17% rise. At its current level, it's
down 2% for the week.
The biggest culprit in Friday's decline is Amazon,
slumping 7% after the cloud and ecommerce heavyweight said sales
growth would slow as customers venture more outside the home.
Additionally, Alibaba Group Holding and Baidu
are falling more than 1%, with U.S. investors still
shaken by fears of increased regulation following Beijing's
crackdown last week on private education companies.
Nvidia, another component of the index, is off 1.2%
after The Information reported https://bit.ly/3xfMbRw, citing
sources, that China's antitrust officials delayed a review of
the U.S. chipmaker's $40 billion deal to buy UK-based Arm Ltd.
On the upside, Tesla is gaining 2.2%, while Netflix
is up by 0.5%.
NYFANG also includes Apple, Alphabet,
Facebook, and Twitter.
(Noel Randewich)
*****
INDIVIDUAL INVESTORS CROWD THE WAIT AND SEE GALLERY (1206
EDT/1606 GMT)
The percentage of individual investors characterizing their
short-term outlook for stocks as “neutral” hit its highest level
in nearly 19 months in the latest American Association of
Individual Investors Sentiment Survey (AAII). With this,
optimism rebounded and bearish sentiment dropped.
AAII reported that neutral sentiment, or expectations that
stock prices will stay essentially unchanged over the next six
months, increased 1.0 percentage point to 39.7%. Neutral
sentiment was last higher on January 1, 2020 (40.9%). Neutral
sentiment is above its historical average of 31.5% for the 13th
time in 14 weeks.
Bullish sentiment, or expectations that stock prices will
rise over the next six months, gained 5.5 percentage points to
36.2%. This is the third consecutive week that optimism is below
the historical average of 38.5%.
Bearish sentiment, or expectations that stock prices will
decline over the next six months, slid by 6.5 percentage points
to 24.1%. This is the 32nd time out of the past 37 weeks that
pessimism is below its historical average of 30.5%.
AAII noted that, "neutral sentiment is now at the top of its
typical historical range. The breakpoint between typical and
unusually high readings is 39.8%."
With these changes, the bull-bear spread turned up to +12.1
from zero last week:
(Terence Gabriel)
*****
SIX MONTHS OF GAINS FOR EUROPEAN STOCKS (1144 EDT/1544 GMT)
Despite falling on Friday, European equities are set for
their sixth monthly gain in a row.
The STOXX 600 rose some 2.1% in July, while France's CAC 40
and Germany's DAX are also seeing their sixth consecutive net
monthly gains .
But London's FTSE 100 has had small monthly loss, of less
than half a percent. This is its first monthly fall
since January.
For the month ahead, signs of an economic recovery from the
pandemic could hurt stocks, by stoking market fears that central
banks will take away the punchbowl of cheap liquidity.
"With tapering a growing reality, we are increasingly seeing
markets take on an inverse correlation where good economic data
is bad for stocks," said Joshua Mahony, senior analyst at IG.
(Elizabeth Howcroft)
*****
PCE, EMPLOYMENT COSTS, UMICH, CHICAGO PMI: THE RECOVERY
EXPRESS PULLS INTO THE STATION (1105 EDT/1505 GMT)
Market participants were treated to long train of data on
Friday, which sent them riding into the weekend with visions of
opening wallets, easing inflation, and factories shifting into
overdrive.
And to top it off, new evidence of a persistent labor
shortage provided some assurance of a dovish Fed, for now.
Thursday's GDP data showed the U.S. economy returned to
pre-pandemic equanimity in the second quarter, a year after
stumbling upon the briefest recession in recorded history.
And - spoiler alert - it's the consumer who saved the day.
Spending by the American consumer rebounded in
June and personal income unexpectedly ticked
higher, according to the Commerce Department's personal
consumption expenditures (PCE) report.
Outlays increased by 1%, more robust than the 0.7% consensus
and more than making up for May's 0.1% decline. Income eked out
a 0.1% gain, defying the 0.3% drop analysts expected.
Together, this resulted in the saving rate - widely seen as
a barometer of consumer anxiety - edging down to 9.4% of
disposable income, returning to the upper range of pre-pandemic
levels.
Vaccinated and flush with built-up savings, consumers
continue to shift their demand away from goods in favor of
customer-facing services, of which they were deprived amid
social distancing mandates. Spending on services rose 1.2%, more
than making up for a net 0.2% decline in goods.
"The personal income and spending data for June are
consistent with the GDP data released yesterday," writes Ian
Shepherdson, chief economist at Pantheon Macroeconomics. "We
expect consumption growth to slow, in the absence of further
stimulus payments, but it should still rise by a solid 6-to-8%."
Speaking of inflation, the headline PCE price index showed
monthly price growth holding steady at 0.5%.
But the year-over-year core PCE prices - which
strip away volatile food and energy prices and is the Fed's
preferred inflation yardstick - showed a weaker-than-expected
acceleration, gaining 10 basis points to 3.5%.
"Year-on-year changes in core PCE are well above the Fed’s
target," says Rubeela Farooqi, chief U.S. economist at High
Frequency Economics. "But price pressures should abate over
coming months as supply chain dislocations ease and the
reopening effect fades."
The graphic below shows core PCE against other major
indicators, all of which remain well above the central bank's
average annual 2% inflation target.
And to beat a dead horse, consumer worries over inflation
have slightly abated this month, according to the University of
Michigan's final take on July consumer sentiment.
The headline index notched a reading of 81.2, a bit higher
than the 80.8 originally reported.
Near- and long-term inflation expectations each eased by a
0.1 percentage point, to 2.8% and 4.7%, respectively.
Still, inflation fears are largely responsible for overall
sentiment dimming from the previous month.
"While most consumers still expect inflation to be
transitory, there is growing evidence that an inflation storm is
likely to develop on the not too distant horizon," says Richard
Curtin, chief economist at UMich's Surveys of Consumers. "The
improved finances of consumers have greatly reduced consumers'
resistance to price increases."
The horse is still dead, but a report from the Labor
Department suggests that inflation might not be quite as
transitory as Powell promises.
The report showed employment costs rose by 0.7%
in the second quarter, slightly cooler than economist
projections, driven by 0.9% and 0.4% respective increases in
wages and benefits.
Year-over-year, private wage growth has surged 3.5% - the
fastest annual increase in over 14 years - as employers sweeten
the pot to attract workers amid the current labor drought.
And unlike price spikes due to temporary demand/supply
imbalances, wage growth has staying power.
"We should be prepared for labor supply constraints that
keep solid upward pressure on compensation costs in the second
half of 2021," says Oren Klachkin, lead U.S. economist at Oxford
Economics. "Better health conditions and reopenings will only
gradually equalize the imbalance between strong labor demand and
the limited supply of workers."
Last but not least, while PCE data shows demand shifting to
services from goods, don't tell that to midwest factories.
The Chicago purchasing managers' index (PMI)
went to the races in July, expanding at a much faster pace than
analysts expected.
The reading came in at a robust 73.4, a 7.3 point jump from
June, contrary to the mild deceleration forecast.
A PMI number above 50 indicates increased activity from the
previous month.
"The manufacturing sector is moving closer to pre-pandemic
levels, supported by low inventories, even as supply bottlenecks
remain a constraint," adds Farooqi.
The Institute for Supply Management's (ISM) closely-watched
nationwide PMI report for July, expected on Monday.
Investors seemed to pay little mind to indicators,
preferring instead to take money off the table heading into the
weekend.
All three major U.S. stock indexes are red in late morning
trading, with e-tailing behemoth Amazon.com weighing
heaviest on the S&P and the Nasdaq <.IXIC in the wake of
its disappointing earnings report.
(Stephen Culp)
*****
AMAZON DELIVERS A BLOW, BUT MAJOR U.S. INDEXES SHOW SOME
FIGHT (1005 EDT/1405 GMT)
Wall Street is seeing mixed trading early Friday following a
glum quarterly earnings report from Amazon.com, while
data showing a strong rise in June consumer spending reinforced
optimism about a steady economic rebound.
Indeed, AMZN, with a loss of around 7%, is the biggest drag
on the S&P 500 in the early going. Perhaps, not
surprisingly, consumer discretionary is the weakest
S&P sector, and the NYSE FANG+TM index is down around 0.6%.
That said, the major indexes have quickly bounced off early
lows. The Dow Industrial Average is now roughly flat,
while chip stocks, and small caps are showing some
strength.
In any event, the S&P 500 is on track for a 6th straight
month of gains. The benchmark index last rose 6-straight months
from April to September 2018.
Here is where markets stand in early trade:
(Terence Gabriel)
*****
BOFA: THERE'S A RATE HIKE COMING IN THE NEXT 5000 YEARS
(0937 EDT/1337 GMT)
Interest rates are low, that much we know. But just how low?
Well, they are at their lowest in 5000 years, according to
BofA's Michael Hartnett.
Hartnett calculated this with a little help from Sidney
Homer and Richard Sylla, authors of the book "History of
Interest Rates: 2000 B.C. to the Present". Homer and Sylla
traced the price of money back through the aeons and through a
myriad of details, scouring ancient legal texts such as the
Babylonian Code of Hammurabi dating back to nearly 1800 BC.
What goes down does usually go back up but in the case of
interest rates, maybe not just yet.
"The Big Picture: central banks keeping global interest
rates at 5000 year lows; at some point in next 5000 years rates
will rise, but no fear on Wall St this happens anytime soon,"
Hartnett wrote.
(Karin Strohecker)
*****
NASDAQ 100 TRIPLE-Qs AND THE FLOW SHOW (0900 EDT/1300 GMT)
The Invesco QQQ Trust Series 1, which tracks the
Nasdaq 100, is on track for an all-time high monthly
close. The ETF is up 3.4% so far in July, and about 17% for
2021.
Meanwhile, although mid-summer, QQQ volume has remained
relatively robust, with around 775 million shares of turnover so
far this month. If Friday's volume proves to just meet this
month's average so far, triple-Q July turnover will be the 3rd
highest month so far this year.
That said, one measure that incorporates both price and
volume, the Money Flow index (MFI), suggests the QQQs may be at
an important juncture:
On a monthly basis, and since early 2018, the MFI has been
trapped between a support line from its 2009 low and a
resistance line from its 2014 high.
After once again bottoming in May, essentially right at the
support line, the MFI is now challenging the resistance line. If
this line continues to cap strength, the MFI may be poised to
retreat. Additionally, a down-tick can solidify a divergence vs
its February high.
Just in terms of more recent history, QQQ new highs
accompanied by a multi-month MFI divergence, preceded periods of
significant instability.
Therefore, it may soon be make or break for the MFI. If it
can clear the resistance line, the QQQ may get swept up in a
strong current, leading to further multi-month gains. However, a
downward reversal may leave the Triple Qs vulnerable to a much
deeper decline, which could prove to be a waterfall.
Meanwhile, the QQQ itself also has its own monthly support
and resistance lines to contend with. These lines from March
2020, and August 2020, are now around $338 and $375. In August,
they will ascend to around $348 and $380.
(Terence Gabriel)
*****
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)