MIDDAY MACRO – 4/29/2021
Daily Color on Markets, Policy, and Geo-Politics
MIDDAY MACRO - DAILY COLOR – 4/29/2021
PRICE MATRIX
OVERNIGHT-MORNING RECAP / MARKET WRAP
Narratives:
Equities higher overnight into NY open but giving up gains as rising yields weigh on earnings optimism
Treasuries weaker following morning data (after rising post FOMC yesterday) but off of AM lows
WTI higher overnight, continuing its multi-day rally
Price Action:
S&P and Nasdaq hit new highs overnight but gave gains post NY open
S&P outperforming Nasdaq/Russell
Mid-Cap and Dividend Yield factors outperforming
4200 Call wall was breached but now back under, Gamma support at 4150, 4185 technical support
Major Asian Indexes higher; Japan closed. Hong Kong +1%. China +0.5%. India +0.1%.
European bourses mixed at midday, London +0.6%. Paris +0.5%. Frankfurt -0.2%.
Treasuries rebounding after post open pressure, bear steepening
5 yr = 0.90% and 10yr = 1.68%
WTI up 1.4% to $64.70, higher overnight to $65.50
Copper hit 10-yr highs overnight but down after NY open
Union and port strike threats have receded in Chile
Aggs complex quieter then recent sessions as it looks to be consolidating after recent gains
DXY higher off overnight lows following FOMC, around 90.7
Gold bouncing around a little, around $1,765
Bitcoin down over 3% to $53.6k
Vaccination Data:
Average daily rate: U.S. vaccinations: 2.67mln
Total US vaccinations: 235mln
Average daily rate, global vaccinations: 20.3mln
Total global vaccinations: 1.08 billion across 172 countries
New global coronavirus cases rose for the ninth consecutive week, by a record 5.7 million, as a 52% surge in India outweighed declines in most regions, the World Health Organization
According to BofA economists, the U.S. is on pace to hit 75% vaccination rate by late-June. The U.K., Canada, and Singapore could hit that milestone later in the summer, and the European Union by early autumn.
Analysis:
Equities broke out of their recent ranges overnight but have fallen back into those ranges post open.
Rates weren’t able to sustain post FOMC rally and the curve is now bear steepening.
Commodities are mixed, with aggs still consolidating while metals are moving higher.
Bottom Line:
First Quarter GDP ended up being a little softer due to the supply-side of the economy not keeping up with demand, again moving the risk that the second quarter will be significantly stronger than expected.
Trade and inventories subtracted 3.5% points from growth.
Consumers have accumulated $2¼ trillion of excess savings (the equivalent of about 10% of nominal GDP) and fiscal policy seeks to provide substantial additional stimulus in the second half of the year.
Powell had to be a little disingenuous yesterday as to not spook the markets and downplay how well the recovery is going.
“We got a nice jobs report. It’s not close to substantial progress. We’ve had one great report. It’s not enough. We’re just going to need to see more data. It’s as simple as that.”
Next week’s job report will likely make this “one” report defense harder to maintain.
Tomorrow’s PCE data has the potential to further concern rate markets and hence risk-assets more generally, but the Fed continues to insist it will be patient and that any inflationary pressures are transitory.
Economic data/surveys and earning calls are making it clear supply-chain issues are worsening.
The first quarter’s real GDP is not far below the pre-Covid path as the recovery gains speed.
The Fed will be likely be forced to blink this summer as markets stare into the whites of their eyes.
WORTH WATCHING
Econ Data:
Initial: Actual: 553K, Consensus: 549K, Previous: 566K
Continuing: Actual: 3,660K, Consensus: 3,614K, Previous: 3,651K
Growth Rate:Actual: 6.4%, Consensus: 6.1%, Previous 4.3%
Price Index: Actual: 4.1%, Consensus: 2.5%, Previous: 1.9%
Core PCE: Actual: 2.3%, Consensus: 2.4%, Previous 1.3%
Headline PCE: Actual 3.5%, Previous: 1.5%
MoM: Actual: 1.9%, Consensus: 5%, Previous: -11.5%
YoY: Actual 23.3%
Events:
Fed Speakers: Quarles, Williams
Misc:
Google is saving $1 billion a year by working from home.
The company saved $268 million in expenses from promotions, travel, and entertainment in the first quarter.
TECHNICALS / CHARTS
Yields have climbed steadily this year, rising to nearly 1.75% at the end of the first quarter from about 0.9% at the end of 2020. After a March pause, Treasuries again are under pressure. 10-Yr Yields have broken through their March down channel which could be another bull flag pattern (seeing this in several places given asset correlations to each other during the reflation/re-opening period). A move above 1.80% would confirm that the March period was just a consolidation and yields are heading above 2%, the next psychological battleground.
The prediction TIPSs generate for average inflation over the next five years is just under 2.5%, which is a level not seen since the oil spike prompted a brief scare ahead of the crisis in the summer of 2008. Five-year expectations have been at this level for a week, but didn’t set a new high after Powell’s speech. They still look close to fulfilling the Fed’s criterion of a level materially above 2%. If this were to rise to 3%, or consolidate where it is now for a few months, that would begin to pile pressure on the Fed as not “transitory”.
OFF THE RADAR
Chinese Demographics:
Births in China dropped 15% from 2019, according to data from the country’s Ministry of Public Security, with 10.04m births in the country last year compared with 11.79m a year earlier based on household registrations.
China’s birth rates have weakened even after Beijing relaxed its decades-long family planning policy in 2015, allowing all couples to have two children instead of one.
The latest Chinese census, which was completed in December but has yet to be made public, is expected to report the total population of the country at less than 1.4bn, according to people familiar with the research.
In 2019, China’s population was reported to have exceeded the 1.4bn mark.
Analysts said a decline would suggest that China’s population could soon be exceeded by India’s, which is estimated at 1.38bn.
Big Government:
There might be a global shift taking place in the appetite for big government.
An OECD report yesterday showed the economic disruption from the Covid-19 pandemic combined with heightened concerns about health and finances are fueling demands for greater government spending in most of the world’s richest countries.
That’s despite an awareness it could mean more tax.
The survey -- covering more than 25,000 people aged 18 to 64 from 25 countries in the Organisation for Economic Cooperation and Development -- showed 37% reported their household has experienced at least one job-related disruption.
Of those whose households lost a job, 60% said they want governments to spend more, or much more, to provide better unemployment support.
Across the entire sample, 22% said they would pay an additional 2% of their income in tax for employment programs, and 45% said they would pay that for health programs.
HOUSE THEMES / ARTICLES
Digital Infrastructure Security and the “5th Dimension”
Chinese Data: China to punish data exports to overseas courts as Beijing beefs up defense against US long arm – SCMP
A clause has been added to China’s draft data security law that will punish Chinese companies for handing over domestically stored data to foreign police, courts, and investigators without Beijing’s consent, a move that will make it harder for overseas law enforcement agencies to get data out of China.
The Draft Data Security Law along with the draft Personal Data Protection Law (PIPL), the country’s first set of rules to safeguard personal data, are part of China’s wider push to regulate the country’s vast troves of data and to shield Chinese companies from overseas pressure to hand it over.
The new legislation, which will very likely become law, will make the regulatory framework increasingly complicated for businesses with cross-border operations.
On paper, it could also be in conflict with US regulations. Former US President Donald Trump enacted the CLOUD Act (Clarifying Lawful Overseas Use of Data Act), which enables US law enforcement agencies to demand access to online information no matter what country the data is stored in.
Huawei: Huawei’s Sales Drop Steepens Under Weight of U.S. Sanctions – WSJ
Huawei executives have said they expect a challenging year, as the company copes with the effects of tighter U.S. sanctions and the Covid-19 pandemic.
Revenue fell 16.5% from a year earlier and it was the second straight quarterly drop, following a decline of 11.2% in the fourth quarter.
The company’s once-booming smartphone division has been the hardest hit.
Briefly, the world’s largest smartphone brand last year, Huawei saw smartphone sales plummet around the world as components dried up and consumers turned to other device makers.
AI vs. Terrorism: France’s Macron Eyes Artificial Intelligence to Monitor Terrorism - WSJ
Prime Minister Jean Castex said the government plans to submit a bill to parliament seeking permanent authority to order telecommunications companies to monitor not just telephone data but also the full URLs of specific web pages their users visit in real-time.
Government algorithms would alert intelligence officials when certain criteria are met, such as an internet user visiting a specific sequence of pages.
One portion of the bill would allow French intelligence officials to use older intelligence data, including data the government isn’t currently allowed to retain, to train AI systems to look for unforeseen patterns and develop new tools.
Electrification
Batteries: China's CATL raises battery output, sales in 2020 - Argus
Major Chinese battery producer Contemporary Amparex Technology (CATL) reported higher production and sales in 2020, in response to higher demand from the electric vehicle (EV) and energy storage battery industries.
CATL's battery production, including of power batteries and energy storage batteries, totaled 51.71GWh in 2020, up by 9.4% from 2019.
Its sales increased by 14.4% to 46.84GWh over the same period.
Rapid developments in the EV industry in recent years have bolstered demand for power batteries and energy storage batteries, prompting battery producers to raise output capacity.
CATL in February unveiled a plan to build three battery facilities in China.
The firm is also exploring the raw material mining sector to secure feedstock supplies.
It will partner with diversified metals producer China Molybdenum (CMOC) to develop the Kisanfu copper-cobalt mine in the Democratic Republic of Congo.
China Macroprudential Policy
Local Financing: Slowdown in Bond Sales Signals Belt Tightening at Local Governments - Caixin
China’s local authorities have slowed the pace of debt sales to finance infrastructure projects this year, evidence of a gradual tightening of fiscal policy as the government shifts its focus toward risk control.
Local governments have sold or plan to sell 222.7 billion yuan ($34.3 billion) of so-called special bonds from January to April to fund shantytown renovations, highways, and other infrastructure investments, according to data compiled by Bloomberg.
That’s a sharp decline from 729.6 billion yuan of debt sold in the same period in 2019 and 1.15 trillion yuan in 2020.
ENREA – Environment / Natural Resources / and Energy Advisory
Chinese Coal safety: China’s Shanxi province suspends four coal mines - Argus
China's second-biggest coal-producing province of Shanxi has suspended operations at four mines for violating safety rules.
This may further reduce domestic coal supplies.
Operations at the mines were suspended after the Shanxi emergency administration conducted safety checks at 24 local mines during 11-21 April.
The administration will take stricter safety measures at local mines, partly to avoid embarrassing accidents as China will this year celebrate the 100th anniversary of the founding of its communist party on 1 July.
Besides safety-related restrictions, Beijing has also started investigations into alleged corruption in the coal sector in Shanxi and Shaanxi provinces that go back 20 years.
This may also disrupt coal production in the two major producing provinces, just like what similar investigations in Inner Mongolia have done.
Methane Emission Rules: Senate Votes to Reverse Trump-Era Loosening of Methane Emission Rules – WSJ
In a 52-42 vote Wednesday, the Senate invoked its power under the Congressional Review Act to overturn rules adopted by the Environmental Protection Agency last year on methane-gas emissions, including those easing some monitoring requirements and lowering standards for pollution-control systems to detect methane leaks by facilities that transmit and store natural gas.
Top producers— Royal Dutch Shell PLC, Exxon Mobil Corp. , BP PLC—have said they support methane regulations as they face pressure from investors on climate issues.
Commodity Cycle
Mining Robots: Deep-Sea Mining Robot Lost on Cobalt-Rich Floor of Pacific - BBG
A deep-sea mining robot on test mission to bring up rocks rich in cobalt and nickel from the floor of the Pacific Ocean has malfunctioned.
Global Sea Mineral Resources, a unit of Belgium’s DEME Group, brought up its first minerals from the ocean floor on April 20.
It’s one of the companies, including DeepGreen Metals Inc., Lockheed Martin Corp. and China Minmetals Corp., spearheading moves to exploit seabed metals needed by electric vehicles.
Controversial plans to mine the ocean floor face a key test this year when a United Nations body unveils rules that could spur the exploitation of hundreds of billions of dollars of battery metals.
Australian Iron Ore: Record iron ore receipts lift Australian surplus - Argus
The record value of iron ore exports in March pushed Australia's goods trade surplus above A$8bn and more than offset the fall in the value of its coal exports from a year earlier with China's ban on Australian coal.
This trend is likely to continue into April as prices hit new highs yesterday and exports start to increase.
Iron ore was the only major mineral export category to increase in value over the fiscal year to date, with crude, oil products, LNG, and non-ferrous metals all dropping during July-March compared with a year earlier.
There are some signs of a recovery, with the value of Australia's LNG exports increasing in March compared when February, even when adjusting for the longer month.
Chinese Steel: China Wants More Steel at Home as Industry Faces Overhaul – BBG
Rebates on export taxes for some steel goods will be removed, and tariffs on some products raised starting May 1, the Ministry of Finance said on its website.
Import fees on pig iron, semi-finished and scrap steel will be dropped.
The measures highlight an increased focus on servicing the domestic market and come as the country’s steel mills grapple with raw material costs that have surged to historic highs.
China churns out half the world’s steel, and is the biggest exporter, but has vowed to reduce output in 2021 as part of a drive to contain carbon emissions from one of its dirtiest industries.
The tax changes could alter global steel trade and tighten markets in the middle of a global boom.
Big Tech Regulation/Taxation
China’s Tech Crackdown: China Readies Big Tencent Fine in Crackdown, Reuters Says - BBG
Tencent may face a fine of at least 10 billion yuan ($1.6 billion), which is less than the $2.8 billion levied upon fellow titan Alibaba Group Holding Ltd., according to the report.
The company faces penalties for not properly reporting past acquisitions and investments for antitrust reviews, as well as for anticompetitive practices in some businesses, particularly in music streaming, the news agency said.
Antitrust Law: Amy Klobuchar is Coming for the App Store: The Verge
Klobuchar has a book called “Antitrust: Taking On Monopoly Power From The Gilded Age to the Digital Age” coming out.
Interview on her thoughts, book, and legislation dealing with Big Tech regulation.
Unipolar to Multipolar World
U.S. and China Relations: Beijing considers China-US exchange after America declares easing of pandemic entry rules - SCMP
China said it was willing to resume a travel exchange with the United States following an announcement by the US it was easing some coronavirus travel bans.
The US has announced it will allow students and professionals in various categories and from various countries, including China, to enter the country.
Journalists, students and academics covered by visitor exchange programs and travelers from Brazil, Britain, China, Iran, Ireland, the Schengen Area (covering most European Union countries) and South Africa who “provide vital support for critical infrastructure” may now qualify for a “national interest exception” which would allow them entry to the US.
U.S. and Iran Relations: US Navy fires warning shots in new tense encounter with Iran in Persian Gulf – SCMP
A US warship fired warning shots when vessels of Iran’s paramilitary Revolutionary Guard came too close to a patrol in the Persian Gulf, the US Navy said on Wednesday.
It was the first such shooting in nearly four years.
Iran did not immediately acknowledge the incident.
The timing of the incident interestingly coincides with ongoing negotiations on JCPOA 2.0.
German and China Relations: Germany’s Angela Merkel asks China to resume human rights dialogue – SCMP
German Chancellor Angela Merkel called for a human rights dialogue while Chinese Premier Li Keqiang asked for more cooperation over differences, as the two leaders held virtual talks on Wednesday.
Merkel said the two nations’ regular consultations were a good tradition that had over the years covered areas of disagreement such as human rights and Hong Kong, and she wanted a human rights dialogue with China to resume.
“I would hope that we could also get the human rights dialogue going again as soon as possible,” she said.
Li said the convening of the meeting – involving 25 ministerial officials in total – itself showed the importance China attached to relations with Germany.
He said China and Germany had differing views on some issues over what constituted an “objective fact”, but could still work together.