Archives of “July 6, 2021” day

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US Defense Dept cancels $10B JEDI contract with Microsoft

  
  Analysis

Surprise move

The US Defense department is cancelling a $10B JEDI (Joint Enterprise Defense Infrastructure) contract awarded to Microsoft.  The Pentagon says that they seek a new multi-cloud , multi vendor contract.
The Pentagon will seek proposals from both Amazon and Microsoft.
They Defense Department said:
  • “Due to evolving requirements, increased cloud conversancy, and industry advances, the JEDI Cloud contract no longer meets its needs.”

Amazon was contesting the contract award to Microsoft.  In May, US officials considered pulling the plug on the contract.

Euro edges to a new session low, down 50 pips

  
Analysis, Forex

EUR/USD at the lows of the day

EUR/USD continues to drift lower as the US dollar holds a big bid to start the month. The pair is down 47 pips to 1.1814, which is just off last week’s low of 1.1807. That will act as support for now.
EUR/USD at the lows of the day
The fall in sovereign yields isn’t just a US story. German bund yields are down 6 bps to -0.268% and nearing the June low.
The divergence between the inflation talk throughout markets and falling bond yields is stark. It’s tough to bet against the bond market but what makes me pause is that if inflation doesn’t come, then it will simply be a green light for governments to spend more. I don’t see that paradigm changing until there is some real inflation.

Treasury: US will continue to press G20 countries to use fiscal stimulus

  
  Analysis

Comments from US Treasury official

  • US will press for fiscal stimulus to address climate change, income inequality and economic growth
  • Yellen working with congress to implement OECD international tax agreements through budget reconciliation
  • G20 finance leaders to discuss global minimum tax rate
  • Several countries — including US — pushing for global minimum tax rate above 15%
  • EU proposal for new digital tax is inconsistent with ‘pillar 1’ tax agreement
Ultimately, so long as the fiscal taps remain open, the reflationary trade will improve. Though the timing might not be straight forward.

US 10-year yields near the June spike low

  
Analysis, Forex

US 10-year yields could hit the lowest levels since February

Is there a new-quarter repositioning ongoing?
US 10-year yields are nosediving today, falling 6.7 bps to 1.365%, which is just above the short-lived spike lower following the Fed.
An optimist might think this is money flowing into fixed income at the start of the quarter after a good run in equities to start the year. That might be a mistake with Scotia data showing that a gain of around the 14.3% climb in H1 tends to follow through into H2.
SPX performance after double digit gains in H1
A more pessimistic view — which is hard to ignore — is that the market is losing faith in the Fed’s willingness to run the economy hot and/or the Federal government’s ability to pass infrastructure stimulus and keep spending high.
Another view is that the deflationary dynamics of aging, technology and globalization will overwhelm any policy response.
Those are all big questions but for now the bigger one is whether 1.354% will hold.
US 10 year yield chart

Germany May factory orders -3.7% vs +0.9% m/m expected

  
Analysis, Economy

Latest data released by Destatis – 6 July 2021

  • Prior -0.2%
  • Factory orders WDA +54.3% vs +59.4% y/y expected
  • Prior +78.9%
That is back-to-back months of relatively weak industrial orders though there are some positives when looking the details. Domestic orders grew by 0.9% on the month while the drag largely came from a drop in foreign orders, declining by 6.7% in May.
Compared with February 2020, new orders in May were seen 6.2% higher so that is at least a good thing if you want to measure back to pre-pandemic levels. That said, real manufacturing turnover is just over 5% lower compared to what it was back then.

Oil surges ahead as OPEC+ talks get abandoned

  
Analysis, Crude

WTI closes in on its 2018 highs going into European trading

WTI M1 06-07
Oil is up a little over 2% on the day as price now climbs to $76.70 levels and nears the 2018 high @ $76.88 after OPEC+ talks get abandoned yesterday as the standoff between Saudi Arabia and the UAE continues.
From a technical perspective, a break above the 2018 high will leave little in the way towards an extended push to $100.00 but that is quite some distance to cover so I wouldn’t expect said run to come within a short period.
In any case, there are still some potential bumps along the way and one of that being once OPEC+ sorts out this mess and officially announce a deal to increase output in the months ahead and also work out plans for the new year.
That could cause a bit of a hiccup and perhaps offer some excuse for profit-taking but if anything else, that is another dip worth scaling in more longs with some measuring of risk levels based on the charts of course.
For now, baby steps. We’re near the 2018 highs already and that itself could spark some room for buyers to take some money off the table amid the uncertainty and mess created by OPEC+, though the lack of a deal i.e. less supply is a good thing in the short-term.

The US is urging OPEC+ to find a compromise deal on increasing oil output

  
Analysis, Crude

Sources now cite the US administration:

  • urging OPEC and allies to find a compromise solution
Added, White House spokesperson said in a statement:
  • “We are not a party to these talks, but Administration officials have been engaged with relevant capitals to urge a compromise solution that will allow proposed production increases to move forward.”
Yes, the US admin urgings on energy independence and combatting climate change have been put on hold while they urge MOAR OPEC+ oil pumping 😉
Greg had the news up on OPEC abandoning talks on an oil output hike:
—
Background if you need:
  • OPEC+ (OPEC plus Russia and other big oil producers) agreed to output cuts of almost 10 million barrels per day (bpd) last year. This is around 10% of world output. Cuts were pout in place due to the demand slump as the pandemic hit.
  • The cuts have been gradually relaxed, and are now about 5.8m bpd.
At the talks begun last week (that have now been halted):
  • Saudi Arabia and other OPEC+ members proposed to raise output in stages by about 2 million bpd from August to December (400K bbls a month)
  • The UAE rejected extending remaining cuts to the end of 2022 from the current end date of April without adjusting its current baseline production (i.e. the UAE want to increase their share of output)
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