European indices close the day near the lows yesterday, down by over 2% across the board, missing out on the late recovery in US equities towards the latter stages.
Hence, the gains here are largely due to some catch-up play and belies the more tepid and cautious risk mood to kick start the session.
US futures aren’t doing a whole lot, with S&P 500 and Nasdaq futures keeping at flat levels at the moment. Major currencies are also mostly little change besides some mild strength in the yen, with AUD/USD seen a little weaker under its 100-day moving average.
Snowflake’s $3.36 billion initial public offering was a record for a software company and the biggest in the US this year. The share price soared as much as over +150% yesterday. It is now worth more than Uber, Dell and General Motors. Definitely an upgrade from a ‘flake’ to more like a snow ball!
US IPO’s are having a hectic week with 21 companies expected to price their offerings and raising more than $10 billion together.
A few attempts to bounce intraday fell flat and stocks finished near the lows of the day. The S&P 500 fell while the Nasdaq’s 4% drop extended the decline since last Wednesday’s record high above 10% — an unofficial correction.
The Nasdaq is now just 1.0% away from wiping out the entire August-Sept gain. Tesla shares fell 21% on the day, its worst ever one-day loss.
US futures have also moved higher in the past hour, with S&P 500 futures now up ~0.7% while Nasdaq futures have pared losses to flat levels now and that is feeding to some slight positive momentum to start European morning trade.
In the currencies space, the aussie is also ticking a little higher with AUD/USD now testing 0.7300 and the confluence of its key hourly moving averages @ 0.7294-13.
USD/CAD is also nudged lower from 1.3110 to 1.3090 and testing the confluence of its own key hourly moving averages @ 1.3086-91 currently.
If one could describe the Dollar’s performance over the past few months in one word, the best fit would be vulnerable.
The once king of the FX space has weakened considerably in Q3, depreciating against every single G10, most Asian and emerging market currencies. This is despite its safe-haven status and the global reserve currency title. For those who are wondering why the Greenback remains depressed and unable to shake away the blues despite the general uncertainty, the first clues can be found in the US economy. Continue reading »
The US National Hurricane Center is out with its latest update on Hurricane Laura and it’s not good.
Laura is likely to continue strengthening today while it moves over warm waters of the northwestern Gulf of Mexico and the vertical wind shear remains low. Laura’s intensity could level-off by this evening due to the possibility of an eyewall replacement cycle and the expected increase in shear around the time of landfall. Even if the rate of strengthening eases, Laura is expected to be an extremely powerful category 4 hurricane when it reaches the northwestern Gulf coast.
This has the potential to be especially devastating for the oil & gas industry and its workers. The current track takes the eye through or near Beaumont, TX or Lake Charles, LA. Both are massive US refining hubs. The Houston area will also be hit but it now looks like the worst of the storm will pass to the east of it.
Category 4 hurricanes have sustained winds in the 209-251 km/h range, or 130-156 mph. Storm surges are generally 13-18 feet but can be as much as 24 feet. The NHC says the storm surge from Laura could penetrate 30 miles inland.
A recent Category 4 storm was Hurricane Harvey in 2017. It inflicted an estimated $125B in damage as it first made landfall near Corpus Christi and then raked the coast, causing widespread flooding in Houston. It matched Katrina as the most-costly US hurricane.
This storm appears to be faster moving so flood damage may not be as high but wind damage could be worse. It will also then cut across the mid-Atlantic states and could reform as a tropical storm off the coast of North Carolina or Virginia.
This comes after the US moved to cut off Huawei’s supply chain via fresh sanctions that will restrict any foreign semiconductor company from selling chips – developed or produced using US software/technology – to the Chinese company.
The remarks from China today are rather reserved – no specific mention of retaliation but there is anxiety surrounding the situation – but fitting with the tone that both sides are still largely holding off from escalating tensions too much for the time being.
USD/JPY is at a six-day low as the pressure on the US dollar mounts. There is some broad-based weakness taking hold. It’s increasingly becoming the default mode in the market to sell US dollars, so long as there isn’t genuine risk aversion.
There’s nothing particularly negative for the US dollar today but there are headwinds:
US election risk
Lack of US stimulus will hurt relative growth
Equity market valuation is richer in the US, better value elsewhere
Long-term monetization/inflation worries
Here’s chart on M2 from Nordea comparing the US and Europe:
In the smaller picture, risk sentiment is good today and that’s good enough to undercut the US dollar.
As for USD/JPY, it’s not time to worry yet but the drop in late July is starting to look like a warning shot.