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Global Markets, Futures Slide Spooked By Poor Amazon Earnings, US Politics

S&P futures have tracked both European and Asian markets lower, which were dragged down by the big EPS miss and guidance cut reported by Amazon on Thursday. Meanwhile, the pounding of the dollar has resumed with the euro and sterling strengthening against the dollar due to renewed political concerns after this morning's stunning failure by the Senate GOP to pass a "skinny" Obamacare repeal after John McCain sided with democrats.

AMZN was down 3% after missing on the bottom line, reporting slowing AWS profits, and forecasting Q3 operating income which may be a loss: "It has been a pretty good season for earnings and this is the first big company that has sown a few doubts on that, and it also raises question on where the broader tech sector is headed from here," said Investec economist Victoria Clarke.

MSCI's broadest index of Asia-Pacific shares ex-Japan fell 0.8%, with Samsung Electronics, Asia's largest company by market cap, tumbling 3.5%.

The dollar headed for a weekly decline against most of its major peers amid the Federal Reserve’s dovish tone, with traders looking at today's first look at Q2 GDP as the next driver for the currency. Treasuries were flat on the day and set for their first weekly decline in three weeks.

In Asia, a selloff in tech stocks prompted by Amazon's results sent benchmark indexes tumbling from Sydney to Hong Kong.  The slide in global tech shares also spread to Europe on heightened concerns about corporate earnings as equity markets opened lower, with technology sector particularly heavy as it catches up with Nasdaq weakness yesterday. French CAC underperforms after earnings misses from L’Oreal (-1.9%) and Renault (-5.7%). Europe's tech index fell 1.4 percent in early trading on Friday, the region's worst-performing sector.

"In terms of one story shaping sentiment it is quite remarkable, but markets are also a bit nervous ahead of U.S. GDP numbers due out today," said Investec's Clarke. "The trigger was Amazon but developments overnight on U.S. healthcare has not helped sentiment."

German bunds extend a selloff as the country's CPI came in at 1.7%, hotter than the 1.5% expected, confirming the upside risks signaled by strong regional numbers; peripheral European bonds and other core fixed-income markets moved lower in tandem.

In economic data out of Europe this morning, German Q2 GDP joined inflation in printing higher than the 1.5%, coming at 1.7%, and above Q1's 1.6%. Spanish GDP printed at +0.9%qoq in the second quarter of 2017, in line with consensus expectations, posting the best reading since 2015. Meanwhile, French GDP grew by +0.5%qoq in Q2. This was also in line with consensus. The GDP growth reflected a large positive contribution from external net trade (+0.8pp), driven by a rebound in exports (+3.1%qoq) after a decline of 0.7% in Q1. Imports were slightly up on the quarter (+0.2%qoq). Changes in inventories contributed negatively with 0.6pp, reversing the positive contribution in Q1 (+0.7pp), whereas domestic demand (excl. inventories) contributed +0.4pp, similar to the previous quarter.

The Swiss franc plunged for a fourth day versus the euro, reaching its weakest level since 2015, just shy of 1.14, following numerous stop hits and position unwinds as well as concerns about upcoming tapering by the ECB. The pair spiked as daily fix requirements in Tokyo triggered large stops, traders quoted by Bloomberg said. The CitiFX eTrading team noted that overnight in Asia, “USDCHF saw 6x and EURCHF seeing 11x its average interest over the session so far. The market seems to have been spooked by the unexpected moves in CHF as well with liquidity density lower across the board.”

SEK jumped after Swedish GDP beat estimates by 0.8ppt.

The GBP was moved around by FT reports that the UK Chancellor Hammond seeks an “off the shelf” Brexit transition. Citi's take: “The government appears to be shifting towards effectively extending EU membership by adopting a “Norway-plus” model (membership of the European Economic Area plus customs union). While this would be the most benign outcome for the economy short of staying in the EU, there are reasons to remain cautious, in our view.”

The dollar was pressured ahead of U.S. growth data while Treasuries were flat.

Oil prices held near eight-week highs hit on Thursday after key OPEC members pledged to reduce exports and the U.S. government reported a sharp decline in crude inventories. Brent crude futures were at $51.52 per barrel, up slightly in European trading and close to highs of $51.64 hit on Thursday.

Today's economic data include the closely watched first estimate of 2Q GDP, UMichigan consumer sentiment, while among the more notable earnings releases include Exxon, Chevron, Merck & Co, AbbVie. U.S.

Market Snapshot

  • S&P 500 futures down 0.4% to 2,462.50
  • Nasdaq futures down 0.9% to 5858
  • STOXX Europe 600 down 1% to 378.53
  • MXAP down 0.7% to 159.29
  • MXAPJ down 1.1% to 525.32
  • Nikkei down 0.6% to 19,959.84
  • Topix down 0.4% to 1,621.22
  • Hang Seng Index down 0.6% to 26,979.39
  • Shanghai Composite up 0.1% to 3,253.24
  • Sensex down 0.5% to 32,220.77
  • Australia S&P/ASX 200 down 1.4% to 5,702.82
  • Kospi down 1.7% to 2,400.99
  • German 10Y yield rose 2.4 bps to 0.56%
  • Euro up 0.2% to 1.1705 per US$
  • Italian 10Y yield fell 3.4 bps to 1.802%
  • Spanish 10Y yield rose 3.4 bps to 1.541%
  • Brent Futures up 0.4% to $51.68/bbl
  • Gold spot up 0.03% to $1,259.51
  • U.S. Dollar Index down 0.1% to 93.75

Top Overnight News

  • The Swiss franc’s slide extended on bets that a tapering announcement by the ECB later this year will spur more selling of the haven currency
  • The German and French economies showed signs of renewed impetus in the second quarter, underpinning the growth momentum the European Central Bank is banking on to boost inflation
  • Sweden’s economy grew at a considerably faster pace last quarter than predicted by analysts, adding pressure on the central bank to focus on the timing of an exit from years of extreme monetary stimulus
  • A months-long effort by Senate Republicans to pass health legislation collapsed early Friday after GOP Senator John McCain joined two of his colleagues to block a stripped-down Obamacare repeal bill
  • Russia Orders U.S. to Reduce Diplomatic Staff in Russia
  • Jeffrey Immelt, the outgoing chief executive officer at General Electric Co., is on a narrowing list of candidates to take over as head of Uber Technologies Inc.
  • Inc. reminded investors that luring shoppers away from stores and dominating the cloud-computing industry isn’t cheap
  • BNP Paribas SA is showing it’s still possible to build a big investment bank franchise from Europe
  • Trudeau Officials Are Said to Fear Impact of Speedy Hikes
  • Citigroup Adds Wilson as Head of Electronic, Algorithmic Trading
  • U.S. Safety Regulators Expand Probe of Exhaust in Ford SUVs
  • Electronic Arts CEO Says VR Will Take 2 Years to Reach Masses
  • Amgen’s Repatha sBLA Gets Priority FDA Review for Heart Attacks
  • Boeing To Lay Off 220 Puget Sound Workers
  • Expedia Invests $350m in Indonesia’s Traveloka
  • UBS Shares Drop Most Since January as Capital Ratio Declines
  • Thiam ‘Feeling Good’ as Credit Suisse Overhaul Gains Traction
  • Komatsu Joins Rivals to Flag China Rebound as Profit Doubles

Asia equity markets traded negative across the board following the indecisive tone on Wall St. where tech stocks underperformed as the Nasdaq Comp pulled back from record levels, while data releases also proved to be uninspiring. ASX 200, was the laggard amid broad-based weakness and profit taking in commodity stocks, while Nikkei 225, was pressured by a firmer JPY, with weaker than expected Retail Sales and mostly inline inflation data also keeping sentiment tame. Furthermore, Toshiba shares fell off a cliff with losses of over 10% amid several negative news reports for the Co. Shanghai Comp. and Hang Seng also conformed to the downbeat tone in the region, although downside in the mainland was stemmed after another respectable liquidity operation by the PBoC. 10yr JGBs failed to benefit from the risk averse tone and the BoJ's Rinban announcement for over JPY ltln of government debt, as demand remained subdued following weakness in USTs amid heavy corporate supply. PBoC injected CNY 100bln in 7-day reverse repos and CNY 40bln in 14-day reverse repos, for a weekly net injection of CNY 280b1n vs. Prey. CNY 510bln injection last week.

BOJ Summary of Opinions from July 19th-20th stated year on year change in CPI is likely to increase gradually towards 2% with the inflation target likely to be reached by around fiscal 2019. Furthermore, there was an opinion that the range of the target level of 10yr JGB yields should not be interpreted too strictly, while there was an opinion that it is appropriate to set the new target of JGB purchases at a yearly pace of roughly JPY 45TN and then reduce the pace of purchases in an orderly and incremental manner.  Japanese National CPI (Jun) Y/Y 0.4% vs. Exp. 0.4% (Prey. 0.4%). Japanese National CPI Ex-Fresh Food (Jun) Y/Y 0.4% vs. Exp. 0.4% (Prey. 0.4%)

Top Asian News

  • Pakistan Court Orders Prime Minister to Resign Due to Corruption
  • Japanese CPI Stalls at 0.4 Percent Even as Job Market Tightens
  • Instagram Posts Will Soon Help Sniff Out Tax Fraud in India
  • Taiwan Economy Grows Less Than Forecast on Weak Domestic Demand
  • Amazon’s ‘Prime Now’ Service Stalls Upon Entry in Singapore
  • HSBC Sees PBOC Boosting Market Rates, Bond Yields Rising to 4%
  • Pakistan Court Orders Sharif Disqualification on Graft Charges

European equity markets continue to be led by earnings, and have opened lower, not helped by the lagging tech sector in the US. Sector specific, telecoms lag, as heavyweight BT's poor report has weighed. Europe does trade fairly subdued as a whole however, with much focus on the German CPI data.

Top European News

  • Renault Shares Tumble as Company Sees Price Pressures Rising
  • BNP Shows Europe Can Still Build Investment-Bank Champions
  • Santander Starts to Steady Popular Unit as Profit Increases
  • SEB Expects More Hawkish Riksbank Following Strong Swedish GDP
  • German Court Revokes Decision to Halt Opal Gas Capacity Auctions
  • Diesel Battle Moves to German Court as Porsche Recalls Cayenne
  • Sweden’s Economy Soared in Second Quarter, Trouncing Estimates
  • Merkel Bloc Support at Highest in Nearly Two Years in Poll
  • Sweden Prel. 2Q GDP Grew Quarterly 1.7% vs Est. Growth 0.9%

In currencies, the EUR has seen some buying as the German regionals filter out, with the M/M figures across the board being revised higher. Elsewhere, FX volatility remains fairly quiet as a volatile week comes to a close. UK Finance Minister Hammond was reported in the FT through the European morning, expressing his optimism toward migration and trade between the UK and EU. Markets were unreactive to the Minister's comments; however, GBP/USD continues to see some marginal recovery, aided by the recent dampening in the greenback. The pair trades largely in tandem with EUR/USD currently, with a similar 4h trendline keeping the pair ahead of 1.3050.

In commodities, oil markets have seen a bullish week and have not looked back since the rejection of the USD 42.00/bbl

Looking at the day ahead today, it's a busy end to the week in the US as we will open with the advance Q2 GDP report (2.7% annualized QoQ expected; 1.4% previous), along with the Q2 Personal consumption numbers (+2.8% expected; Core PCE +0.7% QoQ expected). Later in the day we will also get the final University of Michigan consumer sentiment reading for July with no revisions expected (93.1 expected).

US Event Calendar

  • 8:30am: Revisions: GDP data from 2014-16; reference year remains 2009
    • GDP Annualized QoQ, est. 2.7%, prior 1.4%
    • Personal Consumption, est. 2.8%, prior 1.1%
    • GDP Price Index, est. 1.3%, prior 1.9%
    • Core PCE QoQ, est. 0.7%, prior 2.0%
  • 8:30am: Employment Cost Index, est. 0.6%, prior 0.8%
  • 10am: U. of Mich. Sentiment, est. 93.1, prior 93.1; Current Conditions, prior 113.2; Expectations, prior 80.2

DB's Jim Reid concludes the overnight wrap

Markets had a messy hour or so last night as well. Before this it was looking like another day of ultra low vol and the 11th day in a row with the VIX below 10. However a sudden US lunchtime spike higher in the VIX (from 9.16 to 11.46 in not much more than an hour) and a fall in US equities - especially the NASDAQ that went from record intra-day highs and up +0.5% to down -1.5% 90 minutes later - broke the calm. In a very low vol world this felt a bit like a flash crash but the reality is that in more normal markets we probably wouldn't be making too big a deal about it. Some blamed a broker note suggesting the end of the low vol environment was nigh but there was nothing concrete causing the sell-off.

In fact, markets slowly recovered into the close with the VIX touching 10 again before closing at 10.11. Meanwhile the NASDAQ 'only' closed down -0.63%, with the S&P 500 rallying 0.5% from the lows to close -0.10%. Meanwhile the Dow shrugged off the early afternoon slump to close at the days high and a new record (+0.39%), helped by strong results from Verizon (+7%). The tech stocks continued to attract attention after the bell with Amazon’s results disappointing (-3%), but Intel beating and up ~3%. NASDAQ futures are down -0.6% this morning. Earlier European markets were mixed, the Stoxx 600 fell 0.1%, with gains in the telco (+1.3%) and real estate sector broadly offset by losses in health care (-1.2%) and utilities. Across the region, the DAX (-0.8%), FTSE 100 (-0.1%) and CAC (-0.1%) all softened, but the Italian FTSE MIB was up slightly (+0.3%).

After that brief excitement, it could be a relatively interesting end to the week with the highlights being German and French flash CPI figures this morning and US Q2 GDP this afternoon. Any inflation data is being scrutinised for price pressure clues (or lack of them) at the moment and US growth is always interesting (Bloomberg consensus at 2.7% for Q2).

Talking of inflation, overnight we've seen Japan release their latest monthly figures with June nationwide CPI +0.4% YoY (May: +0.4%), core CPI excluding fresh food was +0.4% (+0.4%), BoJ's core CPI excluding fresh food and energy was 0.0% (0.0%), and core-core CPI excluding food and energy was -0.2% (-0.2%). The report was broadly in-line with consensus but one that still leaves the BoJ well below their target. This morning in Asia, markets took cues from the US mini-sell-off, with bourses all softening, the Nikkei (-0.4%), Kospi (-1.3%), Hang Seng (-0.6%) and the Shanghai Comp down -0.1%.

Away from the markets, there was more voting drama in the attempt to repeal Obamacare. Five Senate Republicans said they would only vote for the skinny repeal of Obamacare if they got assurance that passage would only be a stepping stone to a conference committee to come up with a fuller repeal and replacement. Later on, House speaker Ryan provided such assurance. That said, forward plans remains uncertain, with the likely outcome featuring various amendment votes.

Elsewhere, Republican leaders said that due to unknowns associated with the border adjusted tax (BAT), it will NOT be part of negotiations on how to overhaul the US tax code. This clarification does raise the issue of how the Republicans will find other sources of revenue, as White House speaker Ryan’s BAT concept was expected to raise $1trn of tax revenue over a decade.

Talking of politics, the Brexit negotiations appear to be facing communication issues, EU Brexit negotiator Barnier told EU ambassadors that he doesn't expect enough progress will be made by October to allow for the start of talks on the future relationship with the UK. Conversely, UK responded by saying it was confident it would make enough progress by October.

Back to yesterday, in Europe the STOXX 600 index dipped slightly lower by -0.1% but still remains marginally up on the week (+0.6% WTD). Key regional indices also posted losses with the DAX (-0.8%), FTSE (-0.1%) and CAC (-0.1%) all down on the day.

At the other end of the risk spectrum we saw some divergence in yield moves between Europe and the US with the former playing catch-up with the Fed inspired Treasury rally from the night before. Interestingly even with the sharp lunchtime falls in US equities Treasuries continued to retrace the post Fed moves to end the day +1bps (2yr) and +3bps (10 yr) higher. Yields have dipped a bps overnight again though. German Bund yields earlier dropped across all maturities (2Y -1bp; 10Y -3bps) with Gilts (2Y -3bps; 10Y -3bps), OATs (2Y -2bps; 10Y -1bp) and BTPs (10Y -3bps) also seeing falling yields.

Over in FX markets we saw the US dollar index rise (+0.3%) to erase nearly all of the previous day’s losses. Both the Euro (-0.5%) and Sterling (-0.4%) fell on the back of dollar gains. Over in commodities we saw nearly all segments trade higher yesterday. The energy sector continues to perform well across the board with oil trading higher again (WTI +0.8%), and is now up every day this week so far with gains of over +7% WTD. Precious metals (Gold +0.9%; Silver +1.0%) and industrial metals (Copper +1.7%; Aluminium +0.6%) ticked up on the day as well, as did the broader agricultural commodity complex (Corn +0.9%; Wheat +0.7%).

Yesterday was fairly quiet in terms of data out of Europe. We opened with the German GfK Consumer Confidence indicator for August which marginally beat expectations at 10.8 (vs. 10.6 expected; 10.6 previous), and later on saw Euro area M3 money supply for June grow in line with expectations at 5.0% YoY (5.0% previous). In the US, it was a busy day with most interest on the June durable goods orders report. Headline orders were better than expected at 6.5% mom (vs. 3.9% expected; -0.1% previous), mainly due to a material lift in the orders for aircraft and parts. Excluding transportation items, orders rose just 0.2% mom (vs. 0.4% expected), but the softer result was made more palatable as the prior month’s data was revised up to 0.6% (from 0.3%). In other news, Wholesale inventories beat expectations, up 0.6% mom in June (vs. 0.3% expected; 0.4% previous), as did retail inventories. The Chicago Fed’s National Activity Index also moved back above zero to 0.13 in June, signalling that growth is slightly above trend. Initial jobless claims stood at 244k last week, so that the four-week average remained at 244k.

Looking at the day ahead today, in Europe we will open with the Q2 GDP reading for France (+1.6% YoY expected; 1.1% previous). Following that we will get flash July CPI readings for France (+0.8% YoY / -0.4% mom expected) and Germany (+1.4% YoY / +0.3% mom expected). Euro area economic confidence (110.8 expected), business climate (1.14 expected), industrial confidence (4.4 expected) and services confidence (13.4) indicators for July are also due, along with the final reading for the July consumer confidence indicator where no revisions are expected (-1.7 expected). It’s a busy end to the week in the US as we will open with the advance Q2 GDP report (2.7% annualized QoQ expected; 1.4% previous), along with the Q2 Personal consumption numbers (+2.8% expected; Core PCE +0.7% QoQ expected). Later in the day we will also get the final University of Michigan consumer sentiment reading for July with no revisions expected (93.1 expected).

Away from economic data we will see earnings season continue tomorrow as American Airlines, Chevron, Exxon Mobil and Merck are due to report in the US tomorrow. In Europe we have BNP and UBS reporting as well.