Eyes down for US inflation reading, FTSE 100 hits new post-pandemic high

Morning Note

European stock markets made early gains as risk remains bid, taking a positive cue from a record high on Wall Street for both the Dow Jones industrial average and the S&P 500, though the Nasdaq closed down 0.5% as yields rose, weighing on big tech, and the passing of the $1tn US infrastructure bill boosted cyclicals. Higher yields boosted the big banks, while a rebound in oil prices lent further support to energy stocks. Caterpillar led the advance on the Dow, benefitting from the infrastructure deal. Pfizer shares rallied 4% to a new record, whilst Moderna handed back some of Monday’s spectacular gains with a decline of more than 5%.

In Europe, it’s fed through to a strong start led by basic resources as investors seem happy to participate in gently rising equity markets in the absence of any really bad news. The FTSE 100 surpassed its post-pandemic intraday peak at 7,189, breaking 7,192 in early trade this morning. Yesterday Goldman Sachs raised its year-end target on the blue chip index to 7,900. As consistently mentioned here, the FTSE 100 may be old world fare, but it’s still undervalued and unlike most peers has failed to hit all-time highs in the wake of the pandemic. The reflation trade which did so well at the end of last year and start of 2021 has taken a bit of hit lately, but it looks to be back on going into the rest of the year. As far the FTSE 100 is concerned, we need to wait and see whether this area around 7200 is once again the top of the range or if there is a clean push higher which may bring the Feb ‘20 swing highs around 7,500 back into play. Asian shares were not so positive as rising cases of the Delta variant weigh on sentiment.

Taper talk: Chicago Fed’s Evans thinks “we are well on our way” to meet tapering requirements “later this year”, but he stressed again that the rise in prices in temporary and that the central bank ought to stick to its guns on achieving maximum employment. US 10yr yields have risen back to 1.37%, the highest since July 14th. All eyes are on today’s US CPI reading. The month-on-month reading is forecast to slow to +0.4% from +0.9% in June, while core is seen at +0.4% vs +0.9% in June. Lots of chatter about tapering and the strong US data is helping to boost US yields and the USD.

Coinbase reported $2bn in quarterly revenues, almost double CME and ICE, and up more 1,000% from a year before as it benefitted from gyrations in cryptocurrency markets. Net income soared to $1.6bn. Retail trading activity was strong, with 8.8m monthly active users, up 44% year-on-year.

Vectura’s future won’t be decided by an auction after all, as Carlyle says it won’t revise its 155p-per-share offer. Philip Morris has until Aug 12th to submit its own revised offer, which currently stands at 165p. There is little point in Carlyle getting involved in a street fight here. The group is clearly betting that by sticking to its guns at 155p it will win the board and shareholders over based largely on it not being a tobacco giant. There are clearly lots of concerns about PMI and with the board facing some criticism and many shareholders not keen to see it go ‘up in smoke’, Carlyle looks to have the edge. Shares trade around 163p, down from the 173p yesterday as the prospect of a bidding war recede.

Deliveroo’s half-year report showed the pandemic-era trends are still strong. Gross transaction value (GTV) rose 102% to £3.39bn, though growth slowed from +131% in Q1 to +81% in Q2 as the tough comparison with the second quarter of last year was felt. Revenues were up 82% to £922.5 million, primarily due to increase in GTV. Gross profits rose 75% to £263.9m, but margins fell to 7.8% from 8.8% due to investments in growth, leaving Roo with an adjusted net ebitda loss of £27m. Nevertheless, the strong sales performance means it felt able to retiterate the upgraded full year guidance provided in the Q2 2021 trading update in July, which forecasts GTV growth of 50-60% vs the previous 30-40%. Full year gross profit margin is seen in the lower half of the range of 7.5-8.0%, which reflects ongoing investment in growth. Shares fell more than 1.5% in early trade, but need to factor in the pop from the Deliver Hero gains earlier this week; shares up 8% in the last week and more than 16% in the last month.

Elsewhere, the dollar remains well bid and EURUSD is testing the lows of the year at 1.17. A breach here may see the stops out and a quick decline in price. Note the bearish MACD crossover on the daily. Next major support is at the Nov double bottom around 1.1616.

EUR/USD Chart on 11th August 2021.

The dollar index showing renewed desire to take on the YTD high from late March with a clean break of 93. Again, note the bullish MACD crossover.

Dollar Index performance on 11th August 2021.

Gold treads water around $1,730, below the medium-term trend support (pink line) ahead of the CPI print today. Real rates remain supportive, with 10yr TIPS at –1.04, though the deeply negative territory has not been such succour for the metal in recent days, having come off –1.19% on Aug 3rd. Bearish MACD still in charge but turn in the 14-day RSI needs watching. If gold cracks again then the big level is the YTD low at $1,676.

Gold chart showing performance on 11.08.2021.