US Equities Reaching New Highs

Market movers today

  • We have no tier-1 data today but the US Richmond business survey for August may get some attention with the increased focus on the US manufacturing cycle. US new home sales are also up for release today. New home sales have dropped from the COVID-induced pick-up but is expected to have rebounded slightly in July.

  • There are no market movers in Scandi today.

The 60 second overview

The financial markets continue to be driven by the economic impact of the corona crisis and the rise of infections as well as the roll-out of vaccines. Yesterday, the Pfizer vaccine was approved by the FDA and can thus be used in the US. Hence, with more vaccines available, the US stock market set a new record and the VIX volatility declined after having risen. There was also a rebound in the oil price. However, US Treasury yields continue to be range bound and there has been modest impact from the rise in equity prices. In the Treasury market, the use of the Federal Reserve’s reverse repo line continues to increase and reached a new record yesterday at USD 1136bn and the Treasury continues to run down its cash balance. Since early March the cash balance has been reduced by some USD 1000bn.

Looking forward, markets are looking towards Powells speech on Friday at the Jackson Hole conference and whether he will strike a more dovish tone than previously expected and a vaguer statement on tapering of the Federal Reserve QE programme.

Equities: Global equity markets kicked off week on strong note as the rebound continued. Sector performance reversed, with last week’s losers like energy, materials an industrials among the winning sectors. Likewise, overbought defensives from last week, such as utilities and real estate, lagged. Gains in US stocks were relatively broad based, a third of the S&P500 higher. Volatility lower for its second session, now below 17. This took S&P just off record highs up 0.9%, Dow 0.6%, Nasdaq 1.6% and Russell 2000 1.9%. The rebound continuing in Asia this morning, with markets up 1-2%, with outperformance in Hong Kong as tech shares recoup some losses. US futures point to another green opening.

FI: There was a modest rise in European yields yesterday, while 10Y Treasuries were unchanged despite US equities reaching new highs yesterday. The bond markets are still in a wait-and-see stance ahead of the Jackson Hole conference that begins on Thursday.

FX: No major FX movements yesterday. EUR/USD rose but remains in the 1.17-area. EUR/GBP dipped marginally and remains below 0.86. EUR/NOK and EUR/SEK also fell. Credit: Credit markets were in a good mood yesterday, with iTraxx Xover tightening 4bp (to 232½bp) and Main 1bp (to 46bp). HY bonds tightened 1½bp and IG ½bp.

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