After three days of furious declines in the market culminating with the worst 3-day stretch for the Nasdaq since the financial crisis which entered a correction, stocks rebounded on Tuesday on the back of oversold conditions which approached the March puke…

… as traders, algos and Gen-Z BTFDers ignored news that AstraZeneca had paused covid vaccine trials after a participant in the UK developed an unexplained illness potentially crippling the race for a vaccine, and causing a “ripple as markets question recent vaccine optimism,” according SVB Leerink analyst Andrew Berens said. Then again, with futures some 20 points higher from Tuesday’s close, it doesn’t seem like pessimism will be allowed today as a 4-day selloff would be catastrophic for market sentiment, and as such look for a green close with the blessings of the Fed.

And with all eyes on the Nasdaq, it was imperative to find some support which is what the 50DMA has conveniently provided.

The rebound was led by the same tech names that tumbled in the past three days, with Nasdaq futures bouncing 1.8% after tumbling another 4.1% on Tuesday, bringing total losses since Sept. 2 to 10%, with declines led by stocks such as Amazon.com, Facebook and Netflix after a rally dominated by the so-called “stay-at-home” winners on the back of SoftBank call buying. Tesla surged 7% in premarket trading after shedding about $80 billion of its market capitalization in the previous session. Lululemon dropped 4.9% after the yogawear maker forecast a drop in current-quarter adjusted profit due to higher marketing expenses.

“A setback like that seen in Nasdaq stocks over the past days has been overdue,” Commerzbank strategist Alexander Kraemer wrote citing excessive valuations. “Nonetheless, the underlying drivers of the recent rally remain in place. We believe that the recent setback will emerge as a buying opportunity for year-end performance.”

European equities also rallied led by telecoms, oil & gas and insurance names. The Eurostoxx rose more than 1%, with the FTSE 100 up 0.8%, but off best levels.

Earlier in the session, Asian stocks fell, led by health care and finance. All markets in the region were down, with Australia’s S&P/ASX 200 dropping 2.2% and Shanghai Composite falling 1.9%. The Topix declined 1%, with ARTNER and Fuji Pharma falling the most. The Shanghai Composite Index retreated 1.9%, with Ningxia Xinri Hengli Steel Wire and Zhejiang Tiantai Xianghe Industrial posting the biggest slides. Softbank once again reversed most of its losses, ending down 2.8% after earlier sliding as much as 7%.

Treasuries erased their increases as equity futures strengthened, paring Asian session gains over early European session, although yields remained slightly cheaper across front-end of the curve. Early risk-off supported a bull-flattening move but gains faded as S&P e-minis recovered and yields eased back higher. U.S. session highlight includes $35b 10-year note reopening, a $6b increase vs. prior reopening. Yields were higher by up to 1bp across long-end of the curve with front- and belly broadly unchanged; 10-year yields around 0.682%. The German curve bear steepens slightly, while peripheral spreads tighten to core. Gilts bear flatten.

In FX, the greenback traded mixed versus G-10 peers as risk sensitive currencies, such as the Australian and New Zealand dollars and the Swedish krona, saw a modest bounce. The pound was the worst performer, and fell for a sixth day, extending its losing streak to the longest since the start of the U.K.’s coronavirus lockdown in March; cable dropped as low as 1.2914 – on worries that talks could collapse over changes to the Brexit withdrawal deal.

In commodities, crude oil climbed back above $40 a barrel in London after tumbling to the lowest level since June, while front month WTI rose 2.25%, back on a $37-handle.

Spot gold drifted in the red below $1,930 as the dollar rose. Base metals grind lower, with LME nickel underperforming.

Looking at the day ahead, the main central bank highlight will be the Bank of Canada’s monetary policy decision later. In terms of data, there’s also Japan’s machine tool orders for August, Canada’s housing starts for August and the US JOLTS job openings for July.

Market Snapshot

• S&P 500 futures up 0.8% to 3,361.00
• STOXX Europe 600 up 0.8% to 366.64
• MXAP down 1% to 169.19
• MXAPJ down 1% to 556.57
• Nikkei down 1% to 23,032.54
• Topix down 1% to 1,605.40
• Hang Seng Index down 0.6% to 24,468.93
• Shanghai Composite down 1.9% to 3,254.63
• Sensex down 0.6% to 38,132.85
• Australia S&P/ASX 200 down 2.2% to 5,878.60
• Kospi down 1.1% to 2,375.81
• Brent Futures up 1.2% to $40.27/bbl
• Gold spot down 0.2% to $1,929.09
• German 10Y yield fell 0.2 bps to -0.497%
• Euro down 0.05% to $1.1772
• Brent Futures up 1.2% to $40.27/bbl
• Italian 10Y yield fell 1.8 bps to 0.902%
• Spanish 10Y yield fell 1.1 bps to 0.315%
• U.S. Dollar Index up 0.09% to 93.53

Top Overnight News from Bloomberg

• The euro’s rally to a two-year high is making European Central Bank officials nervous, and putting investors and economists on the lookout for some kind of intervention as soon as Thursday’s policy meeting
• All social gatherings of more than six people will be banned in England, under new limits to be announced by Boris Johnson on Wednesday, as coronavirus cases grow
• Johnson is facing a backlash from the European Union and from within his own ruling Conservative Party after the U.K. government said it plans to break international law over Brexit

Here is a quick look at global markets courtesy of NewsSquawk

Asian equity markets were lower across the board amid strong headwinds from Wall St where the tech rout intensified on return from the long weekend and the Nasdaq slipped into correction territory with Tesla shares crashing over 21% following the S&P 500 snub, while recent hefty losses in the energy complex and AstraZeneca’s vaccine trial halt due to an adverse reaction, added to the dejected mood and resulted in around a 10% drop in shares of its Indian listed subsidiary. ASX 200 (-2.1%) underperformed on a retreat from the 6,000 level with all sectors in negative territory and the substantial declines led by energy, tech and financials. Nikkei 225 (-1.0%) fell below 23,000 as exporters suffered the brunt of a firmer currency and as SoftBank continued its slump following the recent publicity regarding its large tech bets and amid news its Chief Compliance Officer has exited the Co. Hang Seng (-0.6%) and Shanghai Comp. (-1.9%) conformed to the widespread negative mood due to the tech rout and as tensions persisted with the US penalising Chinese companies accused of using forced labour in which it withheld orders for 3 companies, as well as threatened action on several others, while it was also reported that China is to sanction senior US officials that visit Taiwan and the American companies they have ties with. Finally, 10yr JGBs were higher following the bull flattening in US and with prices supported by the broad risk aversion, but with upside limited by resistance at the 152.00 level and amid the lack of BoJ buying in the market today.

Top Asian News

• New Zealand’s Three-Year Bond Yield Turns Negative for 1st Time
• CloudAlpha Capital Makes Long Call on China’s KE Holdings
• S.Korea Markets Dollar, Euro Bonds, Joining Global Deal Rush
• SoftBank Buybacks Raise Prospect of Management Buyout: Analyst

Sentiment has seen somewhat of a recovery (Euro Stoxx 50 +0.9%) since the downbeat APAC handover, albeit price action could just mark consolidation from yesterday’s move amidst quiet newsflow. US equity futures meanwhile eke mild gains as contracts drifted higher since the reopen of electronic trade – with the initial gap lower attributed to reports that AstraZeneca (-1.2%) pausing its COVID-19 vaccine trials with the University of Oxford due to an adverse reaction in a UK participant. Sources stated that the nature of the adverse reaction and when it happened were not immediately known, though the participant is expected to recover. It is worth keeping in mind that it is procedural to pause the trials when a patient gets ill from unknown causes, whilst one adverse effect does not deem the vaccine a “failure”. That being said, the safety of vaccines will garner more attention in the coming months as most candidates undergo Phase III trials. Nonetheless, the update has provided support for AstraZeneca’s competitors; with GSK (+2.3%), Sanofi (+2.1%), Diasorin (+3.5%), Merck (+1.7%), Moderna (+4.9% pre-mkt) and BioNTech (+3.5 pre-mkt) all firmer. Back to Europe, bourses see broad-based gains, whilst sectors are mostly higher, with telecoms and Oil & Gas leading the gains, whilst Banks, Autos and Travel & Leisure reside in the red, with the latter also weighed on by Ryanair (-2.5%) after cutting their FY passenger numbers – a move which mimic’s that of easyJet (-5.0%) for the Q4 announced yesterday. In terms of other individual movers, Airbus (-2.6%) is lower alongside the aviation sector, but with EU Trade Commissioner Dombrovskis said the EU will implement tariffs on US goods in response to illegal aid for Boeing (+0.8% pre-mkt) unless the US removes the trade duties imposed in response to Airbus subsidies. Meanwhile, Pandora (+4.2%) was bolstered by a broker upgrade at Citi

Top European News

• Zara Owner Inditex Faces Short Call by Anatole Investment
• Ryanair Hammers Government ‘Mismanagement’ of Covid Crisis

In FX, another day, but no real let up in the pressure on the Pound as a confirmed break of 1.3000 in Cable culminated in a breach of the 200 WMA (circa 1.2931) and a test of interim support ahead of 1.2900 in the form of a late July low (1.2912 from the 29th of that month). Meanwhile, Eur/Gbp extended its advance through 0.9100, but held below the next upside chart target (July 28’s 0.9135 peak) awaiting the next chapter in the Brexit saga as the UK prepares to present its Internal Market Bill with annulments to the Withdrawal Agreement (for a primer of the publication expected around 12.30BST check out the headline feed at 8.25BST).

• AUD/NZD – In contrast to Sterling’s ongoing demise, the Aussie and Kiwi have regained some composure alongside broad risk sentiment and a technical bounce off round number levels at 0.7200 and 0.6600 respectively. Improvements in Westpac consumer optimism, ANZ business confidence and the outlook for activity are also assisting the Antipodean Dollars as Aud/Nzd pivots 1.0900 despite more diplomatic strains between Australia and China.
• USD – The Buck is off best levels after the DXY extended gains just beyond Tuesday’s peak to 93.617 largely at the expense of the aforementioned ailing Pound, with the index acknowledging a partial recovery in risk appetite ahead of weekly MBA mortgage applications, Redbook sales and JOLTS.
• CAD/CHF/JPY/EUR – All narrowly mixed vs the Greenback, as the Loonie pares some declines in line with oil before the BoC policy meeting between 1.3259-16 parameters, the Franc holds just above 0.9200 following Swiss jobless rates matching consensus and the Yen ranging from 106.05 to 105.80 and also losing a little safe-haven premium. Similarly, the Euro is restrained in the run up to Thursday’s ECB within a 1.1787-58 range and wary of stops sitting around 1.1750 that would be exposed if the base from August 21 at 1.1754 gave way.
• SCANDI/EM – No major reaction to a rise in 12 month Swedish CPIF expectations as Eur/Sek continues to straddle 10.4000, but Eur/Nok has retreated from 10.8000 to sub-10.7500 on the back of the rebound in crude prices. Elsewhere, the Rub is also benefiting from Brent regaining a foothold above Usd 40/brl, albeit tentatively, but the Try remains on course if not destined to set a fresh record low at 7.5000.

In commodities, WTI and Brent front month futures eke mild gains, albeit more so a function of stock market action coupled with a waning of the Dollar. Fundamental news-flow for the complex has once again been light, with crude markets consolidating following yesterday’s slide. WTI Oct resides around USD 37.50/bbl (vs. low 36.16/bbl), whilst Brent Nov tested resistance at USD 40.50/bbl (vs. low 39.37/bbl). Note, the JMMC will be holding their next meeting on September 17th with delegates reportedly expressing concern over the lower oil prices. This comes after Russia Energy Minister Novak called on OPEC members to take into account the “demand recovery” just a week ago. ING suggests “If this downward pressure on the market continues, OPEC+ will become increasingly concerned, and there is always the potential that the group look to re-implement the deeper cuts that we saw between May and July” – but again, this will need the backing of Russia whom have historically been more resistant. Looking ahead, participants will be eyeing the EIA STEO later today ahead of the Private Inventory reports – a delayed release on account of US Labor Day. Elsewhere, spot gold and silver remain contained within relatively tight ranges as the precious metals trade in tandem with the Buck around USD 1930/oz and just below USD 26.75/oz. Meanwhile, base metals overnight saw a session of losses, with Shanghai copper closing some 1.3% lower and Dalian iron ore sliding over 3% amid the losses in stock markets coupled with the firmer USD.

US Event Calendar

• 7am: MBA Mortgage Applications, prior -2.0%
• 10am: JOLTS Job Openings, est. 6,000, prior 5,889

DB’s Jim Reid concludes the overnight wrap

I should be nice to readers today if I want votes but I must admit that a number of you are quite sneaky. We mentioned yesterday that there’s a competition to work out where in the world the front cover photo for our new Long-Term Study is from. Well, by the precise nature of many of your correct replies I can only suggest that many of you used some kind of google app to get the correct answer. If I’m being unfair I apologise! So congratulations to all the incorrect answers as I know there was no foul play. Or maybe I should castigate your lack of technology skills. Anyway having criticised most of the readers now please still vote for us.

The long term study is called “The Age of Disorder”. In it we split the world of the last 160 years into five eras and suggest we’re entering a new one characterised by amongst other things a deteriorating US/China relationship, reversing globalisation, a make or break decade for Europe, MMT, inequality getting higher first and then improving, Millennial policies likely to take over before the end of this decade (including on climate change) and tech being highly disruptive. We also wonder whether big cities will reduce in importance post peak globalisation and Covid. See the report for more here and there’s still time to guess where the front cover image is from. Up to you whether you use some fancy app algorithm to work it out.

There was a fair amount of disorder in markets yesterday as the US saw it’s first day back after last week’s tech rout. Once again it was US tech stocks that led the moves lower, with the NASDAQ down another -4.11% by the end of the session, which included a sizeable -21.1% decline from Tesla as last Friday evening’s news of the stock not being included in the S&P 500 at this time disappointed investors along with GM taking a stake in another EV competitor. Since last Wednesday’s record close, the NASDAQ is down -10.03%, losing c.$1.77tr of value. While not an apples-to-apples comparison, the Nasdaq has lost the equivalent of around 8.2% of 2019 US GDP over the last three session.

Other sectors weren’t immune to the downward moves, with the broader S&P 500 falling another -2.78% and the Dow Jones down -2.25%. Meanwhile energy stocks plummeted on both sides of the Atlantic as oil prices were another major victim of the risk-off mood. By the close yesterday, Brent Crude was down a further -5.31% to $39.78/bbl, while WTI saw an even larger -7.57% decline to $36.76/bbl, in its biggest move lower since April. The complex was under additional pressure as reports of stalling demand in Asia and further signals of increasing OPEC+ supply – namely Russian tax breaks to boost domestic oil-producers – gave crude a double shock on a day already bad for risk.

The key news overnight is that AstraZeneca has paused research on its coronavirus vaccine, which it has been working on with Oxford University, after a participant in its clinical trial became ill. A company spokesperson noted that, “This is a routine action which has to happen whenever there is a potentially unexplained illness in one of the trials.” While not stopping the trial, the company will have to review the incident in order to continue the trial, which could elongate the approval process. Meanwhile, Moncef Slaoui, the head of the US Warp Speed initiative, said in a statement that Data Safety Monitoring Boards in the US and UK are “conducting an in-depth review of the company’s vaccine candidate which is standard procedure when an adverse event occurs.” Given that this was seen by many as the leader in the vaccine race, this is a blow. It reminds us why the process is usually multiple times slower than what is occurring with the covid vaccine trials.

Asian markets are trading largely lower this morning. The Nikkei (-1.38%), Hang Seng (-0.97%), Shanghai Comp (-1.07%) and Kospi (-0.68%) are all down but futures on the S&P 500 and Nasdaq are trading up +0.13% and +0.70% respectively. Elsewhere, crude oil prices are down another -1% overnight. Datawise, China’s August CPI came in line with consensus at 2.4% yoy while PPI came in a touch lower than consensus at -2.0% yoy (-1.9% yoy expected).

In terms of other news this morning, geo-politics has dominated with China’s President Xi Jinping saying that the country will enhance cooperative ties with North Korea, a move which is likely to irk US President Trump. Meanwhile, the SCMP is carrying a story this morning citing Global Times Editor Hu Xijin that China is planning to sanction US officials who visit Taiwan. We feel that these tensions are only going to increase over the next few years as we highlight in “The Age of Disorder”.

Amidst the flight from risk, sovereign bonds rallied across the board yesterday as 10yr Treasury yields fell -3.9bps to 0.679% (a further -1bps this morning). It was a similar picture in Europe, where yields continued to fall throughout the day, with those on 10yr bunds (-3.2bps), OATs (-3.1bps) and BTPs (-1.8bps) all moving lower. Gilts were actually the big outperformer amidst the Brexit developments (more on which below), and 2-year gilt yields closed at a record low of -0.13%.

In terms of the latest on the coronavirus, here in the UK there was further concern after another 2,466 cases were reported yesterday, making the 3rd consecutive day in which more than 2,000 cases have been reported. The recent upward trend has led to speculation that further restrictions will be imposed, and overnight it’s been confirmed that the legal limit on gatherings is to be reduced to 6 from Monday. Elsewhere France’s Health minister is expecting hospitalizations and ICU admissions to rise in the coming weeks as daily cases are now hovering around 7000 mark for the first time during the pandemic. The US continues to go the other way with California, Arizona and Florida all seeing the lowest confirmed case count since the start of the summer, and in turn the US is registering its lowest daily case count (<28,000 per week) since the end of June. However, with children returning to school in certain districts in the Northeast and Midwest which have been relatively quiet may be a test over the next month or so. Interestingly, DB’s Robin Winkler updated his mobility map yesterday, which shows that after the summer lull, Europe is re-establishing its lead over the US in terms of reopening. You can see more on that here ( link here ).

There was a flurry of fiscal activity today. The first of which was that both leading Congressional Democrats – Speaker Pelosi and Senate Minority Leader Schumer – said the new Republican stimulus proposal is going in the wrong direction and that it contains ‘poison pills’ that they know Democrats would not support. This seems to be putting any real hope of additional stimulus at further risk with less than two months to the presidential election. The second note was a Bloomberg report that the skinny GOP bill would rescind the Fed’s unspent stimulus funds that were appropriated for lending purposes. Considering that those liquidity facilities were, and remain, a factor in the improvement of risk pricing, any alterations could have major impacts. Overnight reports suggest that the trimmed down bill which is expected to cost anywhere between $500bn to $700bn would be put to a senate vote on Thursday.

Meanwhile the CEOs of 9 companies with leading vaccine candidates signed a public letter in which they said that they would “always make the safety and well-being of vaccinated individuals our top priority” and specifically noted that the FDA “requires that scientific evidence for regulatory approval must come from large, high quality clinical trials that are randomized and observer-blinded”. Moderna, one of the leading candidates was down -13.2% on mix of this news and broad based selling of US biotech (-1.76%).

Sterling slumped another -1.40% against the US dollar yesterday as the negative headlines on Brexit continued to escalate. Following the FT’s report that the government’s Internal Market Bill would seek to override the Brexit Withdrawal Agreement, the UK’s Northern Ireland Secretary Brandon Lewis acknowledged in the House of Commons yesterday that “This does break international law, in a very specific and limited way”. So not something that’s likely to be received well by the EU, particularly given the statements made on Monday, including from the Commission President. We should get further details today when the government actually publish the bill, but yesterday it was announced that the head of the UK government’s legal department had quit, with the FT saying that this was because of the Brexit issue. Notably, even a number of Conservative MPs expressed disquiet with the plans to go against an international treaty, with former Prime Minister Theresa May asking in the House of Commons how the government would reassure future international partners that the UK would abide by its legal obligations.

Elsewhere in Europe, equity markets similarly fell ahead of the ECB’s decision tomorrow, with the STOXX 600 falling -1.15%. The FTSE 100 was the outperformer thanks to sterling’s decline, only losing -0.12%, though the DAX (-1.01%) and the CAC 40 (-1.59%) saw more serious losses. There also wasn’t a great deal of data to guide investors, though Euro Area’s Q2 GDP reading saw a modest upward revision to a -11.8% decline, as opposed to the previous estimate of -12.1%.

To the day ahead now, and the main central bank highlight will be the Bank of Canada’s monetary policy decision later. In terms of data, there’s also Japan’s machine tool orders for August, Canada’s housing starts for August and the US JOLTS job openings for July.