We said that futures trading ahead of the Monday open would be “fun“, and sure enough they did not disappoint.

Global markets tumbled on Monday, as S&P futures slid below 3,300 after failing to hold 50DMA support on Friday, and with European stocks falling the most since July as investors worried about renewed covid lockdowns across European countries and a report detailing suspicious transactions at international banks, with a lack of U.S. stimulus and concerns about how the death of Ruth Bader Ginsburg would impact what are already set to be extremely contested elections also hit sentiment.

U.S. stock index futures dropped 1.8% on Monday hit by bank stocks following media reports that several global banks moved sums of allegedly illicit funds over nearly two decades. Shares in JPMorgan Chase and Bank of New York Mellon Corp fell 4% and 3.3%, respectively, after a after a report by the International Consortium of Investigative Journalists that said lenders “kept profiting from powerful and dangerous players” in the past two decades even after the U.S. imposed penalties. HSBC Holdings Plc fell to the lowest since 1995 and European bank shares slumped (more here).

Shares of airlines, hotels and cruise operators led declines in premarket trading, tracking their European peers as the UK signaled the possibility of a second national lockdown. Marriott International, Hilton Worldwide and Hyatt Hotels Corp dropped between 1.5% and 3.6%, while casino operators Wynn Resorts, MGM Resorts International and Las Vegas Sands Corp shed between 2.7% and 6.0%. Tech giants including Apple, Facebook and Amazon.com which had dominated Wall Street’s rally since April, slid between 1.5% and 2.6% in early deals.

Nikola crashed 27.9% after its founder Trevor Milton stepped down as executive chairman, as the U.S. electric-truck maker battles allegations from a short-seller that it misled investors and automakers. General Motors which took an 11% stake in Nikola for about $2 billion earlier this month, slipped 3.7%.

Another round of business restrictions would also threaten a nascent recovery in the wider economy, analysts said, and could spark a flight from equities. The first round of lockdowns in March had led the benchmark S&P 500 to suffer its worst monthly decline since the global financial crisis.

“The market remains concerned about the broader risk emulating from the U.S: Covid, the Supreme Court fight and the upcoming presidential elections,” said Peter Rosenstreich, head of market strategy at Swissquote Bank SA. “With U.S. tech stocks looking weak, the need to jump right into U.S. assets feels less critical.”

The MSCI world equity index was down 0.5%. European indexes opened lower, with the pan-European STOXX 600 down 1.7% at its lowest in nearly two weeks. London’s FTSE 100 was at a two-week low, down 2.4% and Germany’s DAX fell 2%, led by banking shares which slid after a media report on how several global banks moved large sums of allegedly illicit funds over nearly two decades. HSBC shares tumbled to a 25-year low in Hong Kong.

Investors have also turned more cautious about Europe following a sharp uptick in new COVID-19 cases. European countries including Denmark, Greece and Spain have introduced new restrictions on activity. According to Reuters, Britain is considering a second national lockdown as new cases rise by at least 6,000 per day.  Germany’s health minister said the rising new infections in countries like France, Austria and the Netherlands is worrying. Investors will be looking ahead to flash PMI data on Wednesday for the first hints of how economies have fared in September.

“Concerns are rising that the summer recovery is probably as good as it gets when it comes to the recent rebound in economic activity,” wrote Michael Hewson, chief market analyst at CMC Markets UK. “This reality combined with the growing realisation that a vaccine remains many months away, despite President (Donald) Trump’s claims to the contrary, has made investors increasingly nervous, as we head into an autumn that could see lockdowns reimposed.”

Earlier in the session, Asian stocks fell, led by materials and finance, after rising in the last session. The Hang Seng Index slid 1.5%, while equities in China and Australia also retreated. Taiwan’s dollar strengthened to a level not seen in seven years.The Shanghai Composite Index retreated 0.6%, with Sanxiang Advanced and Shandong Shida posting the biggest slides.

Emerging-market stocks and currencies headed for their biggest declines this month as surging coronavirus cases and uncertainty about additional US fiscal support dented demand for risky assets. The Mexican peso and South African rand led the retreat among peers as the U.S. political battle over who will be the next Supreme Court justice – following the death of Ruth Bader Ginsburg six weeks before Election Day – also weighed on sentiment. South Africa’s stock market was the worst performer, with the main benchmark headed for its longest losing streak since May 2019. The average spread on developing-nation dollar debt widened by 2 basis points.

Seven members of the Fed will speak this week – including chairman Jerome Powell appearing before Congressional committees – so investors will be looking for hints to determine the dollar’s direction. In a House Financial Services Committee hearing on Tuesday, Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin are expected to speak about the need for more stimulus.

“There’re too much expectations about U.S. economic resilience,” said Fabrizio Fiorini, chief investment officer at Pramerica SGR SpA. “There is more selloff to come. Election risk is underestimated.”

In FX, the Bloomberg Dollar Spot Index reversed early losses and extended Friday’s advance to rise against all Group-of-10 peers apart from the safe-haven Japanese yen which was in its sixth consecutive session of gains versus the dollar, up around 0.4% at 104.185. Japan has public holidays on Monday and Tuesday this week, meaning volumes are thin in Asian trading. The euro dipped against the dollar, sliding to $1.1791 while the safe Swiss franc rose against both the dollar and euro.

The yuan headed for a third straight daily drop, the longest slide since July, as the greenback advanced. The onshore yuan slipped 0.14% to 6.7793 a dollar as of 5:53 p.m. in Shanghai after earlier rising as much as 0.2%. A measure of the dollar’s strength rose in the afternoon as risk appetite took a hit on concern that the climbing number of virus cases across Europe could lead to travel restrictions and cripple an economic recovery. Despite the retreat over past few days, the onshore yuan has surged 4.3% in the third quarter, on pace for the best performance on record. The rally has come as the greenback is set for its weakest quarter in a decade and amid investor optimism over China economy.

The Turkish lira continued to plumb record lows with Moody’s adding more fuel to the fire warning that the country has almost depleted its buffers against a Balance of Payments crisis.

In rates, Treasuries jumped after risk sentiment deteriorated in global markets. Yields were lower by 5.5bp across long-end of the curve, flattening 2s10s, 5s30s by 3.1bp and 3.5bp; 10-year yields richer by 3.8bp at 0.655%. Treasuries bull flatten from London open after cash markets closed in Asia for Japan holiday. Risk-off backdrop supports long-end of the curve with S&P e-minis lower by 1.6% and Estoxx 50 dropping 3% over European morning session. U.S. 2-, 5-, 7-year sales due this week for comb. $155b, while Fed chair Powell is due to speak three times. In Europe, the benchmark 10-year German bund yield was down 2 basis points at -0.507% with most high-rated euro zone government bond yields down by a similar amount. The European Central Bank will review how long its emergency pandemic bond-purchase scheme should go on, the Financial Times reported. The European Council meets in a summit on Thursday and Friday this week.

Elsewhere, oil prices fell, with Brent crude down 1.8% at $42.39 a barrel while WTI was down 1.9% at $40.34 a barrel. Gold prices slumped, hit by the rising dollar, with spot gold down to $1,931 per ounce at 730am ET>

Data include the Chicago Fed National Activity Index. No major earnings are expected.

Market Snapshot

• S&P 500 futures down 1.8% to 3,262.75
• STOXX Europe 600 down 2.2% to 360.69
• MXAP down 0.6% to 172.88
• MXAPJ down 1% to 563.47
• Nikkei up 0.2% to 23,360.30
• Topix up 0.5% to 1,646.42
• Hang Seng Index down 2.1% to 23,950.69
• Shanghai Composite down 0.6% to 3,316.94
• Sensex down 0.9% to 38,482.09
• Australia S&P/ASX 200 down 0.7% to 5,822.62
• Kospi down 1% to 2,389.39
• Brent futures down 2% to $42.29/bbl
• German 10Y yield fell 2.6 bps to -0.511%
• Euro down 0.3% to $1.1807
• Italian 10Y yield rose 0.7 bps to 0.756%
• Spanish 10Y yield fell 0.2 bps to 0.283%
• Gold spot down 0.5% to $1,940.89
• U.S. Dollar Index up 0.3% to 93.19

Top Overnight News

• U.S. deaths related to Covid-19 approached 200,000 and the nation’s new cases rose in line with a one-week average. Former FDA Commissioner Scott Gottlieb said he expects the U.S. to experience “at least one more cycle” of the virus in the fall and winter
• The dollar’s weakest quarter in a decade may get even worse as investors respond to the effects that massive American equity-market gains have had on the composition of their portfolios
• The European Union will unleash as many green bonds as the world issued last year, testing the level of investor interest in financing a shift toward cleaner economies
• Democratic presidential nominee Joe Biden blasted Republican efforts to speed through a replacement for the late Justice Ruth Bader Ginsburg on the Supreme Court, warning that such a process would “inflict irreversible damage” on the country
• Britain is at a “critical point” in the coronavirus pandemic, Prime Minister Boris Johnson will be told on Monday, as concern mounts that a second lockdown may be needed to stop the renewed spread of the disease.
• The European Central Bank has launched a review of its pandemic bond-buying program to consider how long it should continue and whether its exceptional flexibility should be extended to older programs, the Financial Times reported, citing two Governing Council members that it didn’t identify
• New Zealand cabinet has confirmed that gathering limits in Auckland will ease from Sept 23 while they will be lifted entirely for the rest of the country tonight, Prime Minister Jacinda Ardern said Monday
• Oil steadied following its biggest weekly gain since June as a lack of clarity over the global energy demand recovery was balanced by the possibility that Saudi Arabia could press for more OPEC+ output cuts

A quick look at global markets courtesy of NewsSquawk:

Asian equity markets were subdued and US equity futures traded choppy after last Friday’s losses on Wall St amid quadruple witching and continued tech woes, with risk appetite also dampened by holiday conditions as Japanese participants observe a 4-day weekend. ASX 200 (-0.7%) was negative with losses in metal miners and financials underperforming in the broad weakness across its sectors aside from Health Care and Energy, while KOSPI (-1.0%) swung from gains and losses on varied COVID-19 headlines with South Korea to extend level 2 social distancing curbs by an additional week but will also be distributing emergency funds from the 4th extra budget within days. Hang Seng (-2.0%) and Shanghai Composite (-0.6%) were downbeat with HSBC shares slumping to a 25-year low in Hong Kong after a leaked document noted that the bank had permitted GBP 62mln to be moved to Hong Kong in suspicious transactions during 2013-2014 despite being warned by a regulator, while Standard Chartered also declined after being implicated by the ‘FinCEN’ leak, and other reports noted concerns HSBC and Standard Chartered could be frozen out of the US banking system in the event of a further escalation US-China tensions. Elsewhere, Tencent shares were pressured amid uncertainty regarding its US future despite a California judge halting President Trump’s ban on WeChat downloads, while weekend news that President Trump gave his blessing to the TikTok-Oracle-Walmart deal, also did little to spur risk appetite.

Top Asian News

• Hedge Funds Raise Long Aussie Bets to 2018 High on China Rebound
• Amundi Sanguine on Indonesian Bonds on Attractive Real Yields
• China Tried to Dramatize Its Handling of the Virus. It Backfired
• SCG Packaging Seeks to Raise Up to $1.27 Billion in Thai IPO

Stocks in Europe see deep losses across the board (Euro Stoxx 50 -3%) as the region coat-tailed on the downbeat APAC handover before extending on losses amid an intensifying risk averse tone and a number of sector-specific factors. Firstly, Travel & Leisure resides as the marked underperformer as the resurging cases across Europe trigger warning bells for the sector, with some of the region’s worst performers including the likes IAG (-12%), Tui (-8.6%), easyJet (-8.4%), Carnival (-8.0%), Lufthansa (-7.7%) and Ryanair (-7.1%). Secondly, the European banking sector plumbs the depths in light of a leaked US government document accused HSBC (-5%), Standard Chartered (-4.4%), Barclays (-6.2%), Deutsche Bank (-5.6%), JPM (-3.6% premkt) and BNY Mellon (-2.5% premkt) of moving large sums of illegal cash for shady characters and criminal networks. The documents center around the number of SAR’s (Suspicious Activity Reports) sent to US authorities between 1999 and 2017. The Basic Resources and Oil & Gas sectors are also among the laggards. As such, the UK’s FTSE 100 (-3.4%) underperforms the region despite a softer Sterling, given its heavy exposure to the aforementioned sectors. In terms of other movers and shakers, United Internet (-24%) and 1&1 Drillisch (-27%) reside as the biggest losers in Europe after cutting their respective FY EBTIDA guidance, whilst their spat with Telefonica (-3.6%) intensified over its subsidiary Telefonica Deutschland (-3.4) being accused of raising user costs significantly from July. Elsewhere, Rolls-Royce (-8.5%) holds onto its losses amid reports that the group is planning to raise as much as GBP 2.5bln to brace itself for another demand decline for aircraft engines. As such, Leonardo (-6.0%) continues falling despite an early halt, whilst Safran (-4.4%) is also pressured in sympathy. Finally, the Norwegian government has proposed that its Sovereign Wealth Fund should invest more within the US stock market and less within Europe.

Top European News

• Unilever’s Dutch Investors Said to Approve Single Headquarters
• European Stocks Drop Most Since July as HSBC Leads Bank Slump
• Sweden Loosens Purse Strings With Virus Stimulus Budget
• U.K. House Prices Up Most Since 2016 as Britons Seek More Space

In FX, although the Dollar has regained some poise amidst more pronounced risk aversion at the start of a new week, Usd/Jpy continues to decline alongside Yen crosses in the absence of Japanese market participants for ‘Old Age Day’. The headline pair has now breached another key chart if not major technical level in the form of July 31’s 104.20 low and there is little in the way of 104.00 to stop a 250+ pip cumulative fall from this month’s early peaks, especially given another holiday on Tuesday (Autumnal Equinox). However, it remains to be seen whether a 103.00 print provokes some verbal intervention from the MoF, and for now greater safe-haven demand for the Jpy is keeping the Usd index relatively capped beyond 93.000 within a 93.322-92.746 band.

• AUD/CAD/CHF – All succumbing to the increasingly sour tone and deterioration in broad sentiment as the Aussie loses 0.7300+ status vs its US counterpart, the Loonie retreats through 1.3200 with added fuel from a reversal in crude prices and the Franc falls back below 0.9100, albeit holding above 1.0800 against the Euro following latest weekly Swiss bank sight deposit balances showing perhaps surprise declines ahead of the SNB. Question is, are these coincidental or significant in advance of a more official shift in policy to be revealed at Thursday’s quarterly review?
• NZD/EUR/GBP – The Kiwi is back-pedalling further from Friday’s near 0.6800 peak vs its US peer and 1.0800+ apex on the Aud/Nzd cross even though NZ PM Adern scaled down the country’s COVID-19 alert level outside of Auckland again, while the Euro is retesting bids/support around 1.1800 and Sterling has recoiled over a big figure to sub-1.2850 on the ongoing rise of the pandemic across Europe.
• SCANDI/EM – A sea of red as risk assets tumble, while the aforementioned downturn in oil takes a heavier toll on the Norwegian Crown compared to the Swedish Krona that seems to be deriving some traction from upbeat commentary by the nation’s Finance Minister. Similarly, the Yuan is drawing a degree of comfort from a steady PBoC Cny fixing, net liquidity injection and unchanged loan prime rates to offset other less favourable issues like the ongoing Sino-US spat and reports from China’s top infectious disease expert warning that a 2nd wave is inevitable. Conversely, diplomatic strains and the retracement in Brent are undermining the Lira and Rouble again, while the Rand has unwounded all and more of its post-SARB gains.

In commodities, WTI and Brent front month futures continue to decline with losses driven by the broader risk averse sentiment coupled with a firmer Dollar and the prospect of dwindling demand given the resurgence of COVID-19 prompting talks of renewed lockdown measures. Furthermore, on the supply side of the equation, Libya’s NOC said it will lift the force majeure at ports and facilities that were deemed safe, with the gradual return of Libyan oil raising questions in terms of an OPEC quota for the country. WTI Nov resides around USD 40.50/bbl, having declined from a high ~41.50/bbl, whilst Brent Nov hovers just under USD 42.50/bbl vs. a high of USD 43.30/bbl. Another thing to keep on the radar – unconfirmed twitter reports noted that Saudi King Salman is reportedly in a critical condition, albeit nothing has been seen since on this front, with participants likely to dwell on the future of the Kingdom’s oil policy should he be replaced. Elsewhere, precious metal prices succumb to the Dollar, with spot gold now losing ground below the USD 1950/oz mark having traded on either side of the level in APAC hours. Spot silver meanwhile extends losses below USD 26.50/oz after printing a high just shy of USD 27/oz earlier in the session. In terms of base metals, LME copper is pressured by the broader equity sell-off and the firmer Buck, whilst Dalian iron ore futures slipped over 2% amid the soured risk tone and sluggish downstream demand.

US Event Calendar

• 8:30am: Chicago Fed Nat Activity Index, est. 1.2, prior 1.2
• 12pm: Household Change in Net Worth, prior $6.55t deficit

DB’s Jim Reid concludes the overnight wrap

one of the reasons we have a widening bias for credit into year-end ( see our YE outlook here from a couple of weeks back) is that it seemed inevitable to us that we’d see a second wave causing confusion and chaos to many government’s strategies. Well as we sweltered in a pretty hot late September weekend here in the U.K. (and across much of Europe) the fact that the virus is already spreading quite rapidly is a big worry. It doesn’t feel like fatalities are going to be as big as an issue as they were in the first wave but it really is hard to understand what the strategies of governments are at the moment. They pretty much all don’t want a further wide scale lockdown but they also don’t want the virus to spread. Its not going to be easy to solve for both and as such It’s going to be a pretty difficult few months ahead if September is seeing numbers as high as they are already. I personally didn’t think these type of numbers would take place until well into October. Expect lots more restrictions over the days and weeks ahead, especially in Europe.

The latest on virus is that its spread has continued in the Europe with France reporting 37,282 new cases in the last 3 days, the highest since pandemic began. The 7 day average of new cases for France stands at 10,123,versus 8,161 a week ago. Over in the UK, the 3-day number stands at 12,661, the highest since May 9 with Health Secretary Matt Hancock not ruling out that London office employees might have to work from home again this week as Chief Medical Officer Chris Whitty is set to warn on today that the UK is at a “critical point.” Meanwhile, the LBC radio reported yesterday that London Mayor Sadiq Khan will recommend tightened rules for the capital today. Across the other side of world, South Korea reported 70 new cases yesterday, the lowest since the second wave began. However, the country is set to strengthen social distancing rules from September 28 to October 11, which will be designated as special quarantine period as the country celebrates Chuseok holidays from September 30 to October 4. So restrictions are tightening in even successful virus fighting places.

The weekend political press has also been full of news after US Supreme Court Justice Ruth Bader Ginsburg passed away late Friday night following a long battle with cancer. Afterwards, President Trump said that he would put forth a nominee to fill the seat and Senate Majority Leader McConnell said “President Trump’s nominee will receive a vote on the floor of the United States Senate,” indicating that Republican leadership will try to fill the seat ahead of the election.This represents a turn in the Majority leader’s thinking from 2016, where he did not allow a floor vote for then-President Obama’s nominee in an election year. The nomination and confirmation process will introduce a new element to an election not least because the court can hold sway over highly contentious issues like healthcare, abortion rights and gun law.

It brings lots of fascinating scenarios to the table. If Trump succeeds at getting his nomination through before the election there will be a 6-3 Republican bias to the Supreme Court which as discussed could have policy ramifications for the US for a generation. Democrats are up in arms that the Republicans won’t wait until after the election and are suggesting that may do extraordinary things to address the balance (like adding new judges to the bench) if they gain control of both the Senate and the White House. Congress altered the size of the bench seven times in the first eighty years of the republic (ranging from 5 to 10 justices) but this has not changed since the Judiciary Act of 1869. However getting the current Senate to confirm a nominee won’t be straight forward for Mr Trump as the GOP only hold a 53-47 majority in the Senate (with Vice President Pence serving as the tie-breaker) and a few members have already made noises that they don’t think a new judge should be added this close to the election. So even more drama added to an election campaign.

Another interesting weekend story is of China revealing how it will manage its “unreliable entity list” that aims to punish firms, organizations or individuals that pose a threat or potential threat to China’s sovereignty, national security, development and business interests; and those that discriminate against or harm Chinese businesses, organizations or individuals. According to details, penalties will include restrictions on trade, investment and visas of any company, country, group or person that appears on its “unreliable entity list.” The Global Times has carried an article that HSBC is a possible candidate and is down -2.91% to the lowest level it has traded since the 2008 financial crisis.

In overall trading, the Hang Seng (-0.95%) is leading the declines this morning not helped by this. Other Asian markets have also started the week on a weak footing with the Shanghai Comp (-0.41%), Kospi (-0.29%) and Asx (-0.54%) all down along with S&P 500 futures (-0.21%). In fx, all G-10 currencies are trading strong against the greenback with the US dollar index down -0.21%.

In other news, the FT reported that the ECB has launched a review of its pandemic bond-buying program to consider how long it should continue and whether its exceptional flexibility should be extended to older programs. The report added that the review is expected to be discussed by policy makers next month.

Looking to this week now, the flash PMIs on Wednesday will probably get the most attention due to it being one of the first glimpses of September economic performance around the world. Economic and social restrictions are mounting again in various places due to the virus but it may be a bit too early to see their impact in these numbers.

It’ll also be worth keeping an eye on Germany’s Ifo survey on Thursday, which has so far been rising each month since its April low, even as it remains below its pre-pandemic level. The consensus is looking for a further increase to 93.8, which would be just 2 points below its level in February.

Meanwhile Fed Chair Powell will be speaking three times before congressional committees. He’ll be appearing tomorrow before the House Financial Services Panel about the CARES Act. Then on Wednesday he’ll be appearing on the House Select Subcommittee on the Coronavirus Crisis, before Thursday sees him speak before the Senate Banking Committee on the CARES Act once again. Otherwise, there’ll be remarks from Fed Vice Chair Quarles on the economic outlook, while Bank of England Governor Bailey will be speaking twice next week.

There’ll also a special European Council summit on Thursday and Friday. As well as taking stock of the Covid-19 pandemic, the agenda includes a discussion of the single market, industrial policy and digital transformation, along with the EU’s external relations. Brexit may get a small mention as relationships between the EU and the U.K. are just about hanging by enough of a thread enough to merit it. The day by day calendar of the week ahead is at the end.

Recapping last week now and equity markets continued to feel the pullback in mega-cap tech stocks. The S&P 500 dropped -0.64% (-1.12% Friday) to six week lows, having declined for a third straight week for the first time since October 2019. The index is now down -7.30% from 2 Sept highs. The NASDAQ also fell a third week in a row itself, declining -0.56% (-1.07% Friday) and is now down -10.48% from recent highs. Meanwhile European equities edged higher for a second straight week with the Stoxx 600 ending the week +0.22% higher (-0.66% Friday). While the broader index rose on the week, many individual bourses across Europe finished lower with the DAX (-0.66%), FTSE 100 (-0.42%), FTSE MIB (-1.49%), CAC 40 (-1.11%) and IBEX (-0.19%) all posting losses as Covid-19 caseloads continue to rise throughout western Europe, prompting some restrictions to be reinstated. Asian equities were mixed with the CSI 300 up +2.37% on the week, while the Nikkei (-0.20%) and the Kospi (+0.66%) saw smaller weekly moves.

Similar to risk assets, core sovereign bonds were mixed on the week. US 10yr Treasury yields rose +2.8bps (+0.5bps Friday) to finish at 0.694%, while 10yr Bund yields were down -0.4bps (+0.6bps Friday) to -0.49% and gilts were largely unchanged (+0.1bps) at 0.18%. The dollar fell -0.44% on the week after rising in 3 of the previous 4 weeks. This in part supported gold’s +0.53% rise on the week, while copper gained +2.62%. However, the largest move in commodities was in oil. Brent (+8.34%) and WTI (+10.13%) rose in part on news that Russia and Saudi Arabia would push their fellow OPEC+ members on keeping to quotas.

On the data front from Friday, UK August retail sales rose more than expected and up +0.6% MoM (+0.4% expected) and +4.3% YoY (+4.2% expected). In Germany, August PPI was -1.2% YoY, up from last month’s -1.7% reading and slightly higher than expected (-1.4%). While in the US, the preliminary reading of the University of Michigan Sentiment survey showed an +4.9pt increase to 78.9 (75.0 expected), which is the highest since March.

END