US equity futures rose 0.1% to a new all time high of 4.425 in a subdued session which saw European shares steady and Asian dip slightly ahead of the last payrolls report before the Jackson Hole symposium. After a busy week of earnings and discussions on when the Federal Reserve should begin stimulus cuts amid concerns that rising cases of the Delta coronavirus variant could hurt the economic recovery, the dollar climbed about 0.2%, oil traded at $69 a barrel, and the 10-year Treasury yield rises back above 1.25% on whisper expectations that today’s jobs report will show a 1MM+ print and trigger a tapering announcement by the Fed. At 740 a.m. ET, Dow e-minis were up 29 points, or 0.09%, S&P 500 e-minis were up 2.5 points, or 0.06%, and Nasdaq 100 e-minis were down 18.5 points, or 0.12%.

All three of Wall Street’s main indexes are set to end the week with nominal gains and near or at all time highs, as a stronger-than-expected earnings season overshadowed concerns about the pace of economic growth and higher inflation. Zynga shares tumbled 15% with analysts flagging weaker bookings guidance from the mobile games maker and cutting their price targets, but saying that the long-term investment case remains solid. Here are some of the other notable premarket movers today:

• Didi Global (DIDI) shares rise as much as 15% in premarket trading with the ride- hailing company said to be considering giving up data control in order to appease Chinese regulators.
• Beyond Meat (BYND) shares fall 3.8% in the premarket after reporting disappointing guidance with Piper Sandler (neutral) saying the plant-based meat maker is facing some near-term top-line headwinds.
• Virgin Galactic (SPCE) rises 4.2% in premarket trading. The company’s new ticket price of $450,000 versus $250,000 previously highlights the rise of “experimental luxury” among high-net-worth individuals, and its own brand strength, Cowen (outperform) writes in note.

The Labor Department’s report could show nonfarm payrolls surging by at least 1 million last month because of the so-called seasonal adjustment factors, which are also seen inflating employment at auto assembly plants and in the leisure and hospitality sector. The much-awaited jobs numbers come on the heels of a big miss in the ADP payrolls preview that showed just 333,000 jobs added, but also follows a further decline in U.S. unemployment claims last week and a spate of strong corporate earnings reports, which helped lift the Nasdaq and S&P 500 indexes to record closes on Thursday. The payrolls data has amplified importance this month after the Fed signaled it will assess bond buying in “coming meetings” if strong data run continues.

Goldman has come with one of the highest payrolls forecasts, expecting 1.15MM jobs due to the wind-down of federal unemployment top-ups in some states and the addition of over 2 million youth job seekers in June and July; the bank also noted little impact on dining activity in response to the Delta variant, even in highly-impacted states (full preview here).

As a reminder, economists predict Julye nonfarm payrolls will show hiring accelerated for a third month with the median estimate is for a gain of 858,000 workers as of this morning, the most since August 2020, while the unemployment rate probably dipped to 5.7% from 5.9%. Treasuries traders are dialing up bets on a quicker pace of Federal Reserve interest-rate hikes in anticipation that today’s report will show firm labor momentum. A reduction in bond purchases could be announced by September but “that depends on what the next two jobs reports do,” Fed Governor Christopher Waller said this week.

“A worse-than-expected figure might trigger a positive market reaction as it would suggest the economy is not overheating,” Russ Mould, investment director at AJ Bell wrote in a client note. “Conversely a better-than-expected figure might trouble investors if it suggests the economy is racing ahead, which would stoke fears of interest rate hikes happening sooner than currently guided by the U.S. Federal Reserve.”

Weak data could exacerbate concerns that the bounce-back from the pandemic is losing steam. A robust number stands to benefit reflation trades linked to economic reopening — provided markets aren’t spooked by the argument that such data strengthen the case for the Fed to taper its bond purchases.

“Even if most investors expect higher market volatility later today, many aren’t sure of the direction stock prices will take,” said Pierre Veyret, a technical analyst at ActivTrades Plc. “The payrolls report could be considered as bad news in both outcomes: poor data could suggest the economic recovery is losing momentum while a solid jobs report could bring the tapering of the massive stimulus closer to us than many expected.”

Meanwhile, the spreading of the delta variant is sparking new corporate policies on masks and vaccination requirements, and upending Wall Street’s return-to-office drive. BlackRock and Wells Fargo are pushing their plans back a month to early October, as financial firms grapple with the risks, even for the vaccinated. Meanwhile, Amazon.com said corporate employees won’t have to return to the office regularly until January, but stopped short of a vaccine mandate even as United became the first airline to demand vaccines of all employees. Across an industry that was already split on returning to work, policies are diverging more than ever. One way companies are seeking to lure back workers: Free meals. Meanwhile, the Biden administration is considering using federal regulatory powers and the threat of withholding federal funds from institutions to push more Americans to get inoculated against the virus.

Around the world, stocks struggled to make gains on Friday and oil headed for its biggest weekly loss since March, as nervousness over the spread of the COVID-19 Delta variant hit risk assets and crimped demand.

The Stoxx Europe 600 index was little changed amid mixed earnings, after four days of gains set it on course for the best week in three months. HelloFresh shares plunged as much as 8.7% after the meal-kit delivery firm cut its margin guidance owing to higher investments, offsetting a beat on 2Q sales. Analysts said the margin cut is “severe” and that some investors had expected it could deliver the same growth without this hitting profitability. More upbeat results from lender Allianz SE and London Stock Exchange Group Plc helped offset some of the losses. Here are some of the biggest European movers today:

• London Stock Exchange shares gain as much as 5.4% after it boosted its outlook for synergies from the acquisition of Refinitiv, with analysts saying the update will have calmed investor nerves.
• Banco BPM shares rise as much as 5.1% after its 2Q results, with Citi saying the Italian lender’s revenue and costs both look stronger.
• Allianz shares climb as much as 3.3% after the German insurer’s 2Q earnings topped expectations, with Jefferies saying the group could even exceed its increased guidance for the year.
• Hikma Pharmaceuticals shares slipped as much as 5.6% with analysts saying the strong 2Q results and guidance raise from the company was anticipated.
• MorphoSys shares declined as much as 4.3% after the biopharma company was cut to hold with a street-low PT at Deutsche Bank, which said the launch of its Monjuvi cancer drug has been disappointing.

Asian stocks fell for a second day, with China leading declines amid worries over an ongoing global struggle to contain the Covid-19 virus. The MSCI Asia Pacific index lost as much as 0.4% after closing lower Thursday. China’s CSI 300, liquidity-sensitive ChiNext and Thailand’s SET index all dropped. Information-technology and materials-industry groups were among the biggest drags on the regional measure. China imposed new restrictions on travel in a bid to slow a delta variant-driven outbreak that’s increased to more than 500 cases scattered across half the country. In Japan, Tokyo said it found 5,042 new cases of coronavirus on Thursday, a second-straight daily record.

“The U.S. used to be optimistic about the economy reopening after people were vaccinated twice but in Germany and Israel, it’s now three shots,” said Tomoichiro Kubota, a senior market analyst at Matsui Securities Co. in Tokyo. “Virus cases are still rising in the U.S. so eyes are on whether a third shot will be needed.”

The Asian stock benchmark is still on course for its first weekly gain since mid-July, helped by a brief rebound in Chinese stocks on Monday. Overall sentiment remains fragile as the virus spreads, while woes linger over China’s regulatory clampdown on the internet sector and other industries. Kuaishou Technology, a video-platform operator, lost 4.7% after an influential state-backed newspaper urged tighter regulation of video content. The drop adds to Thursday’s 15% wipeout after the Communist Party mouthpiece People’s Daily said in a commentary that Beijing should step up oversight of online platforms. “While we’ve not yet seen a broad-based structural impairment of earnings, equity risk premia have expanded, and that might not reverse for a while,” said Vikas Pershad, a portfolio manager at M&G Investments Pte., referring to China’s big tech names. “Given the sell-off we’ve witnessed in recent weeks, though, we are actively re-assessing all opportunities.”

China on Friday reported 124 confirmed new coronavirus cases for Aug. 5, its highest daily count in the current outbreak, fuelled by a spike in locally transmitted infections. Authorities have imposed travel restrictions in some cities. “The Delta variants exposed the vulnerability of Asian economies as the overall vaccination rate is low in Asia,” Bank of America analysts said. That was weighing on shares in Asia and while the MSCI Asian benchmark is up 1.6% this week, it is just over 10% below all time highs hit in February.

Japanese stocks closed slightly higher as investors adjusted positions ahead of a three-day weekend. The Topix advanced to 1,929.34 in Tokyo. Shiseido Co. contributed the most to the index gain, increasing 5.9%. Today, 1,055 of 2,188 shares rose, while 1,024 fell; 18 of 33 sectors were higher, led by services stocks. The Nikkei 225 closed at 27,820.04, up 0.3%. Japan’s equity market will be closed on Aug. 9 for a national holiday. U.S. index futures were little changed during Asia trading hours. Overnight, U.S. equities rose before Friday’s jobs report as investors balanced corporate results and jobless claims against the economic threat of the delta variant. “While there are uncertainties left in the U.S. labor market, the initial jobless claims data indicate that it could be recovering strongly,” said Nobuhiko Kuramochi, a market strategist at Mizuho Securities. “The Nikkei 225 could see pressure above the 28,000 level given fears over the delta variant outbreak.”

In FX, the Bloomberg Dollar Spot Index was up 0.2%; the dollar rallied ahead of key U.S. jobs data that’s set to put a focus on the Federal Reserve’s policy outlook amid calls from officials to pare bond purchases. The greenback strengthened against all its G-10 peers, with the euro and the Norwegian krone among the biggest decliners. “A strong U.S. jobs number today should see the U.S. money market rates continue to work their way back to the highs seen in early July. This should support the dollar against the low- yielders of JPY and EUR,” said ING analysts including Chris Turner. Thursday’s release showing a second weekly drop in U.S. jobless claims stoked expectations for strong payrolls data and ignoring the huge ADP payrolls miss. Short-term accounts are carrying short AUD/USD positions into the report, according to FX traders. The Thai baht led losses among emerging markets currencies, emblematic of how a surge in coronavirus infections and deaths in some countries around the world is hitting confidence in their currencies and economies. Turkey’s lira was down 0.8% in its fourth straight day of losses .

“EUR/USD is dropping toward 1.18 as short-term U.S. rates creeps higher before NFP,” say Danske Bank analysts including Jens Naervig Pedersen. “An ongoing strengthening of the labor market combined with rising inflation as the CPI-numbers are published next week is significant for the monetary policy outlook as shown by the recent hawkish comments from Fed’s vice chairman Clarida regarding tapering and rate hikes”

In rates, treasuries traded heavy across long-end of the curve, with the bear steepening move extended following large block sale in ultra-long bond futures shortly after 6am ET. 10-Year Treasury yields rose u to around 1.255%, cheaper by 3.2bp on the day and underperforming bunds by 1.5bp; long-end led losses steepens 2s10s, 5s30s spread by 2.3bp and 1.6bp on the day.  Pockets of selling also emerged during Asia session as futures drifted lower, leaving yields cheaper by up to 4bp across long-end ahead of 8:30am ET July jobs report. 

In commodities, oil prices rose on Friday but were still set for their biggest weekly loss since October after falls earlier in the week triggered by rising COVID-19 cases and a surprise build in U.S. crude stockpiles. WTI crude was $69.99 a barrel, up 0.47%. Brent crude traded at $72.22 per barrel, up 1.29%. The stronger dollar and potential for higher yields hurt gold with the spot price down 0.41% at $1,796.52. Ether the world’s second largest cryptocurrency dropped 3% a day after a major software upgrade to its underlying ethereum blockchain, which is expected to stabilise transaction fees and reduce supply of the token.

Looking at the day ahead, today will be highlighted by the US payrolls number as referenced above. In Europe, the main data highlights will be German and Italian June industrial production figures along with France’s June trade balance. From central banks, the Reserve Bank of India is set to announce their monetary policy decision. Lastly on earnings, Friday’s are traditionally slower earnings day with the main announcement coming from Allianz.

Market snapshot

• S&P 500 futures little changed at 4,419.25
• STOXX Europe 600 down 0.1% to 469.39
• MXAP down 0.2% to 200.57
• MXAPJ down 0.2% to 663.46
• Nikkei up 0.3% to 27,820.04
• Topix little changed at 1,929.34
• Hang Seng Index little changed at 26,179.40
• Shanghai Composite down 0.2% to 3,458.23
• Sensex down 0.3% to 54,325.55
• Australia S&P/ASX 200 up 0.4% to 7,538.42
• Kospi down 0.2% to 3,270.36
• German 10Y yield up 1.7 bps to -0.483%
• Euro down 0.2% to $1.1811
• Brent Futures up 0.7% to $71.81/bbl
• Gold spot down 0.3% to $1,799.53
• U.S. Dollar Index up 0.16% to 92.39

Top Overnight News from Bloomberg

• The call from Morgan Stanley’s human resources office went out late Monday: Two vaccinated employees had Covid-19, and workers on the 14th floor of the firm’s Times Square headquarters should stay away until the area could be cleaned
• Debt investors are grappling with worsening woes at a Chinese developer after Asian junk bonds showed some nascent signs of recovery earlier in the week from a selloff triggered by China’s recent clampdowns
• Japan’s inflation dropped sharply below zero as a re- shuffling of items in the consumer-price basket highlights Prime Minister Yoshihide Suga’s focus on votes rather than price growth
• India’s central bank kept interest rates unchanged at a record low to support the economy, even as a split appeared among policy makers on continuing with the lower-for-longer stance
• The delta variant is challenging the part of the world that’s been most successful in blunting the economic impact of Covid-19, with Asian countries that snuffed it out locking down again as the virus returns, and others seeing the world’s highest death rates

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac equities saw a mixed and caged session in the run-up to the last US labour market report before the Fed’s Jackson Hole Symposium. The region overlooked the gains on Wall Street – which saw the S&P 500 notch another record high, whilst the DJIA and NDX closed with gains of around 0.8% apiece. US equity futures overnight resumed trade flat, and have moved sideways throughout the session. Back to APAC, the ASX 200 (Unch) briefly dipped below 7,500 but stayed within a tight range, whilst the Nikkei 225 (+0.3%) and KOSPI (-0.2%) were uneventful. Elsewhere, the Chinese markets underperformed at the open before conforming to the tentative tone, with the Hang Seng (-0.2%) printing losses of almost 1% at one point, but the index then trimmed its downside – participants pin the volatility on investors jitters from the ongoing crackdowns. The Shanghai Comp (-0.5%) was subdued ahead of the Chinese inflation data over the weekend, whilst on the trade font, WSJ sources reported that US business groups representing retailers, chip makers, farmers, and others — are calling on the Biden administration to restart negotiations with China and cut tariffs on imports. Finally, 10yr JGB futures tracked US Treasury futures lower in the run-up to the US jobs report.

Top Asian News

• Gold Set for Weekly Drop With U.S. Jobs Data and Delta in Focus
• Tesla Suppliers Lead Gains in China EV Stocks on Biden’s Goal
• India Holds Rates Amid Dissent on Lower-for-Longer Stance
• China High-Yield Dollar Bonds Pare Morning Drop; Evergrande Lags

European equities (Eurostoxx 50 +0.1%) trade with little in the way of firm direction as fresh macro impulses remain light and traders eye the US jobs report later today. The July report might help to shape expectations of when the Fed will announce, and then start, the process of tapering its asset purchases. Accordingly, some analysts argue that ‘good data is bad for the prospects of continued policy accommodation’ may be the play book traders reach for, while others suggest that many of the key debates will not be resolved with the release of the July jobs report. Newsflow surrounding China continues to strike a negative tone with Alibaba is reportedly to warn of higher taxes as the crackdown in China widens, whilst Meituan is set to receive a USD 1bln fine for allegedly abusing its dominant market position, according to WSJ sources. Sectoral performance in Europe is predominantly soft and narrow, with Insurance on top following a strong earnings report from Allianz with revenue, net income and operating profit all exceeding analysts’ expectations. The only other gainers are Basic Resources and Autos. At the bottom of the list is Travel and Leisure with names such as IAG, easyJet and Ryanair down 2.5%, 2.3% and 1.7%. Travel and leisure is followed by Construction & Materials and Retail. Healthcare is flat with Hikma Pharmaceuticals (-5.5%) acting as a drag on the sector after HY results were met poorly by the market. After hours today, traders will be eyeing results from Berkshire Hathaway.

Top European News

• LSE Wants Staff Back in Office to Integrate With Refinitiv
• U.K. Starting Salaries Increased at a Record Rate in July
• Allianz CEO Says It’s Been a ‘Terrible Week’ After U.S. Probe
• European Gas Jumps to Record as Gazprom Fire Fuels Supply Fears

In FX, the Greenback has regained composure after Thursday’s pull-back from post-ISM and Clarida peaks amidst further retracement in US Treasury yields and curve re-steepening before the latest NFP release. In fact, the DXY has carved out a marginal new high at 92.436 and is inching closer to technical resistance ahead of the semi-psychological 92.500 level in the form of the 21 DMA that has eased slightly to 92.444 today. However, the Dollar remains relatively rangy against G10 counterparts and cautious in the run up to the headline event that has probably been elevated in status given the FOMC shift towards tapering last month and recent Fed rhetoric underscoring the message that there has been further progress towards the substantial bar set for unwinding some stimulus.

• EUR/CHF/AUD – Decent option expiry interest between 1.1810-15 (1.2 bn) may help the Euro stem declines vs the Buck, not to mention sentimental bids almost certainly lurking around 1.1800, but it looks ominous for the single currency in Eur/Gbp cross terms following a breach of 0.8500 as the 2021 low approaches (0.8474) and there is little the way of support until 0.8450 where expiries reside (1 bn). Meanwhile, the Franc has retreated further from 0.9050+ towards 0.9100 and the Aussie has lost grip of the 0.7400 handle again with some blessing from RBA Governor Lowe and little in the way of fresh impetus from the SOMP.
• NZD/JPY/GBP/CAD – The Kiwi is clinging to 0.7050 vs its US rival and still outpacing its Aussie peer through 0.7500 on even loftier RBNZ rate hike expectations stoked by a significantly stronger than expected NZ labour report, while the Yen is holding above 110.00, though well off best levels on the aforementioned back up in UST yields and meandering inside 100 and 21 DMAs. Elsewhere, Sterling is hovering in the low 1.3900 area in wake of super BoE Thursday that has applied pressure on UK rates given lower thresholds for slowing down and unwinding the MPC’s APF, and the Loonie is straddling 1.2500 with all eyes on the Canada/US jobs face-off that is scheduled 90 minutes before Ivey PMIs.
• EM – No respite for the Try that is trying to tread water circa 8.6000 vs the Usd against the backdrop of moderately firmer oil prices and yet another jump in year end Turkish CPI forecasts, while the Zar is still rueing Gold’s loss of Usd 1800/oz status and SA cabinet changes that included the Finance Minister.

In commodities, WTI and Brent are modestly firmer this morning though the bulk of the session’s performance occurred early-on in the day and the breadth of performance in European hours has been very minimal. Currently, the benchmarks post gains of circa USD 0.30/bbl. Crude specific commentary has been minimal; however, geopolitics remain in focus, following reports of sirens in Israel due to rocket fire from Lebanon’s Hezbollah – an event which caused the Israeli Defence Force to retaliate with artillery fire. In terms of metals, spot gold and silver are pressured in-light of the USD’s grinding foray higher that has dragged the yellow metal to sub-USD 1800/oz levels. For the complex, as with the broader macro environment, attention is almost entirely on the upcoming US NFP report for any further insight into the Fed’s taper narrative. Finally, copper prices are bolstered though the LME price remains someway from the USD 10k/T mark as workers at BHPs Escondida, Chile mine have been told to prepare for strike action as government-mediated talks are said to be progressing very slowly.

US Event Calendar

• 8:30am: July Change in Nonfarm Payrolls, est. 858,000, prior 850,000
  • Change in Private Payrolls, est. 708,000, prior 662,000
  • Unemployment Rate, est. 5.7%, prior 5.9%
  • Underemployment Rate, prior 9.8%
  • Labor Force Participation Rate, est. 61.7%, prior 61.6%
  • Average Weekly Hours All Emplo, est. 34.7, prior 34.7
  • Average Hourly Earnings YoY, est. 3.9%, prior 3.6%; Average Hourly Earnings MoM, est. 0.3%, prior 0.3%
• 10am: June Wholesale Trade Sales MoM, prior 0.8%; Wholesale Inventories MoM, est. 0.8%, prior 0.8%
• 3pm: June Consumer Credit, est. $23b, prior $35.3b

DB’s Jim Reid concludes the overnight wrap

You may not want to listen to whatever I say ever again after the misinformation I gave my kids at bedtime last night. I was reading a story with lots of animals in and I said to one of the twins, “count the animals on this page”. He counted the humans as well and I corrected him by saying humans aren’t animals. My wife who was overhearing this said “of course humans are animals, don’t listen to your father”. I vehemently said they weren’t and then googled it to find that of course we are. My wife was deeply concerned at my faux pas. Maybe I was thinking pets rather than animals! For the avoidance of doubt I had a top class education. Honest!

If you’re still reading after that shock admission, equity markets in the US and Europe enter today’s important payroll report (where we find out how many new animals have got jobs) at record highs as investors yesterday digested July PMI readings, relatively hawkish Fed and BoE comments, along with overall strong corporate earnings.

I’ve made the mistake before this summer of suggesting that the last couple of CPI reports were going to be the most important data releases in many many years before markets shrugged them off, so I’ll refrain from too much hyperbole when it comes to today’s jobs numbers. However it does have the potential to shape the taper debate over the coming months, especially as it’s the last before Jackson Hole. That’s as far as I’ll go today.

For context, last week Fed Chair Powell said that “the labor market has a ways to go”, and that the unemployment rate of 5.9% “understates the shortfall in employment, particularly as participation in the labor market has not moved up from the low rates that have prevailed for most of the past year.” In terms of what to expect, our US economists are forecasting that non-farm payrolls will have risen by +1m in July, which would be the fastest pace of jobs growth since last August. In turn, this would bring the unemployment rate down to a post-pandemic low of 5.6%. There is a big seasonal adjustment in today’s numbers so it’s fair to say the random number generator could be in full force with the possible range of outcomes fairly wide. So very best of luck predicting and trading off the back of it.

As discussed at the top markets rose to new highs ahead of this with the S&P 500 up +0.60% as technology companies posted strong corporate earnings and the jobless data was in line with expectations. Specifically claims for the week through July 31 were at 385k (vs. 383k expected). That’s a -15k decrease from the previous week, the second consecutive weekly decline. July ended up being the first month since January to see an increase in initial jobless claims with +17k added last month. Also notably, continuing claims through July 24 fell to 2.93m (3.255m expected) from 3.269m the previous week, which is the largest weekly decline in those receiving unemployment benefits since late November 2020.

The +0.60% rise in the S&P was led by a mix of cyclical and growth stocks with airlines (+4.37%), banks (+1.61%), energy (+1.28%), and software (+1.03%) all among the best performers. General tech gains led the NASDAQ (+0.78%) to a fourth consecutive daily climb and a record high after its last record close was all the way back to 26 July!!

Improving risk sentiment led to US rates selling off to near last Friday’s closing levels. US 10yr Treasury yields hit their lows just prior to the jobless data before rising steadily throughout much of the session to finish +4.2bps higher at 1.2235bps. The rise in yields was driven mostly by bouncing real yields (+5.7bps), which overcame sagging inflation expectation (-1.6bps).

Earlier, European equities rose for a fourth consecutive day as well with investors looking through delta variant concerns to focus on corporate earnings locally. The STOXX 600 was up +0.37%, with travel and leisure (+1.53%) the best performing sector as the UK relaxed some quarantine rules from visitors from other countries, including France. Tech stocks outperformed (+0.87%) as bond rates remained largely unchanged or lower across most of the continent. 10yr German bund yields were just +0.3bps higher at -0.50%, while French OATs (-0.8bps), Italian BTPs (-2.3bps), and Spanish bonds (-2.5bps) were all lower. UK 10yr gilts underperformed with yields rising +1.2bps to 0.524% as the Bank of England signalled that meeting the central bank’s inflation target would require “some modest tightening” in the medium term.

The Bank of England and Governor Bailey shifted slightly from their recent pledge of keeping policy loose in the short-to-medium term as the central bank indicated that it was concerned about inflation. The BoE acknowledged “some modest tightening of monetary policy over the forecast period was likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term.” This comes as the MPC raised its expectations for near-term inflation, with the peak now projected to be closer to 4%, however they still expect inflation to return to its 2% target in the next 3 years with the inflation risk being more two-sided here. Our UK economists, saw three key messages coming out of yesterday’s policy decision. The MPC has become more confident around the economic outlook, medium-term inflation concerns are rising, and that rate hikes are still the preferred tightening tool. For more see their full note here.

Asian markets are trading on the weaker side this morning as the spread of the delta variant and the regions’ low vaccination rate are dampening sentiment. The CSI (-0.73%), Shanghai Comp (-0.48%), Shenzhen Comp (-0.42%), Kospi (-0.29%) and Asx (-0.04%) are all down while the Hang Seng (+0.01%) is broadly flat and the Nikkei (+0.34%) up. Futures on the S&P 500 (-0.05%) are trading a touch weaker while yields on 10y USTs are up +1.4bps to 1.238%. In FX, the US dollar index is up +0.12% this morning.

In terms of the pandemic, news continues to worsen in Australia where two-thirds of the country is back in lockdown with Melbourne and the State of Victoria instituting their 6th stay-at-home order of the pandemic, which will be in effect for a week.This comes as Sydney saw a new record number of cases, with the region of New South Wales registering 262 cases, even as the region has been in lockdown for almost 6 weeks. The Philippines has expanded social distancing restrictions to more cities and provinces beyond Manila while South Korea has extended its current restrictions by another two weeks.

In the US, there were headlines of companies pushing back their return to offices, a refrain that has picked up in recent weeks. Yesterday, Blackrock, Wells Fargo, and Amazon all joined Lyft, Google, and Twitter amongst others in making adjustments due to increasing delta variant concerns. There was good news on the vaccination front as Moderna published analysis of the company’s late stage study of its Covid-19 vaccine and found that it’s 93% effective 6-months after the standard two-dose regimen. Meanwhile, Bloomberg has reported overnight that the White House is considering using federal regulatory powers and the threat of withholding federal funds from institutions to push more Americans to get vaccinated.

There was limited data yesterday, with the June factory orders in Germany the only data point of note from Europe. German factory orders grew +4.1 m/m (+2.0% expected), its highest monthly increase since June of last year. Easing pandemic restrictions bolstered demand and drove a sharp increase in domestic orders. From the US, outside of the previously mentioned weekly jobless claims print, the June trade balance showed the US trade deficit grew to a record -75.7bn (-74.2bn expected). Government data last week showed trade shaved 0.44pp from Q2 GDP, with net exports having subtracted from GP over the last 4 quarters now.

Finally, today will be highlighted by the US payrolls number as referenced above. In Europe, the main data highlights will be German and Italian June industrial production figures along with France’s June trade balance. From central banks, the Reserve Bank of India is set to announce their monetary policy decision. Lastly on earnings, Friday’s are traditionally slower earnings day with the main announcement coming from Allianz.