Take Five: Bond bulls, China's conundrums and U.S. earnings
London (July 9) Bond bulls are out in force and they take no prisoners. Ten-year Treasury yields have tumbled to 1.3%, recording their second biggest daily drop of 2021 on Tuesday. UK and German yields are at their lowest in months.
Reflation, it appears, no longer holds sway. That doesn't mean investors are suddenly positioning for a slowdown. The message is perhaps more that economic growth has peaked and any inflation pick-up will prove transitory.
Concern about China's outlook and a surge in coronavirus variants adds to the caution, while the ECB has just tweaked its inflation target, another sign it will stay dovish.
Many betting on higher yields as inflation returns were forced to backtrack to cut losses -- another warning to those thinking about taking on a four-decade rally in bonds.
- Reflation rethink sends bond markets into a spin
2/CHINESE CONTRADICTIONS
The Chinese tech sector is taking a drubbing as Beijing's newly-empowered Cyberspace Administration of China (CAC) cracks down further on its heavyweights.
Latest target, ride-hailing giant Didi Global, has seen its market value fall by a third in the week since it listed in New York. Others (.H are sharply down too amid sweeping changes to data and fund-raising rules.
Investors are nervous: Is China opening up or forcing firms to come home? Is Beijing curtailing monopolies and controlling data or trying to reduce risk and improve standards?
There are other conundrums too. The economy is seen chugging along, even if Thursday's Q2 GDP data could confirm a slight loss of momentum after a bumper Q1. But a surprise announcement that Beijing could cut banks' reserve requirement ratios suggests to some not all may be well.
The People's Bank of China delivered such a cut on Friday, which will release about 1 trillion yuan ($154 billion) in long-term liquidity to underpin the post-COVID economic recovery.
-UPDATE 1-China cuts reserve requirements to support economic recovery
-EXPLAINER-Is China set to cut RRR soon? What are the implications? – read more -China's powerful internet regulator flexes muscles with Didi probe
3/ CORPORATE CHECK-INS
The second-quarter earnings season could establish a high-water mark for the rebound U.S. corporate profits have undergone since last year's coronavirus-induced pain.
Overall, S&P 500 company earnings are estimated to have climbed a whopping 65.4% year on year, according to Refinitiv IBES, possibly the biggest percentage growth since Q4 2009, when companies were emerging from the Great Financial Crisis.
However, expectations of slowing economic growth in the second half of 2021 have recently contributed to a rally in U.S. Treasuries, taking benchmark 10-year yields to their lowest since February.
Banks highlight the week's crop of results, with Goldman Sachs (GS.N), JPMorgan (JPM.N) and Bank of America (BAC.N) due to report. Delta Air Lines, UnitedHealth Group (UNH.N) and Kansas City Southern also report.
-PREVIEW-U.S. banks to see big jump in Q2 profits before results return to normal
Reuters
