US stocks pared losses after weekly jobless claims hit a fresh pandemic low and as the ECB turns optimistic enough to moderate their PEPP buying. The S&P 500 index won’t make a major move unless inflation heats up or if delta variant concerns ease further and the economy can resume reopening. The global economic recovery will be led by Europe in the third quarter and that should be very positive for European equities.
The heavily anticipated ECB rate decision did not disappoint. The ECB tweaked their pandemic bond buying program in what was somewhat a hawkish surprise. The ECB slows the pandemic bond program from significantly faster to moderately lower level from now. The ECB is turning upbeat on the economy as they are signaling the economy can handle less support. The euro rose slightly following the announcement of lower PEPP buying. The ECB did not specify exactly what will be the new pace in the statement, so the amending of the pace is really a minimal difference.
The ECB raised the 2021 growth forecasts from 4.6% to 5.0%, and trimmed 2022 GDP from 4.7% to 4.6%. Inflation forecasts all were bumped higher, but Lagarde still stuck to the script in saying it will be transitory. 2021 inflation now seen at 2.2%(prior 1.9%, 2022 inflation at 1.7% (prior 1.5%) and 2023 inflation at 1.5% (1.4% prior).
The key takeaway from the ECB is that the economy is strong enough to start pulling back support and that they still view the decade high with inflation as transitory.
Jobless claims continue to head in the right direction, making a fresh pandemic low, despite some concerns over the impact Hurricane Ida. Louisiana’s initial claims rose from 2,060 to 9,319. Initial filings for unemployment insurance fell last week to 310,000, much lower than the consensus estimate of 335,000 and upwardly revised 345,000 prior reading. The job market outlook remains optimistic.
Chinese gaming stocks
Tencent and Netease shares plunged after regulators reminded companies of the crackdown over video game time for children. Foreign investors were delivered another reminder that President Xi’s crackdown is not over just yet. Chinese regulators urged the tech companies “to break from the solitary focus of pursuing profit or attracting players and fans.”
In addition to the latest regulatory squeeze from Beijing, Cathie Wood’s Ark cut their positions dramatically with Chinese companies and is focusing on Beijing-friendly firms. Pockets of Wall Street are running away from investing with any related to China and that can’t be good for risk appetite.
Crude prices sharply rose after reports that a ship was stuck in the Suez Canal, potentially disrupting movement across the vital artificial seal-level waterway. Sky News tweeted that the ship was floating, but the oil price jump mostly remained intact.
The news from the airlines was not very encouraging for the crude demand outlook. Southwest Airlines cut its third quarter outlook again, citing elevated trip cancellations, especially close-in. Leisure travel is easing and that will make it difficult to turn a profit this quarter. American Airlines also cut their guidance for the third quarter over softness in bookings and close-in cancellations. Delta’s update was also downbeat, noting the pace of the recovery paused due to sharp rise of COVID cases. Delta trimmed their revenue outlook and maintained their total capacity guidance. The airlines did not give any reasons to be optimistic for a pickup in jet fuel demand as business travel remains depressed as companies delay or scale-down re-openi