Financial News & Analysis

Reserve Bank of Australia Guy Debelle, speaking before the Australian Parliament's House of Representatives Standing Committee on Economics

Debelle says the Bank is spending a fair bit of its time assessing Evergrande. He expects Chinese authorities might well allow a limited default to occur, their 'tolerance' for a default is higher than in previous years as long as the consequences are limited.

Says Chinese authorities are well informed of the EV situation and it'll resolve how they want it to resolve.

China Evergrande main unit Hengda Real Estate will make coupon payments for onshore bonds due tomorrow

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They say short and long-run inflation expectations are now well above their pre-pandemic range. The Citi/YouGov survey showed 12 month expectations at 4.1% (prior 3.1%) and 5-10 year inflation at 3.8% (prior 3.4%).

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Our market forecasts through the balance of the year assume that US Treasury yields will rise but that the US Dollar will depreciate against most crosses.

The Dollar's correlation with Treasury yields tends to vary over time, and depends on the underlying macroeconomic fundamentals driving rates and FX markets

In a period of rising cyclical optimism, as we expect over the near term, we should anticipate a negative correlation, with rising rates associated with broad Dollar weakness

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The ECB has a monetary policy announcement on Thursday and many investors are wondering if euro will fall as the CAD or AUD.ECB was one of the most dovish central bank because of COVID spread and low performance economy.

What we need to watch today:

• Consensus looks for a slowdown in the pace of PEPP purchases during Q4
• A decision on the future of PEPP is not expected to take place at the upcoming meeting
• Economic forecasts are set to see upgrades to 2021 growth and inflation. 2023 inflation is set to remain sub-target

Focus for PEPP will instead fall on the Q4 pace of purchases which is set to be lowered from the current "significantly higher" level of EUR 80bln/month

The press conference will likely see President Lagarde caution that any slowing in the pace of purchases for PEPP will not be regarded as a "taper" as purchases are not on track to reach zero and policymakers will vow to maintain favorable financing conditions.

Policymakers were not expecting to make a decision on the future of PEPP bond purchases in September given the persistent uncertainty posed by the pandemic but a decision in October or December was seen as more likely.

Chart below you can see nomura forecast on PEPP

What about Rates

Rates according to Lagarde will “remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term."

Ing case scenario on ECB Forecast

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• We still remain slightly supportive in the near-term as we expect monetary and fiscal policy to remain highly accommodative but our conviction levels are simply pinned to our expectation that ETF outflows do not continue and we have some moderate inflows by the end of the year.
• With positive economic readings and in particular, positive jobs data market participants appear to be focused on the prospect of an earlier than anticipated interest rate hike. While real rates are still expected to be negative, any expectation that this could turn positive faster would really dampen investment flows.
• Our base case scenario is for gold prices to average $1,750 on average in 2022 as investment flows drop further.
• In the upside price scenario (which is the downside economic scenario), we forecast prices rising to $2,100/oz whereas the downside risk to prices (on the upside economic scenario) is limited and prices could fall to $1,600/oz.

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BoE's Broadbent says he thinks conditions for a rate rise have been met, but need to focus on medium term

BoE's Ramsden says necessary but not sufficient condition for a rate rise have been met

BoE's Bailey says he thinks minimum conditions for a rate rise have been met, but not sufficient for one

BoE's Tenreyro says she does not think guidance conditions for a rate rise have been met

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BoE's Bailey says persistence of COVID means there has not been expected rebalancing of demand between goods and services, pushing inflation higher than expected

• Semiconductor shortage has led to shortage of new cars and pushing up second than car prices as well in UK.
• Higher than anticipated inflation underlines persistence of COVID.
• Overall economic impact of COVID in UK has attenuated.
• Seeing some short-term levelling off of recovery.
• Do not think inflation will be persistent.
• Think it is unlikely commodity prices will continue to rise.
• Expect supply bottlenecks to sort themselves out.
• Large concern is getting labour market vacancies filled.
• End of furlough scheme should help fill vaccines.
• He has a bit more concern regarding persistence of labour market pressures.
• Risks on both sides to inflation returning to target over medium term.
• Market curve does point to some increase in interest rates.

GBP Going UP 20 pips on news reaction

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The BoC leaves its Overnight Rate unchanged at 0.25% as expected, rate of QE unchanged as expected; forward guidance unchanged as expected

• The Bank continues to expect the economy to strengthen in the second half of 2021, although the fourth wave of COVID-19 infections and ongoing supply bottlenecks could weigh on the recovery.
• Reiterates "The Governing Council judges that the Canadian economy still has considerable excess capacity"
• "We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective."
• "In Canada, GDP contracted by about 1 percent in the second quarter, weaker than anticipated in the Bank’s July Monetary Policy Report (MPR)."

  CAD is going in red worst performance from all currencies with -0.29% today

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Fed's Bullard (2022 voter) says Fed should proceed with tapering despite the weak US jobs data, while he dismissed concerns the rebound in the labour market was faltering and said there is plenty of demand for workers. USD strength after comments

• Note Bullard is the first Fed official to speak following Friday's NFPs.
• Headline nonfarm payrolls disappointed expectations in August, printing 235k (exp. 750k); the unemployment rate fell by 0.2ppts, in line with the consensus, to 5.2%. Other measures of slack improved in the month, with the U6 rate of underemployment falling to 8.8% from 9.2%, the employment-population ratio, which is a metric that is closely watched Fed officials, rose to 58.5% from 58.4% (vs pre-pandemic 61.1%), although the participation rate, which the Fed also factors into its deliberations, was unchanged at 61.7%. The wages data saw average hourly earnings rising +0.6% M/M (exp. +0.3%), lifting the annual rate to 4.3% (from 4.1%); average workweek hours declined a little to 34.7hrs from 34.8hrs. Analysts noted that the lower than consensus headline was hinted at by several proxies, including the Homebase Survey, the ISM survey data (only manufacturing was available ahead of the NFP report), as well as the Conference Board's gauge of consumer confidence, which all gave the impression that Delta fears were contributing to labour market tightness. Ahead, Pantheon Macroeconomics is expecting further weakness in the September data too, and is also flagging concerns over the prospects of an October revival, given that labour market behaviour lags cases, and PM says cases are yet to peak. "Before Delta, we were looking for 1M-plus payroll gains in the fall, but that’s now going to be a real struggle, suggesting that Chair Powell will be in no hurry to be pushed into tapering while the labor market picture so uncertain," Pantheon writes, "we think the announcement comes in December, but the FOMC could easily be forced to wait until January." Meanwhile, many have been looking for evidence that the inflation upside in recent months was more persistent than the Fed was acknowledging, and were looking for this evidence within the wages metrics (the idea is that Americans would begin to demand higher compensation amid rising price pressures, which could feed into a loop of inflation becoming more persistent). While this month's data may allude to that theme, Pantheon warns that while the +0.6% M/M jump is startling, "it overstates the trend because the data are not mix-adjusted, so a month with no net job gains in the low-paid leisure and hospitality sector will see a bigger increase in AHE than a month with more even payroll growth." Even so, the consultancy notes that wage gains have averaged +5.8% Y/Y in the three-months to August vs the previous three months, and while it is high, PM argues that "this ignores the idea the faster productivity growth potentially raises the Fed’s tolerance for faster wage growth; ultimately, what matters is unit labour costs, which remain contained."

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• The Board's decision to extend the bond purchases at $4 billion a week until at least February 2022 reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak.
• This setback to the economic expansion is expected to be only temporary. The Delta outbreak is expected to delay, but not derail, the recovery.
• The Board is committed to maintaining highly supportive monetary conditions to achieve a return to full employment in Australia and inflation consistent with the target. It will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.
• This bounce-back and it is likely to be slower than that earlier in the year.

Note, one of the major newswires reported the QE decision as a "hold", although the official RBA release states "purchase government securities at the rate of $4 billion a week and to continue the purchases at this rate until at least mid February 2022."

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Goldman Sachs lowers Q4 2021 GDP growth forecast to 5.5% from 6.5% and sees 2021 GDP growth at 5.7%, while it raised Q4 2022 GDP to 3.7% from 3.0% and sees 2022 GDP growth at 4.6%.

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The NFP US jobs report covering August was down too much below expectation. Most Affected domain was retail and leisure/hospitalitysectors.COVID fear is again keeping people home but also another cause is laborsupply issue because wages are up.·  Payrolls grew just 235,000 in August &unemployment rate fell to 5.2%.·  The leisure/hospitality sector had no net jobincrease and retail employment fell, yet businesses in those segments are stilltrying to hire.  ·  Similarly, construction lost jobs because ofmaterials shortages and increased price in transports ·  Strong wage growth and rising participation are notrelevant since labor demand is lower.·  The labor force participation rate was unchangedat 61.7DollarINDEX is DOWN, Stocks down and, Gold Up

Stocks open subdued across the board as August failed to follow up from July’s solid NFP report – note a recent uptick in the NDX. The below forecast range 250k US jobs added in August has hit risk sentiment, seeing stock futures reverse earlier strength (particularly Russell 2k), with a pause in jobs added in the Hospitality and Leisure sector suggestive of some Delta-induced reopening roadblocks, although one could argue that is “transitory”   Stock Markets are all time high this week ignoring the danger of Tapering this Year.  Monday markets are closed and we expect reactions on Tuesday.

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Business Summary

Upstart Holdings, Inc. is a cloud-based artificial intelligence (AI) lending platform. The Company’s platform aggregates consumer demand for loans and connects it to its network of Upstart AI-enabled bank partners. The Company’s AI models are provided to bank partners within a consumer-facing cloud application that streamlines the end-to-end process of originating and servicing a loan. It has built a configurable, multi-tenant cloud application designed to integrate seamlessly into a bank’s existing technology systems. Its configurable platform allows each bank to define its own credit policy and determine the parameters of its lending program. The AI models use and analyze data from all of its bank partners. Consumers can discover Upstart-powered loans in one of two ways: either via Upstart.com or through a white-labeled product on its bank partners’ Websites.

Financial Summary

BRIEF: For the six months ended 30 June 2021, UpstartHoldings Inc revenues increased from $81.3M to $303.5M. Net income totaled $47.4M vs. loss of $4.7M. Revenues reflectan increase in demand for the Company's products and services due to favorable market conditions. Basic Earnings per Share excluding Extraordinary Items increased from-$0.07 to $0.62.

Why we think it’s a good bet

The company helps banking partners originate loans through its proprietary AI platform and takes a fee for their services. Today, more than 90% of its revenue comes from fees from banks or servicing with no credit exposure. Upstart claims it can secure loans and banks will have with 75% fewer defaults at the same approval rates. That is amazing number for banks and we thinks this company instead of expensive price will add over 25% per year growth in long term because their business model and few competitor UPST have a disruptive technology on AI field. Last months company acquired a new market segment auto-loans like auto lending (more than a billion dollars flowed through its auto software in the quarter).

They have a visionary founders. Upstart was founded by Dave Girouard, Anna Counselman, and Paul Gu in 2012. Girouard was the former President of Enterprise, while Counselam was a Senior Vice President for People and Product. Gu was a Thiel Fellow and had been featured in Forbes 30 Under 30.

The company was raised funds from First Round Capital, Kleiner Perkins Caufield & Byers, Google Ventures, and Mark Cuban. A series A round included former Google CEO Eric Schmidt, Salesforce CEO Marc Benioff, the Founders Fund, and the Collaborative Fund.

They have very Good ratings on platforms most of analysts offers very good rating perspective

Also Fundamental Analyse Looks Good:

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• China's Cabinet says China will accelerate measures to attract overseas investors in domestic futures trading;
• China will establish international Yuan-denominated commodity futures market;
• China will launch pilot schemes for IP rights securitisation

Who will invest in a market with companies controlled by Govern, take a look!

https://www.bloomberg.com/news/articles/2021-03-21/china-s-crusade-against-risk-is-tormenting-financial-markets

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Japanese PM Suga is to step down as PM, according to Kyodo.

As a reminder, there were comments yesterday from Japanese LDP leadership contender Kishida that they need to swiftly conduct economic measures worth tens of trillions of yen to cope with the virus pain and that they need to implement business continuation support including payouts to households and businesses. Furthermore, he said they will provide cash payouts to non-regular workers, women and households with children that are facing a difficult situation due to the virus. (Newswires)

JPY UP with 15 pips

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Australia's New South Wales reports 1,431 locally transmitted COVID-19 cases and the state Premier says expects next two weeks to be the worst for COVID infections.

New Zealand reports 28 new COVID-19 cases much lower than Australia.

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Asian equity markets traded cautiously as participants digested disappointing Chinese PMI data and with a non-committal tone seen at month-end following the mixed handover from US, where the S&P 500 and Nasdaq extended on record highs led by growth and tech although cyclicals and financials lagged amid a lower yield environment

• Chinese NBS Manufacturing PMI (Aug) 50.1 vs. Exp. 50.2 (Prev. 50.4)
• Chinese Non-Manufacturing PMI (Aug) 47.5 vs. Exp. 52.0 (Prev. 53.3)
• Chinese Composite PMI (Aug) 48.8 (Prev. 52.4)

China's securities regulator is planning to impose more control regarding private equity funds and will not permit public offerings masked as private equity, while China is also reportedly to curb unordered capital expansion in entertainment.

(NEWSWIRE)

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Australia's Victoria State Premier says it is too soon to open up from the COVID-19 lockdown and would need a low number of cases to ease restrictions, adds reopening plan to be announced tomorrow but it is not freedom day and will only be modest changes.

Australia's capital of Canberra will extend lockdown through September 17th.

The EU voted to approve fresh restrictions on US travellers coming into the bloc. US State Department raised the travel alert for Germany and Canada to level 3, while the US also issued COVID-19 "Do Not Travel" advisories for Switzerland and Estonia.

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USD has gained vs. peers, sending the DXY to session highs of 92.791 without fundamental catalyst, however, it is worth noting that month-end factors could be the reason

Credit Agricole suggests that its corporate flow model is pointing towards EUR/USD selling; and Barclays suggests the UST month-end extension at 0.12yrs

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ECB's Villeroy says that France and the EZ should be back to pre-COVID levels in early 2022 or maybe before this

• No risk of higher inflation at this stage
• PEPP will remain until at least March 2022; not urgent to decide on it at the September gathering
• Financing conditions have improved since June

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