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Concerns That Growth Has Peaked Is Worrying Investors

By Neil WilsonMarket OverviewAug 17, 2021 10:28
uk.investing.com/analysis/concerns-that-growth-has-peaked-is-worrying-investors-200493846
Concerns That Growth Has Peaked Is Worrying Investors
By Neil Wilson   |  Aug 17, 2021 10:28
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Stocks are down in early trade on Tuesday after European markets finished lower yesterday, with the FTSE 100 leading the decliners with a fall of almost 1% to around 7,150. The DAX finished off 0.5% at a whisker below 15,900. They were off around 0.3% and 0.6% respectively this morning before paring losses. Concerns that growth has peaked is worrying investors – today's BofA European Fund Manager Survey showed just 44% think the European economy will further improve over the next 12 months – the lowest since last June and well down on the 80% last month. Rising covid concerns and inflation worries are the main culprits. Nevertheless, FMs are still bullish on European stocks and think there is still room for the inflation trade to run. It’s mirrored in the Global FMS which shows global growth expectations cut to net 27%, the lowest April 2020 and profit expectations are the weakest since last summer. After peaking at 62% in April, global equity allocation has slipped to 54% though there is ‘no appetite to rotate into bonds’.

US stock markets managed to shed any negativity around cyclicals with mega cap tech doing the heavy lifting to take the S&P 500 to a new record, rising 0.3% on the day. The Dow Jones erased an early decline of more than 200pts to finish up by more than 100 for the session. Futures are however pointing to a weaker open after a weak session in Asia, as further tightening of China’s competition rules left tech shares in the doldrums. The Hang Seng declined 1.8%, whilst shares on the mainland dropped around 2%. 

ARK's Innovation ETF (NYSE:ARKK) declined 2.6% as Michael Burry of Big Short fame disclosed a short position on the fund. Now it makes sense given the kind of momentum plays Cathie Wood has been in. And we know Burry has had a short on Tesla (NASDAQ:TSLA) since the start of the year, which is the biggest holding in the ETF. Burry is still mega short Tesla so seems to be doubling down on his bearish momo bet. Scion Asset Management bought 2,355 put contracts and increased his bet against Tesla – 10% holding in the ARKK fund. 

Tesla shares fell more than 4% as the company faces a formal government investigation into its Autopilot driving system. In a post Monday, the National Highway Traffic Safety Administration announced it has identified 11 crashes since 2018 involving a Tesla vehicle either on Autopilot or Traffic Aware Cruise Control. The investigation covers the models Y, X, S and 3 from 2014 through to 2021 model years. 

Big changes at BHP (LON:BHPB): Shares popped 8% in London, adding a full 14pts to the FTSE 100, as it announced it’s out of petroleum, into potash and scrapping its dual-listing structure. Performance over the year was very strong as BHP benefitted from a global commodity boom and economic recovery. Profit from operations rose 80% to $25.9 billion, up 80%, while underlying EBITDA hit $37.4 billion at a record margin of 64%. Attributable underlying profit rose to $17bn from $9bn last year. The board also announced a $2 final dividend. 

Elsewhere on the FTSE, Just Eat Takeaway (LON:JETJ) shares rose after it reported revenues rose 52% to €2.6bn in the first six months of 2021, compared with €1.8bn in the first half of 2020. 

The Empire state manufacturing index was weak – coming in at 18.3 vs the 29 expected, way down on the record high 43 last month, albeit activity is continuing expand. The usual inflation warning flashed red as the survey reported that input prices continued to rise sharply, and the pace of selling price increases set another record. The prices received index climbed seven points to 46.0, setting a record. Another growth has peaked, inflation is here to stay type report.

Taper talk: The picture is almost complete. Chiming with the views of a number of Fed officials aired over the last fortnight, Boston Fed president Eric Rosengren said it would likely be appropriate to start tapering bond purchases in the autumn, though the timeline for raising rates is still uncertain and dependent on the labour market recovering. It’s increasingly clear there is a broad consensus for the Fed to announce its taper in September (or at Jackson Hole), and to commence in November. Of course, there are dissenters, and some doves may prefer to wait longer. The key to it all is Jay Powell – his town hall event tonight (18:30 BST) will be closely monitored for any signals. Even if there is broad agreement to taper the Fed still faces a question of whether to go early and slow, or later and fast. And as soon as the Fed sets the timeline for tapering the market will swivel its focus to the timing of the first rate hike, which is when we start to see some bond market action again. The BofA FMS shows 84% expect the Fed to taper this year but lift-off for rates not until 2023 with risks around the Delta variant, asset bubbles and China growing as risks.

OPEC+ sees no need to pump more oil into the market now beyond what is already intended despite US calls to open the spigots, according to four OPEC+ sources. Nevertheless, the cartel is increasing output: Platts says OPEC's 13 members pumped 26.83m bpd in July, up 640k bpd from June. API inventory in focus later today after the EIA said US shale output is on the rise, expected to hit 8.1m bpd in September. WTI (Oct) trades at $66.50 this morning, a little off yesterday’s lows around $65.50, but the bears are still in control. 

Concerns That Growth Has Peaked Is Worrying Investors
 

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Concerns That Growth Has Peaked Is Worrying Investors

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