Hong Kong warning, delta spreading fast, and retail sales data due.
Deteriorating
The Biden administration is expected to issue an “advisory” today warning U.S. companies about the risks of doing business in Hong Kong. While the action won’t require specific action, it will underscore the threat to companies in the city as Beijing consolidates its grip on the former colony. The warning comes amid a wider push by the U.S. to reduce China’s growing influence in Southeast Asia. President Joe Biden and Chinese leader Xi Jinping meet virtually this morning at an informal APAC meeting focused on ending the Covid-19 pandemic.
Rising cases
Speaking of Covid and Southeast Asia, that region is currently getting hit very hard by the spread of the delta variant with cases jumping 41% over the past week to more than 500,000 and deaths rising 39% in the same period. In Europe, cases linked to delta are also surging. The U.K. is holding out the prospect of restoring some restrictions just days before the country plans to drop all remaining social distance rules. Los Angeles County told residents to wear masks indoors as cases passed 1,000 for a seventh day in a row.
Picking up
U.S. retail sales for June probably slipped 0.3%, with the headline number weighed down by car and gasoline sales. Core sales, stripping out those elements, are expected to rise 0.5%. Yesterday Fed Chair Jerome Powell said that the surge in inflation has been concentrated in a limited number of areas such as used car prices, something that will likely be backed up by today’s sales number. The data comes as there are more signs that the shift to online consumption driven by the pandemic may remain in place even as areas reopen.
Markets mixed
Global equites are having a relatively quiet end to the week as investors assess the prospects for the global economy amid continued strong monetary support and fears of more Covid restrictions. Overnight the MSCI Asia Pacific Index slipped 0.4% while Japan’s Topix index closed 0.4% lower. In Europe, the Stoxx 600 Index was broadly unchanged at 5:50 a.m. Eastern Time as travel stocks jumped on the news of a possible reopening of trans-Atlantic tourism. S&P 500 futures pointed to a small move higher at the open, the 10-year Treasury yield was at 1.325%, oil rose and gold was lower.
Coming up...
June retail sales are at 8:30 a.m. The latest Baker Hughes rig count is at 1:00 p.m. and TIC flow numbers for May are published at 4:00 p.m. New York Federal Reserve President John Williams is today’s only monetary speaker. Charles Schwab Corp., State Street Corp. and Kansas City Southern are among the companies reporting results.
What we've been reading
Here's what caught our eye over the last 24 hours
And finally, here’s what Katie’s interested in this morning
There have been some interesting developments in fixed-income market structure over the course of the year-and-a-half-long pandemic. As chronicled by Bloomberg News’s Justina Lee, electronic bond trading has accelerated and then some over the past 16 months -- convincing quants that now is their time to shine.
Wiring up the bond market has proven more difficult than say, equities, because fixed-income is famously fiddly. Traders still do quaint things like place orders over the phone, while individual bonds may not trade for weeks or months, limiting liquidity. Compare that to the stock market, where all it takes is the click of a button and bid-ask spreads are razor-thin. That can make it difficult to do even basic quant-y things, like actually acquire the bonds that your algorithm spits out.
However, there are signs that the seas are shifting. Coalition Greenwich data show electronic platforms like MarketAxess and Tradeweb accounted for 37% of investment-grade and 26% of high-yield trading in May -- a whopping 8 percentage points higher versus the prior year. Amid the uptick, long credit positions held by quants have doubled since 2018, according to Man Group data -- outpacing the 20% growth for other asset managers.
Of course, it’s important not to overstate those numbers. Those long positions total around $23 billion, Man Group says, versus $537 billion for other managers. And the human touch remains important in fixed-income trading, which is why Asita Anche at Barclays is building algos and data analytics for voice traders.
“The future is not algos taking flows away from humans,” Anche, the head of systematic market making and data science, told Lee. “It’s humans enhanced by algos and automation.”
Follow Bloomberg’s Katie Greifeld @kgreifeld
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