Futures Flat Ahead Of Powell As Netflix Shock Lingers Over FAANGs

US equity futures are flat, alongside European and Asian stocks as global markets recovered some ground on Tuesday after oil prices stabilized and as trade war fears subsided with attention still squarely focused on Trump's Putin summit, even as global tech stocks, Nasdaq futs, and FAANGs - or is that FAAGs now - felt the pressure from yesterday's NFLX earnings bomb. The dollar rebounded from overnight lows if still down for the 4th day ahead of a bevy of earnings and before Fed Chair Jerome Powell's much-anticipated testimony to the U.S. Congress.

The MSCI’s world equity index was broadly unchanged, with energy companies in Europe and Asia recovering ground from early losses caused by the previous day’s turbulence in commodity markets. Brent crude initially fell for a second day after a 4% slump on Monday, as Libyan ports reopened and traders eyed potential supply increases by Russia and other producers, but they recovered to trade up 0.5%.

Europe's Stoxx 600 Index was up 0.1% with miners outperforming while telecommunications and utility shares fell.  In Europe, technology stocks fell 0.4%, tracking the decline in Nasdaq futures which were hit after Netflix reported a shocking miss and sharp drop in subscriber growth.

"It’s been a fairly sluggish and unexciting start to the week for markets. Whether things get more interesting or not probably depends on what Fed Chair Jerome Powell has to say when he testifies today in front of the Senate Banking Committee," said DB's Craig Nichol.

Earlier in Asia, the MSCI index of Asia-Pacific ex-Japan fell 0.4%, ending two days of gains amid concern over growth in China. Japanese stocks outperformed in Asia, helped by the yen which held close to its weakest level since January. The Shanghai Composite resumed its slide, and despite a last hour rescue attempt, ostensibly by the National Team, it still closed below 2,800 for the first time since July 11.

Overnight, China's NBS reported 70-city housing price data which showed that average commercial home price appreciation was 0.8% in June, the fastest pace of appreciation since October 2016. Out of the 70 cities NBS monitors, more cities saw housing prices increase in June compared with May.

The barometer of Chinese risk sentiment, the Yuan, initially rose despite the PBOC fixing the currency lower by 0.09% to 6.6821, the lowest in 11 months, and below the consensus estimate, however, it since gave up much of the gains and tracking the late session dollar strength, slid back to 6.7. The yuan also declined against a trade-weighted basket of currencies to the lowest since Dec. 20 amid signs of a slowing economy.

The Bloomberg Dollar Spot Index fell for a fourth day, while European sovereign bonds were mixed. The DXY index fell 0.1% against a basket of six major currencies to 94.409. The index shed 0.25 percent on Monday, nudging away from a two-week high of 95.241 on Friday. The pound advanced after the UK announced record-high employment, raising the odds of an August interest-rate hike by the Bank of England despite the escalating political crisis which threatens to sweep Theresa May from power. The New Zealand dollar jumped after the central bank’s core inflation measure accelerated at the fastest pace in seven years.

Emerging-market stocks headed lower for a second day, while their currencies climbed.

Earnings and the Fed are the key remaining catalysts for market sentiment this week, a welcome respite from a background of deteriorating trade relations between the world’s biggest economic powers, at least until Trump's next unexpected tweet. Company results have been mixed thus far, with Deutsche Bank and Bank of America beating estimates, counterbalancing misses by Netflix and Wells Fargo reading.

Today, Fed chair Jerome Powell will testify on the economy and monetary policy before the U.S. Senate Banking Committee and the House of Representatives Financial Services Committee on Wednesday. As outlined in the Fed's monetary policy report released on Friday, he will reiterate the Fed’s stance towards gradual monetary policy tightening. Markets will focus on his views on recent trade tensions.

Some were hawkish: "In short, we expect the chairman to signal optimism on growth and inflation, consistent with continued ‘gradual’ tightening. He will undoubtedly acknowledge some downside risks associated with the administration’s trade warmongering, but he will likely try to avoid sounding critical of the administration" wrote Jim O’Sullivan, chief economist at High-Frequency Economics.

Others expected a dovish surprise: "It’ll be a tricky day at the office for Fed Chair Powell, but given the external challenges facing the U.S. economy, it’s hard not to see a more cautious policy being struck today,” said Viraj Patel, currency strategist at ING Groep NV. "This will come as a dovish surprise to markets. A quiet day in Europe means EUR/USD’s focus will be on Powell, we look for 1.17 to hold... Fed’s policy outlook currently does not take into account a possible trade war - and we don’t feel that this is a valid assumptionIt may be remiss for Powell not to talk about the risks."

Also on Tuesday, the Chinese government repeated it would hit its 2018 growth target, one day after it reported slower growth in the second quarter and the weakest expansion in factory activity in June in two years. UBS economists lowered their estimates for Chinese gross domestic product to take into account trade war escalation, warning clients the country’s currency is likely to weaken.

Trading in government bonds was subdued ahead of Powell’s testimony, with the 10Y yield unchanged from Monday at 2.8582%. In the Eurozone, government bond yields inched lower by 0.5 to 2 bps, with investors unwilling to push yields any higher before Powell testifies. German Bunds yielded 0.36%, while 10Y Gilts paid 1.283%, both effectively unchanged.

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