5 Things

More Covid warnings, busy day for earnings, and Bitcoin rallies.

Case load The pandemic continues to run rife in Asia with South Korea and Thailand reporting record infections, a Chinese city imposing mandatory testing and Tokyo set to see a surge in cases just as the Olympics gets underway. There was a reminder of the grim toll the virus has taken in the U.S. as estimates released by the Centers for Disease Control and Prevention showed life expectancy fell by the most in more than 70 years in 2020. There are also increasing concerns that American capacity to identify and track new strains of the virus will not be able to keep pace with new Covid mutations.

Earnings This morning’s results from Daimler AG showed that carmakers remain under production pressure due to the shortage of semiconductors. Sales growth at its Mercedes-Benz division is now expected to be flat this year with the company unable to say how the supply of chips would develop. The outlook for chip supply will be among issues closely followed when Texas Instruments Inc. reports after the bell today. Speaking of earnings, JPMorgan Chase & Co. CEO Jamie Dimon was granted a special 1.5 million stock appreciation rights as an incentive to lead the U.S. lender for another “significant number of years.”

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B-day Bitcoin is firmly back over the $30,000 level that some cryptocurrency traders view as a key support this morning. The wider Bloomberg Galaxy Crypto Index was 3.5% higher as Ether and Dogecoin also advanced. Today sees Tesla boss Elon Musk, investor Cathie Wood and Twitter’s Jack Dorsey discussing Bitcoin at an event called “The B Word” as they try to encourage more institutions to adopt the cryptocurrency.

Markets mixed Global equities are generally moving higher today as a steady stream of corporate earnings dominate the agenda. Overnight the MSCI Asia Pacific Index added 0.2% while Japan’s Topix index closed 0.8% higher. In Europe the Stoxx 600 Index had gained 1.3% by 5:50 a.m. Eastern Time with ever industry sector in the green. S&P 500 futures pointed to a small pop at the open, the 10-year Treasury yield was at 1.25%, oil rose to $68 a barrel and gold was lower.

Coming up... The oil market will be watching this morning’s inventory data at 10:30 a.m. for the first weekly increase in stockpiles since May. The U.S. will sell $24 billion of 20-year bonds at 1:00 p.m. It is a huge day for earnings with Johnson & Johnson, Coca-Cola Co., Verizon Communications Inc., Kinder Morgan Inc., Baker Hughes Co. and Harley-Davidson Inc. among the many, many companies reporting.

What we've been reading Here's what caught our eye over the last 24 hours.

One simple (political) reason to explain bond yields. China’s “iPhone city” relocates 100,000 people after deadly floods. Massive wildfires in U.S. West bring haze to East Coast. Credit Suisse exodus in full swing as more senior bankers leave. London staff want pay rises to return to office, survey says. The seven habits of highly effective investors. New black hole image shows plasma jets blasting into space. And finally, here’s what Justina’s interested in this morning The reflation trade has lost some steam in recent months as we entered “peak growth.” Sure, the S&P 500 is now only 1.4% from its all-time high, but the stock un-rotation started a while before that. The quality and low-volatility factors are both set for their worst month since the Covid selloff in March 2020, according to Dow Jones market-neutral indexes. Value’s near the lowest since March.

One aspect of quality is low leverage. There the reversal has also been dramatic. A Bloomberg index that goes long high-leverage stocks and short the opposite has been falling since the June peak, even before credit spreads started widening.

This all brings up the question of the macro link. In recent years, it’s been pretty intuitive: When bond yields and economic expectations rise, value and size do better while quality and low vol fare worse. On Tuesday, this was exactly what happened when yields started bouncing back in U.S. hours.

The reliability of this is actually somewhat controversial in the quant world. AQR put out some research in 2020 arguing the long-term link is weak. Its co-founder and chief value defender Cliff Asness said last week the correlation over the past decade is stronger, but still not a reason to worry about value returns going forward.

That might be true. But for now, the shorthand seems to stick. Look at bonds, and you’ll know what stock factors are doing.

Follow Bloomberg's Justina Lee on Twitter at @justinaknope

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