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[Markets] Dow Futures Plunge After 3M Plummets; Dollar Soars On Global Currency Carnage

It was shaping up as a relatively quiet session, with world equity markets slipping modestly on Thursday - despite blowout beats by Facebook and Microsoft which sent the latter's stock 5% higher, sending its market cap above $1 trillion and making it the most valuable company in the world - amid worries on global growth and as investors digested European earnings, while the Swedish crown slumped to its lowest in 17 years and the euro suffered after German data.

But it was Dow heavyweight 3M's disastrous earnings report and guidance cut that sent Dow futures sharply lower as the industrial conglomerate became the first stock to validate investor fears about growth challenges for the rest of the year.

In a nutshell, this is what 3M reported as it lamented a "disappointing start" to 2019: Q1 adjusted EPS $2.23, missing the estimate of $2.48, and revenue of $7.86BN, Exp. $8.02BN. But most concerning of all was its guidance, which was slashed to an adjusted EPS of $9.25 to $9.75, down from its prior guidance of $10.45-$10.90, and far below the consensus estimate of $10.53, suggesting sharp weakness for the rest of the year. And the cherry on top: 3M announced it would fire about 2,000 jobs as the broad slowdown hits its operations.

Elsewhere, Europe's STOXX 600 lost 0.3% in early trading, with concern over prospects for global growth underscored by weak economic data from South Korea which earlier in the session reported its weakest GDP print since the financial crisis.

Energy stocks and a 10% drop in Finnish telecoms equipment maker Nokia dragged down European shares, with a varied bag of earnings for the region’s banks.

Asian markets had fallen earlier in the day, losing 0.5% as South Korea’s economy unexpectedly contracted in the first quarter, a vivid reminder that the global economy continues to slowdown sharply. Chinese stocks also fell sharply late in the day, losing more than 2% following attempts by the central bank to temper expectations for further easing of monetary policy and another substantial liquidity withdrawal by the PBOC. Chinese officials also warned of protracted pressure on economic growth, casting a shadow over hopes for a sustained recovery in the world’s second biggest economy.

Those worries on growth also played out closer to home for European investors, with fears lingering over the state of the German economy after a survey on Wednesday showed German business morale falling.

As a result of this weakness in Asia and Europe, the MSCI world equity index also fell 0.3%.

Amid today's renewed risk weakness, central banks continued to pivot dovishly, with the Bank of Japan on Thursday pledging to keep interest rates very low at least until early 2020, even as it retained main policy targets. However in stark reversal to the market's prior response to central bank dovishness, Japan’s Nikkei barely responded, closing just 0.5% higher, while the Japanese yen also reacted little. The yen was last up about a third of a percent, at 111.85 yen per dollar.

Several hours later, the Swedish Krona plunged to its lowest since August 2002, after the central bank said weak inflationary pressures meant a forecast rate hike would come slighter later than planned, while the central bank announced it would resume QE until the end of 2020. The SEK sank 1.2 percent against the euro to 10.65 - on course for its biggest daily drop in more than six months.

Turkey’s lira also crashed against the dollar, tumbling after the central bank announced it was removing its tightening pledge, and confirming that Turkey would no longer defend the lira after the nation's reserves dropped to dangerously low levels.

“You certainly have a common response (from central banks) to a global growth slowdown in terms of monetary policy,” said Peter Schaffrik, head of European rates strategy at RBC Capital Markets. "We haven’t generally seen outright reduction, but it is easing relative to what was previously communicated to, and implied in, the markets.”

The currency carnage was not over, however, and the euro suffered its worst day in over six weeks, falling 0.6 percent to a 22-month following the further signs of flagging growth in Germany. It was last at $1.1141.  Also on the agenda for the single currency were Spanish elections on Sunday and economic concerns out of Italy.

China’s yuan also declined to a two-month-low against the dollar later Thursday, while the Bloomberg replica of the CFETS RMB Index, which tracks the yuan versus a basket of 24 trading partners’ currencies, was at the highest in ten months. While the People’s Bank of China actually weakened the yuan’s reference rate, that wasn’t enough to keep the yuan index from rising so much. "Periods of broad dollar strength, as we have seen overnight, will result in a higher CFETS Index as the yuan fixing is normally not as weak as the moves in the basket currencies," said Khoon Goh, head of Asia research at Australia and New Zealand Banking Group.  Overnight, Chinese state media reported that the PBoC will set up policy framework to implement relatively low RRR for small and medium banks, in which the extra funds will be used to support private and small companies. However, there were later comments from the PBoC that China's prudent monetary policy is overall appropriate and neither tight nor loose and that the use of repos and MLFs does not signal loosening bias.

With currencies around the globe tumbling, it's not surprising that the dollar extended its gains, rising sharply and touching on fresh 2019 highs.

“The Fed isn’t keen to hike rates, but they are the strongest of the bunch so money will gravitate toward the U.S. dollar,” said David Madden, an analyst at CMC Markets in London.

Meanwhile, despite the dollar strength, oil continued to rise, Brent crude rose above $75 per barrel for the first time in 2019 in the wake of tightening sanctions on Iran, while gains in U.S. prices were crimped by a surge in U.S. supply.

Durable goods orders, initial jobless claims are due, while the afternoon sees scheduled earnings from Amazon and Intel.

Market Snapshot

  • S&P 500 futures down 0.03% to 2,929.75
  • STOXX Europe 600 down 0.3% to 389.91
  • MXAP down 0.4% to 161.83
  • MXAPJ down 0.9% to 536.76
  • Nikkei up 0.5% to 22,307.58
  • Topix up 0.5% to 1,620.28
  • Hang Seng Index down 0.9% to 29,549.80
  • Shanghai Composite down 2.4% to 3,123.83
  • Sensex down 0.2% to 38,970.94
  • Australia S&P/ASX 200 up 1% to 6,382.14
  • Kospi down 0.5% to 2,190.50
  • German 10Y yield fell 0.3 bps to -0.015%
  • Euro down 0.1% to $1.1142
  • Brent Futures up 0.9% to $75.25/bbl
  • Italian 10Y yield fell 4.0 bps to 2.262%
  • Spanish 10Y yield rose 0.8 bps to 1.081%
  • Brent Futures up 0.9% to $75.25/bbl
  • Gold spot up 0.2% to $1,277.62
  • U.S. Dollar Index up 0.01% to 98.18

Top Headlines from Bloomberg

  • The biggest currency driver in the European session was Sweden’s Riksbank which fell in line with the dovish tilt seen in other major central banks such as the European Central Bank. The Riksbank backtracked on plans to tighten monetary policy, as a less certain economic outlook meant negative Swedish rates may persist into next year -- a shift from earlier where a rate hike was expected this September.
  • The BOJ said it would keep interest rates extremely low through at least around spring 2020. A change to forward guidance was predicted by only 3 of 48 economists surveyed by Bloomberg. BOJ now projects it won’t hit its 2 percent inflation target at least through March 2022, which will be nine years since Governor Haruhiko.
  • Deutsche Bank AG and Commerzbank AG ended talks on a historic tie-up, throwing the future of both lenders into question after failed turnaround plans. The two lenders decided that attempting to integrate would be too difficult to execute and also cited the restructuring costs and additional capital requirements.
  • Bond traders are adding to Federal Reserve rate-cut bets in face of record stocks run. The futures market is moving back toward pricing in a full quarter-point cut this year, even as U.S. and Chinese economic data show signs of improvement.
  • Rich Asians came to the rescue of UBS Group AG in the first quarter after Chief Executive Officer Sergio Ermotti’s dire outlook on market conditions sent investors into shock and investment banking revenue plummeted.
  • South Korea, a bellwether for global trade and technology, cast doubt over hopes for a quick rebound in the world economy by reporting its biggest contraction of gross domestic product in a decade. Asia’s fourth-largest economy shrank by 0.3% in the first quarter from the previous three months, versus estimates for a 0.3% gain.

Asia equity markets traded cautious following an uninspiring lead from Wall St where the major indices consolidated albeit near record levels. In addition, holiday closures in Australia and New Zealand, the BoJ policy announcement, weak South Korean GDP and a slew of earnings provided much for participants to ponder over. Nikkei 225 (+0.5%) traded higher with newsflow and the biggest gaining stocks in Japan dominated by corporate results, while KOSPI (-0.5%) was subdued following abysmal growth data for Q1 in which GDP Q/Q unexpectedly contracted by 0.3% which was the worst reading since Q4 2008 and GDP Y/Y expanded at the slowest pace in almost a decade. Elsewhere, Hang Seng (-0.8%) and Shanghai Comp. (-2.5%) were downbeat as earnings season also started to pick up in the region and after the PBoC refrained again from liquidity operations which resulted to a net CNY 80bln drain. In addition, there were state media reports the PBoC will set up policy framework to implement relatively low RRR for small and medium banks, although this failed to spur a recovery given the absence of an actual RRR cut announcement and as PBoC officials reaffirmed a preference for prudent monetary policy. Finally, 10yr JGBs were choppy amid the cautious risk sentiment in the region and after the BoJ policy announcement which initially lifted 10yr JGBs at the open due to the dovish aspects from the statement and downgrades in the Outlook Report. However, prices then returned to pre-announcement levels as the lower projections were not much of a surprise given the recent data, while the BoJ slightly adjusted its modified forward guidance in which it stated that it will keep very low interest rate levels for an extended period of time at least through around Spring 2020.

Top Asian News

  • BOJ Maintains Policy Rate, Adjusts Forward Guidance
  • PBOC Has No Intention to Tighten or Loosen Policy, Liu Says
  • South Korea Economy Unexpectedly Contracts as Investment Falters
  • Axis, StanChart India CEOs Face Corp. Ministry Contempt Petition
  • Global Steel Market Is Put on Notice as Top China Mill Warns

European Indices are trading with losses [Euro Stoxx 50 -0.5%] after having opened relatively flat, with markets initially taking the lead from the cautious performance in Asia. This morning’s downturn is on the back of significant underperformance in a number of Co’s after a morning driven by earnings with Nokia (-10.0%) leading the losses at the bottom of the Stoxx 600 after the Co. reported a EUR 50mln operating loss vs. Exp. profit of EUR 305mln. Separately, Sainsbury’s (-5.3%) are down after the CMA confirmed that they are to block merger discussions with Asda; as such the Co. are at the bottom of the FTSE 100 (-0.4%). The FTSE 100 is also weighed on by Barclays (-1.5%) post earnings where they reported a CIB total income which was lower than the prior, and Taylor Wimpey (-4.0%) after the Co. stated that increasing build costs are to push margins slightly lower. In recent reports Commerzbank (-2.0%) and Deutsche Bank (+3.0%) have confirmed that they have discontinued merger talks, as they believe that the merger would not result in sufficient benefits; which does follow earlier source reports that talks between the Co’s were on the verge of collapsing. Regarding this morning more positive earnings, ASM (+7.2%) lead the Stoxx 600 after beating on Q1 revenue and operating profit; while, Bayer (+3.5%) top the Stoxx 50 after confirming their FY guidance.

Top European News

  • RBS Says Ross McEwan Has Resigned From Role as CEO
  • Wirecard Addressing Auditing Quality Issues, CEO Braun Says
  • Swedish Krona Tumbles as Riksbank Pushes Back Rate-Increase Plan
  • SEB Says Riksbank Decisions Much More Dovish Than Expected

In FX, a technical break below support in Eur/Sek and brief look at the 10.5000 proved fundamentally flawed or just premature as the cross catapulted more than 15 big figures on a much more dovish than expected Riksbank policy meeting outturn, while Usd/Sek hit its highest levels in some 16 years. In short, the Swedish Central Bank pushed back the likely timing for further rate normalisation to year end or early 2020 from H2 this year and lowered its repo path over the forecast horizon, adding that the current -0.25% level will be maintained for longer than previously anticipated (ie as flagged in February). The Riksbank also predicted softer inflation in light of recent weaker than expected price developments and announced that Sek45 bn SGBs will be bought from July 2019 through December 2020 regardless of a couple of reservations. Eur/Sek has eased back from a circa 10.6655 peak, but remains relatively close to chart resistance around 10.6730 and Usd/Sek is now eyeing 9.6000 as the Dollar continues to rally across the board.

  • USD - The Greenback is still outperforming or gaining at the expense of its currency counterparts, as the DXY consolidates and builds on advances through 98.000. In truth, aside from the Swedish Crown’s post-Riksbank collapse the Buck breached key levels late yesterday as resilience in several rivals finally gave way and the index cleared resistance ahead of the round number to register a new ytd best at 98.189, with only a relatively minor extension to 98.233 so far today. However, the DXY remains in the ascendency and 98.496 is the next bullish chart target.
  • CAD/GBP/EUR/AUD - All weaker vs the Usd, albeit just off worst levels, as the Loonie continues to reflect on Wednesday’s shift from the BoC to a wait-and-see stance vs tightening previously and fails to derive much support from a rebound in oil prices. Meanwhile, Cable has fallen under 1.2900 to test Fib and MA supports, with Eur/Usd probing below its latest 2019 trough to 1.1135 and eyeing downside chart levels ahead of 1.1100 (1.1190-10), Aud/Usd pivoting 0.7000 where hefty option barriers lie and the Franc back to straddling 1.0200.
  • JPY/NZD - The Yen has recovered well from new ytd lows vs the Usd around 112.40 to trade back above 112.00 amidst more speculation about positioning for the upcoming lengthy Golden Week holiday and not really reacting to the BoJ’s attempt to clarify policy guidance given Governor Kuroda’s admission that it is highly possible that ultra accommodation may continue beyond Spring 2020 as the 2% inflation target could well remain elusive even after FY 2021. Elsewhere, the Kiwi is trying to cling to 0.6600 vs its US peer ahead of NZ trade data and with some indirect help via the Aud/Nzd cross that is hovering near the base of a 1.0627-42 range at the tail end of ANZAC day.

In commodities, Brent (+1.0%) and WTI (+0.4%) prices are in the green as oil prices have now largely shrugged off yesterday’s larger than expected EIA build; which came in at 5.479M vs. Exp. 1.25mln, as this was below Tuesday’s API build of 6.86M. This morning Brent prices did surpass, and remain above, the USD 75/bbl level for the first time in 2019. In recent newsflow Iran’s Foreign Ministry have stated that Tehran will not allow any country to replace their oil sales within the market; which does come in the context of the Iranian oil waivers ending on May 2nd. Separately, Iraq’s Oil Minister states that they have the capacity to increase oil production to 6mln BPD, for reference Iraq currently have a production level of 4.5mln BPD; however, there will be no change in production and if markets need more oil this will be decided at the relevant time. Gold (+0.1%) has been relatively uneventful overnight, as the yellow metal remains subdued by the continuing dollar strength. Elsewhere, Anglo American reported Q1 copper production of 161k tonnes vs. Prev. 155k tonnes, and an increase in iron ore output from their Minas-Rio mine, 4.9mln tonnes vs. Prev. 3mln tonnes; with the mine having reopened in December after an 8-month closure due to a pipeline leak.

US Event Calendar

  • 8:30am: Initial Jobless Claims, est. 200,000, prior 192,000; Continuing Claims, est. 1.68m, prior 1.65m
  • 8:30am: Durable Goods Orders, est. 0.8%, prior -1.6%; Durables Ex Transportation, est. 0.2%, prior -0.1%
  • 8:30am: Cap Goods Orders Nondef Ex Air, est. 0.2%, prior -0.1%; Cap Goods Ship Nondef Ex Air, est. 0.1%, prior -0.1%
  • 9:45am: Bloomberg Consumer Comfort, prior 60.3
  • 11am: Kansas City Fed Manf. Activity, est. 8, prior 10

DB's Craig Nicol concludes the overnight wrap

With the US equity rally catching its breath yesterday, it was the bond market which instead took centre stage with yields sharply lower across the board. Indeed, having spent 8 consecutive sessions above 0%, Bunds succumbed to gravity once again and dropped back into negative territory following a -5.3bps decline taking 10y yields to -0.015%. There were moves of similar magnitude across the rest of Europe while Treasuries also rallied -4.7bps for the biggest move in over a month as curves broadly flattened.

There was a bit of head scratching as to what was driving the moves however in the end it appeared to be a bit of a compounding effect of various data releases and newsflow. Initially the well below market Aussie CPI release got the ball rolling this time yesterday, before Europe took the baton with Germany’s soft IFO survey doing the early damage – more on that further down. There was some commentary also about a decent Bund auction which kept yields anchored towards zero while the ECB’s latest Bulletin hammered home the implications of rising protectionism for the Euro Area, even if there wasn’t a huge amount of new information. Later in the afternoon we also got a dovish BoC meeting – which saw 10y Canadian yields fall -7.4bps to their lowest level since the start of the year after the bank’s statement removed its hiking bias – adding more fuel to the rates rally fire. Meanwhile, there was also some more chatter about the WSJ story from the weekend which was suggested as still hanging over the bond market, as it seemed to more seriously entertain the idea of a rate cut than previously. Our US economists dug into the underlying interview transcripts though, and they think the article is sensationalizing the actual, more measured argument from Fed officials. Finally, US oil inventory data showed another surprising build in stockpiles, which sent WTI prices -0.62% lower and weighed a bit on inflation expectations.

Holiday volumes are probably also exaggerating moves this week, however with central banks falling into the dovish line one-by-one and data outside of the US still faltering, it’s no great surprise to see yields really fail to break higher at the moment. The dollar has also perked up in response to those trends, advancing +0.55% to its strongest level in almost two years. It might have been boosted by breaking through some key technical levels, but the greenback has regardless gained against most currencies this week. Also interesting is the decoupling of bonds from equities at the moment. Whilst US equity markets gently eased on the breaks yesterday it still didn’t stop the S&P 500 and NASDAQ going above their record highs again intraday, before closing -0.22% and -0.23%, respectively. The energy sector underperformed and fell -1.85%, following the move in oil. Earnings played their part again but ultimately appeared to cancel each other out.

Indeed all eyes had been on Caterpillar (-3.03%), given its reputation as a macro bellwether. The company reported higher earnings than expected and worked down its backlog of orders, and left its guidance mostly unchanged.On the positive side, the CFO said that “strong” US demand will continue to grow this year, but investors focused on softer language about China. Management said that they expect to lose market share in China, because of aggressive competition and pricing pressure. Elsewhere, Boeing (+0.39%) advanced after management downplayed the impact of the 737 Max grounding, though the ultimate impact remains uncertain.

After the US close we also got the latest results from a couple of the tech juggernauts in Facebook and Microsoft, with both companies posting quite strong results. Microsoft traded as much as +4% higher after hours and Facebook +10% higher. Both companies saw revenues grow much stronger than consensus expectations, and Microsoft had particular strength in its cloud-computing sector. Facebook’s growth has slowed in developed markets, but the company has improved in emerging markets to compensate. US equity futures are posting small gains overnight led by the NASDAQ (+0.30%).

Overnight we’ve also had the BoJ meeting. As expected, policy was left unchanged with the most notable statement changes including a mention to keep rates low through at least spring 2020. Previously the BoJ had suggested rates would stay low for an “extended period”. There were also modest downward revisions to growth and inflation while the BoJ is considering a facility to offer term-limited loans of its ETFs to investors. Kuroda is due to speak after we go to print.

Despite the Yen (+0.17%) advancing, the Nikkei (+0.30%) is also slightly higher post that news and leading gains in Asia with the Hang Seng (-0.07%), Shanghai Comp (-0.70%) and Kospi (-0.26%) all in the red. The latter has struggled after Q1 GDP printed at a well below market -0.3% qoq (vs. +0.3% expected) in South Korea – the weakest since 2008.

Back to yesterday, where as noted above the initial trigger for the rates rally appeared to be the soft German IFO survey. The headline reading came in at 99.2 which was both lower than the 99.9 consensus and also down half a point for March.The expectations component slid 0.4pts to 95.2, however that was almost a full point below consensus while the current assessment component dropped 0.6pts to 103.3. Like the PMIs, the manufacturing sector bore the brunt of the decline, dropping to the lowest since 2013.So little turnaround in sight for the sector. It’s worth noting that less followed confidence indicators in France were also softer for the manufacturing sector yesterday.

Interestingly, despite the Bund and broader rates move the DAX actually outperformed most other European equity markets, closing up +0.63% albeit entirely thanks to big moves for SAP and Wirecard.In contrast the STOXX 600 closed -0.09%, CAC -0.28% and FTSE MIB -0.79%. European Banks also got hit to the tune of -1.71% which was the biggest decline in a month. The rates move clearly overshadowing any positive read through from the Credit Suisse results.

Meanwhile, in EM the MSCI EM equity index fell -0.48%. It’s interesting to note that while US equities breached record highs two days ago, and European equities are not far off, EM has very much lagged the broader DM move with the index still -14.81% off its 2018 highs achieved last January.In FX a basket of EM currencies finished -0.69% with the Turkish Lira (-0.77%) again grabbing the spotlight, weakening for the fifth consecutive day, and to a new six month high. We’ve actually got the Central Bank of Turkey decision today where the market will no doubt be looking for some soothing words to stop the slide.

In other news, the latest on Brexit is that the 1922 Committee refused to approve any changes to the leadership rules, and thus taking the press of the PM.Staying with the UK, Chancellor Hammond confirmed yesterday that he hoped to make the appointment of Carney’s successor as BoE Governor by October. He also suggested that the new Governor wouldn’t necessarily have to serve a full eight-year term. Sterling closed -0.28% yesterday.

In terms of the day ahead,this morning in Europe we’re due to get CBI survey data for April in the UK. Also worth keeping an eye on given recent volatility is the Central Bank of Turkey decision at midday. This afternoon in the US we’ve got preliminary durable and capital goods orders data due which should be the last set of data to help sharpen Q1 GDP forecasts tomorrow. Also due up is the latest claims reading and Kansas City Fed manufacturing survey. Away from the data the ECB’s Guindos is due to speak this afternoon in New York. Japan’s PM Abe is also due meet Tusk and Juncker in Brussels while Japan’s Finance Minister Aro is due to meet with Mnuchin over provisions against currency manipulation. Finally the earnings highlights today are Amazon, Intel, ComCast, 3M, Ford, Bayer, and UBS.

Published:4/25/2019 6:50:04 AM
[Markets] Dow futures losses deepen after 3M says it will cut 2,000 jobs Dow futures losses deepen after 3M says it will cut 2,000 jobs Published:4/25/2019 6:30:42 AM
[Markets] 3M's stock tumbles after earnings miss and slashed outlook; to cut 2,000 jobs Shares of 3M Co. tumbled 7.6% in premarket trade Thursday, after the diversified industrial, health and consumer products company reported first-quarter profit and sales that missed expectations, slashed its full-year guidance and said it would cut 2,000 jobs. Net income $891 million, or $1.51 a share, from $602 million, or 98 cents a share, in the same period a year ago. Excluding non-recurring items, such as litigation-related charges and the impact of tax reform, adjusted EPS slipped to $2.23 from $2.50, missing the FactSet consensus of $2.49. Sales declined 5% to $7.86 billion from $8.28 billion, below the FactSet consensus of $8.03 billion. Among its largest business segments, industrial sales fell 6.6% to $2.9 billion, below the FactSet consensus of $3.1 billion; safety and graphics sales dropped 4.2% to $1.7 billion, below expectations of $1.77 billion; and health care sales edged up 0.3% to $1.5 billion, compared with expectations of $1.55 billion. 3M said it has initiated restructuring actions, including reducing its workforce by 2,000 positions, in an effort to save $225 million to $250 million a year. For 2019, the company cut its adjusted EPS guidance range to $9.25 to $9.75 from $10.45 to $10.90. "We continued to face slowing conditions in key end markets which impacted both organic growth and margins, and our operational execution also fell short of the expectations we have for ourselves," said Chief Executive Mike Roman. The stock has gained 15% year to date through Wednesday while the Dow Jones Industrial Average has advanced 14%. Published:4/25/2019 5:51:58 AM
[Markets] Stocks Edge Lower as Growth Concerns Resurface, Offsetting Solid US Earnings Global stocks pare gains as weakening data, dovish central bank signals highlight world economic fragility and offset a surprisingly strong US corporate earnings season. Facebook and Microsoft keep tech sector in focus with stronger-than-expected first quarter earnings, setting up Nasdaq Composite for another record run. U.S. equity futures mixed, with S&P 500 gains and a modestly pullback for the Dow, ahead of earnings from Ford, 3M, American Airline and Bristol-Myers, with Amazon, Starbucks and Intel following after the close of trading later today. Published:4/25/2019 2:50:57 AM
[Markets] REIT ETF Routed With Biggest Outflow In History

Last week, with a delay of about two years, mall and shopping center stocks and REITs finally tumbled, led by Tanger Factory Outlet Centers, as Scotiabank warned about surging mall occupancy risks, while the 10-year Treasury yield reached its highest level since the March Fed meeting, an ominous development for most REITs.

In justifying its opinion, ScotiaBank calculated that the potential impact of bankruptcies to malls (SKT, MAC, SPG, TCO) was at least double that of shopping centers (REG, WRI, KIM, FRT, BRX) due to apparel exposure; meanwhile Tanger crashed to a nine-year low as the stock screened as having the greatest level of exposure to tenants with a bankruptcy risk in malls.

As a reminder, shorting malls via CMBX has long been dubbed the "next big short", one which even Goldman recommended to clients, while providing the handy cheat sheet which CMBX has the most sensitivity to what part of the commercial real estate sector.

And while investors have long been shorting the melting ice cube that is malls, via CMBX, that changed last week when REITs finally got routed: "About 60% of the ~40 retailer bankruptcies since 2017 were apparel-focused; only 4 of the total bankruptcies were listed as top REIT tenants, so we caution that our analysis may under-represent true bankruptcy risk,” ScotiaBank analyst Nicholas Yulico wrote.

Then this week, the rout finally spilled over to REIT ETFs, and in the first three days of the week, more than $475 million in funds was pulled from the $2.4 billion SPDR Dow Jones REIT ETF, or RWR, reducing the fund’s assets by about 15% according to Bloomberg. The bulk of outflows took place on Monday, when the fund lost $403 million, the most since 2004, in what appeared to be a delayed response to last week's REIT collapse.

And while the general aversion to REITs took place in response to a (delayed) realization that creeping mall defaults will sooner or later catch up with the equity tranche, another reason cited for the plunge has been the creeping push higher in interest rates, although considering the sharp rate drop in recent days, the REIT plunge was driven not by interest rate fears but by idiosyncratic factors such as mounting delinquencies and defaults.

Confirming as much, Bloomberg notes that REITs have other exogenous concerns, including potential impacts of retailer and mall bankruptcies. Curiously, despite the sudden and sharp outflow from the ETF, both RWR and the MSCI US REIT Index remain up about 14% year-to-date, as investor refuse to anticipate a worst case scenario.

Published:4/24/2019 10:18:50 PM
[Markets] The Dow Lost 59 Points Because Even Bulls Need a Break The Dow Jones Industrial Average fell 0.22% to close at 26,597.05. The S&P 500 lost 0.22% to end at 2927.27, and the Nasdaq Composite slipped 0.23% to close at 8102.01. Published:4/24/2019 4:22:14 PM
[Markets] EM FX Crashes As US Dollar & Bonds Soar, Stocks Snore

Earnings (dramatically weaker), macro (two-year lows), funding markets (IOER), bonds (yields tumbling), and FX (chaos) - but stocks are at record highs - so everything is awesome, right?

After two dismal days (and a rough morning session), The National Team steeped in to rescue Chinese stocks from their worst run this year...

 

Europe continues to be mixed with Germany leading and the periphery lagging...

 

Trannies and Small Caps managed gains today (another short-squeeze) as The Dow, S&P, and Nasdaq trod water...

Nasdaq 100's first losing day in 8 days.

Volume remains dismal...

Today is the 78th trading day of the year, SPY volume has exceeded 100MM only 10 days so far, 13% of all days. Through 78 trading days in 2018, SPY volume exceeded 100MM 39 times, 50% of all days.

 

And as the S&P hovers at its record highs, it seems not many of its components are playing along...

In fact:

And breadth remains notably weak in this last panic-bid...

As big tech valuations soared to near record highs, decoupling from the broader market...

 

A lot of which is thanks to the surge in Semis... as their earnings expectations have collapsed...

Don't forget: "Semis don't sell other semis" as the algos refuse to acknowledge TXN's warnings and bid SOX to a new record high.

Stocks and bonds decoupled dramatically today...

 

With the entire curve now lower on the week, led by the short-end...

 

With 30Y Yield tumbling to 10-day lows after tagging 2.999% yesterday...

 

The yield curve has hit a critical resistance level once again...

 

The Dollar Index extended gains today, pushing DXY to its strongest since May 2017...

 

After hovering around 97.00, DXY has burst higher in the last 5 days...

 

Yen tumbled below the recent 112.00 support level - to its weakest since 12/20/18..

 

Emerging Market FX plunged to its weakest since the start of the year...

 

Led by Argentina, South Africa, Turkey, and - rather shockingly - Aussie Dollar...

As the peso closed at a record low today...

 

Cryptos suffered two legs down overnight and weakened in the US session...

 

Silver and Gold managed gains today in the face of dollar strength as WTI slipped lower on inventory data...

 

Despite the dollar surge, gold also rallied on the day...

 

Finally, we note that as stocks hit a record high, positioning in risk-off assets (TSYs, Gold, and VIX) has not bought into the rally...

Trade accordingly.

Published:4/24/2019 3:18:22 PM
[Markets] Dow Jones Flat, Masks Bullish Gains By These Emerging Growth Stocks The Dow Jones Industrial Average, Nasdaq and S&P 500 all refused to give up recent nice gains. More top stocks showed bullish breakouts. Published:4/24/2019 2:16:32 PM
[Markets] Stocks Ease As Midcaps Surge And Caterpillar Bounces Off 50-Day Line Stock indexes traded moderately lower late Wednesday morning, as midcaps gripped the lead position. Caterpillar weighed on the Dow and the S&P 500 despite topping estimates on the top and bottom lines and raising its outlook for 2019 earnings. Published:4/24/2019 11:20:50 AM
[Markets] Caterpillar Turns Lower Despite Profit Topping Estimates on Wednesday reported better-than-expected first-quarter earnings on strong sales of its machinery and equipment, a sign that Chinese tariffs and a general economic slowdown aren't having as negative an impact as perceived. The Deerfield, Illinois-based component of the Dow Jones Industrial Average said it earned $1.88 billion, or $2.94 an adjusted share, compared with $1.66 billion, or $2.82 an adjusted share, in the comparable year-earlier quarter. The results from Caterpillar, an economic bellwether, add to signs that industrial earnings are holding up in the face of the U.S.-China trade war and worries that some end users may be reaching the peaks in their growth cycles. Published:4/24/2019 10:44:26 AM
[Markets] US STOCKS SNAPSHOT-Wall St opens flat after mixed earnings from industrials U.S. stocks opened little changed on Wednesday after a record-setting rally in the previous session, weighed down by mixed results from industrial bellwethers Boeing and Caterpillar. The Dow Jones Industrial ... Published:4/24/2019 8:44:12 AM
[Markets] Dow drifts lower at the open as record rally for the broader market peters out in early action U.S. stocks saw a subdued open Wednesday morning as investors appeared to take a breather after key equity indexes notched records a day earlier, with Wall Street digesting a barrage of quarterly results. The Dow Jones Industrial Average fell 24 points, or 0.1%, at 26,635. Dow component Boeing Co. said it would take an initial hit of more than $1 billion on the global grounding of the 737 MAX aircraft, in the aftermath two fatal crashes of the popular commercial jet. Meanwhile, the S&P 500 index was virtually unchanged at 2,932, the Nasdaq Composite Index edged up 0.1% at 8,125, after both indexes finished Tuesday's session at all-time highs. A number of earnings were featured earlier Wednesday, including from Boeing and industrial giant Caterpillar. After the close, investors await quarterly results from Microsoft Corp. and Facebook Inc. , among others, as earnings seasons picks up steam. Published:4/24/2019 8:44:12 AM
[Markets] Boeing's stock rise adds more to Dow than Caterpillar's stock decline erases The net effect of Boeing Co.'s stock rally and Caterpillar Co.'s stock selloff after the companies reported first-quarter earnings would be about a 10-point boost to the Dow Jones Industrial Average's price. Boeing's stock rose 1.3% in premarket trade, as the implied price gain would add about 32.5 points to the Dow; Caterpillar's stock fell 2.3%, as the implied price decline shaving about 22.6 points off the Dow. Dow futures rose 17 points. Published:4/24/2019 8:19:55 AM
[Markets] Caterpillar Rises as Profit Tops Estimates on Strong Machinery Sales on Wednesday reported better-than-expected first-quarter earnings on strong sales of its machinery and equipment, a sign that Chinese tariffs and a general economic slowdown aren't having as negative an impact as perceived. The Deerfield, Illinois-based component of the Dow Jones Industrial Average said it earned $1.88 billion, or $2.94 an adjusted share, compared with $1.66 billion, or $2.82 an adjusted share, in the comparable year-earlier quarter. Shares of Caterpillar gained a little more than 1% to $143.50 in premarket trading. Published:4/24/2019 7:16:09 AM
[Markets] Global Stocks Slip Despite Wall Street Records; European Tech Gains, Autos Drift Global stocks dip, following last night's record closes on Wall Street, as investors regroup for another wave of earnings on Wall Street. Global oil prices ease after the IEA says markets have "comfortable" spare capacity to fill any supply gap from Iran sanctions, with Energy Department data on U.S. stockpiles reporting later today. U.S. equity futures suggest modest declines on Wall Street ahead of earnings from Dow components Boeing, AT&T, Caterpillar and Visa, with Microsoft, Facebook and Tesla following after the close of trading later today. Published:4/24/2019 3:14:02 AM
[Markets] Stocks Slip on Tech, Auto Concerns as Wall Street Records Fail to Lift Markets Global stocks dip, following last night's record closes on Wall Street, as investors regroup for another wave of earnings on Wall Street. Global oil prices ease after the IEA says markets have "comfortable" spare capacity to fill any supply gap from Iran sanctions, with Energy Department data on U.S. stockpiles reporting later today. U.S. equity futures suggest modest declines on Wall Street ahead of earnings from Dow components Boeing, AT&T, Caterpillar and Visa, with Microsoft, Facebook and Tesla following after the close of trading later today. Published:4/24/2019 2:42:40 AM
[Markets] The S&P 500 and Nasdaq just closed at records, ending a monthslong drought The S&P 500 index and the Nasdaq Composite on Tuesday finished in record territory, notching all-time highs for the first time since fall and late summer, powered by gains in health-care and the consumer-discretionary sectors. The S&P 500 index finished up 0.9%, or 26 points, at 2,934 (on a preliminary basis), above its closing high at 2,930.75 put in on Sept. 20. The health-care sector, as reflected in the Health Care Select Sector SPDR ETF , rose about 1.6% on Tuesday. Consumer-discretionary shares, as gauged by the Consumer Discretionary Select Sector SPDR ETF , climbed 1%. The Nasdaq Composite Index finished up 1.3% at 8,120, closing above its Aug. 29 all-time closing high at 8,109.69. Meanwhile, the Dow Jones Industrial Average notched a 0.6% gain to end at 26,656, just off its Oct. 3 record at 26,828.39. The three main benchmarks have mounted a steady ascent since putting in their lows on Dec. 24, when equity indexes suffered heavy losses during a bruising fourth-quarter selloff that dragged the Nasdaq into bear-market territory, defined as a decline of at least 20% from a recent peak, and left the S&P 500 on the edge of ending its longest bull run ever. Strong earnings reports have to fuel Tuesday's advance, as shares of social-networking platform Twitter Inc. , and aerospace giant Lockheed Martin Corp. and United Technologies Corp. rallied after quarterly results on the session. Published:4/23/2019 3:40:33 PM
[Markets] US STOCKS SNAPSHOT-S&P, Nasdaq notch record closing highs on strong earnings The S&P 500 and the Nasdaq registered record closing highs after a broad-based rally on Tuesday as a clutch of better-than-expected earnings reports eased concerns about a slowdown. The Dow Jones Industrial ... Published:4/23/2019 3:10:13 PM
[Markets] Is This The Perfect Storm For Trump Haters?

Authored by John Merline via Issues & Insights,

At the start of the year, economists predicted an economic slump ahead. President Trump’s already low approval ratings were plunging. The Mueller report would threaten his presidency. And Democrats, we were told, would be driving the agenda for the next two years over a crippled presidency.

It’s four months later and, if anything, the opposite has occurred on every front.

The economy appears to be gaining strength. Trump’s approval rating is rising. The Mueller report was a dud. And House Democrats are fighting among themselves.

On the economy, the consensus earlier in the year was for the GDP to barely eke out a gain in the first quarter.

In January, the average growth estimate by economists surveyed by Wall Street Journal was a mere 1.8%. At the time, the Journal quoted Diane Swonk, chief economist at Grant Thornton, saying “the straws on the camel’s back are really piling up and the back’s beginning to bend.”

In February, the National Association of Realtors forecast Q1 growth at just 1.3%.

In March, Reuters reported that “The economy is losing speed as the stimulus from a $1.5 trillion tax cut package and increased government spending fades.”

Now, days before the government releases its first growth estimate for Q1, the mood has suddenly turned around. Bloomberg on Saturday reported that “The U.S. economy is set to show fresh signs of stabilizing and indeed even strengthening after its recent soft patch. Wall Street estimates are creeping higher with the consensus of economists surveyed by Bloomberg pointing to a 2.2 % advance.

The Federal Reserve Bank of Atlanta’s GDPNow estimate for Q1 is currently at 2.8%. A month ago, it was below 1%.

And just a few weeks after Reuters told everyone that the economy was losing speed, it reported that  strong retail sales were “the latest indication that economic growth picked up in the first quarter after a false start.”

Should the economy perform better than expected, it wouldn’t be the first time this has happened since Trump took office. Little of what’s happened over the past two years was supposed to occur, at least according to mainstream economists.

For working Americans, this is great news. But for Trump haters, it is terrible. After all, if the economy remains robust through this year, it will vastly increase the chances of a Trump reelection.

In fact, Goldman Sachs economists are now giving Trump a narrow advantage in the 2020 election.

Meanwhile, Trump’s approval rating hit 45% in the Gallup tracking poll. That’s tied with Barack Obama’s approval rating at the same point in his first term. And while Obama’s was heading down — it would be 40% by August of that year — Trump’s has been climbing.

The Real Clear Politics average approval rating has Trump at just shy of 44%, up from 40.8% in February.

Meanwhile, rather than push a winning legislative agenda, House Speaker Nancy Pelosi is at war with the growing far-left base of her party, trading barbs with Alexandria Ocasio-Cortez, and warning Democrats not to pursue a Trump impeachment, all while the left rallies behind ideas to socialize medicine (Medicare for All), socialize the economy (Green New Deal), and open borders.

Who could have predicted such developments? Probably any one not blinded by fear and loathing of Trump.

Published:4/23/2019 1:43:17 PM
[Markets] S&P 500 breaks above closing record for first time in about seven months as stock market climbs The S&P 500 index and the Nasdaq Composite on Tuesday were trading within record territory, last hit in in the fall and late summer, as a rebound in the health-care and gains in the consumer-discretionary sectors brought the benchmarks to the brink of all-time highs. At last check, the S&P 500 index was up 0.8%, or 23 points, at 2,931, just above its closing high at 2,930.75 put in on Sept. 20. The health-care sector, as reflected in the Health Care Select Sector SPDR ETF , was up 1% late-morning Tuesday. Consumer-discretionary shares, as gauged by the Consumer Discretionary Select Sector SPDR ETF climbed 0.8%. The Nasdaq Composite Index was up 1.2% at 8,107, about 2 points from its Aug. 29 all-time closing high at 8,109.69, according to FactSet data. Meanwhile, the Dow Jones Industrial Average was up 0.5% at 26,631, just off its Oct. 3 record at 26,828.39. The three main benchmarks have mounted a steady ascent since putting in their lows on Dec. 24. Published:4/23/2019 11:09:46 AM
[Markets] S&P 500 stands less than 5 points from its first closing record in more than seven months The S&P 500 index on Tuesday was within a hair's breadth of its closing record, last hit in September, as a rebound in the health-care sector and gains in the consumer-discretionary sector take the broad-market benchmark to the brink of an all-time high. At last check, the S&P 500 index was up 0.6%, or 20 points, at 2,928, just off its closing high at 2,930.75 put in on Sept. 20. The health-care sector, as reflected in the Health Care Select Sector SPDR ETF , was up 1% late-morning Tuesday. Consumer-discretionary shares, as gauged by the Consumer Discretionary Select Sector SPDR ETF climbed 0.8%. Meanwhile, the other main equity benchmarks also were within record territory. The Dow Jones Industrial Average was up 0.5% at 26,631, just off its Oct. 3 record at 26,828.39, while the Nasdaq Composite Index was up 1% at 8,095, less than 40 points from its Aug. 29 all-time closing high at 8,109.69, according to FactSet data. The three main benchmarks have mounted a steady ascent since putting in their lows on Dec. 24. Published:4/23/2019 10:37:57 AM
[Markets] Stocks open modestly higher as earnings of Dow companies take center stage Stocks open modestly higher as earnings of Dow companies take center stage Published:4/23/2019 9:10:17 AM
[Markets] Whirlpool Stock, Cigna Gain and 3 More Tuesday Morning Movers STOCKSTOWATCHTODAY BLOG Moving Up. Stocks are making another run at gains: Dow Jones Industrial Average futures were 0.2% higher in early trading, while the S&P 500 and Nasdaq Composite were up 0.1% ahead of the open. Published:4/23/2019 8:36:53 AM
[Markets] Upbeat earnings for select Dow components likely to spur 34-point boost at open Upbeat earnings for select Dow components likely to spur 34-point boost at open Published:4/23/2019 8:07:06 AM
[Markets] Dow's earnings reporters would give a 34-point boost to Dow's price Earnings reports are giving a healthy boost to the Dow Jones Industrial Average , as the premarket share price moves in components that reported first-quarter results were adding a combined net of about 34 points to the Dow's price. And Dow futures were up 74 points ahead of the open. Shares of Procter & Gamble Co. fell 1%, with the implied price decline shaving about 7 points off the Dow; Coca-Cola Co. rallied 3.1%, and would add about 10 points to the Dow; United Technologies Corp. climbed 3.4% and would add about 31 points to the Dow; and Verizon Communications Inc. was little changed, and would virtually no affect on the Dow. Published:4/23/2019 7:37:59 AM
[Markets] Stocks Sputter As Oil Surge Continues

In another quiet overnight session following Monday's lowest trading volume in nearly a year, stocks have been rangebound, with US equity futures trading in a narrow range (although solid beats by UTX and Coke will likely push stocks higher into the open), while the oil rampage continued, as Brent jumped to near six-month highs on Tuesday after the US tightened sanctions on Iran, sending shares of energy companies higher but failing to help the currencies of the main crude-oil producers.

Confirmation that the US had told buyers of Iranian oil to stop purchases by May 1 or face sanctions pushed Brent toward $75 a barrel, nearly $10 higher in the past month, and up 50% since December, and as Reuters put it, "made for a lively return from the four-day Easter break for Europe’s markets."

While oil and gas shares jumped nearly 2% for their best start in six weeks, almost every other sector suffered. So did bonds, as higher energy costs hung over profits and nudged up inflation expectations.

Overnight, MSCI’s index of Asia-Pacific shares ended 0.1% higher and Japan’s Nikkei closed up 0.2% as oil and gas gains were offset by losses for airlines and other transport shares facing higher fuel costs. China's Shanghai Composite slumped in the last hour of trading, closing near session lows amid growing concerns that the PBOC will end its aggressive easing after China reported some impressive economic numbers. Asian volumes were below average ahead of Japan’s Golden Week extended holiday which will see Japanese markets closed for nearly 2 weeks.

China’s blue-chip stocks have surged over 30% so far this year on expectations of more stimulus and hopes Beijing and Washington will reach an agreement to end their nine-month trade dispute.

“We’ve had a fantastic run in Chinese equities year-to-date. Some profit taking is completely normal. I don’t think China is changing its policy that quickly,” said Stefan Hofer, chief investment strategist at LGT Bank Asia in Hong Kong.

Following a muted Asian session, European stocks slipped as many markets reopened after a long weekend and as the earnings season ramps up. Banks led a drop across many sectors for the Stoxx Europe 600 Index, though energy companies outperformed thanks to the bounce in oil.

With little of note in equity markets, traders remained focused on oil prices which are up nearly 50 percent since late December, and before the re-imposition of sanctions last year Iran was the fourth-largest producer among the OPEC at around 3 million barrels per day. Oil prices are “not so high that it crushes manufacturing by putting energy-price inputs up, but it is producing a nice boost to oil-producing nations,” said ING economist Robert Carnell, although a few more dollars of oil upside and oil prices may get "too high."

Elsewhere, Sri Lankan stocks slumped and bonds fell for a second day after terror attacks on Easter Sunday killed more than 300 people.

In rates, Treasuries were steady with yields marginally lower and within a basis point of Monday’s close; as Bloomberg notes, upside was capped as bunds lag on light cash volumes. Focus is on supply as Treasury auction cycle begins with $40b 2-year note sale, followed by $41b 5-year Wednesday and $32b 7-year Thursday. The 10-year TSY yielded around 2.583%, richer by half basis point; German 10s cheaper by 3bp vs. Treasuries with the spread hovering around 254bp

In FX, volatility was still largely absent. The dollar held near a three-week high, but the usual beneficiaries of higher oil prices, the Canadian dollar and Norwegian crown, dipped to $1.33 and $8.52 respectively; ironically the biggest losers from higher oil prices - India and Turkey - did not see their currencies dip materially either.

Oil is interesting, but the interesting thing for FX is that we are not getting the usual feed-through in the petrocurrencies,” said Saxo bank’s head of FX strategy, John Hardy, adding that might be caused by questions about Chinese stimulus. Both the Canadian dollar and the crown had gained on Monday, and the Russian rouble, another petrocurrency, hit its highest against the euro in more than a year its highest against the dollar in a month.

Emerging-market currencies and shares were mostly steady. The pound advanced against major peers as Prime Minister Theresa May foughtto keep her job.

Investor attention remains focused on earnings season which is about to see an avalanche of Q1 filings as one third of the S&P is set to report: “Some of the world’s biggest technology companies are reporting earnings this week as well as a raft of the big European banks,” Rakuten's Nick Twidale said in a note to clients Tuesday. "Investors will be hoping for some better-than-expected results from both groups to keep the topside momentum in global equities. If the data starts to show a significant slowing across these key industries then expect both stocks and risk trades to start to come under some heavy pressure.”

Expected data include new home sales. Coca-Cola, Harley-Davidson, Lockheed Martin, P&G, Twitter, Verizon, and Snap are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures little changed at 2,911.00
  • STOXX Europe 600 down 0.2% to 389.76
  • MXAP up 0.2% to 163.06
  • MXAPJ up 0.1% to 542.39
  • Nikkei up 0.2% to 22,259.74
  • Topix up 0.3% to 1,622.97
  • Hang Seng Index unchanged at 29,963.24
  • Shanghai Composite down 0.5% to 3,198.59
  • Sensex up 0.3% to 38,773.63
  • Australia S&P/ASX 200 up 1% to 6,319.42
  • Kospi up 0.2% to 2,220.51
  • German 10Y yield rose 2.3 bps to 0.048%
  • Euro down 0.05% to $1.1251
  • Italian 10Y yield fell 1.0 bps to 2.231%
  • Spanish 10Y yield rose 2.2 bps to 1.093%
  • Brent futures up 0.5% to $74.42/bbl
  • Gold spot down 0.1% to $1,273.76
  • U.S. Dollar Index little changed at 97.32

Top Overnight News

  • Oil extended gains after leaping to a six-month high on Monday after U.S. Secretary of State Mike Pompeo said any nation that continues to buy Iranian oil will face American sanctions. Futures in London added as much as 0.8 percent Tuesday.
  • U.K. Prime Minister Theresa May is fighting to keep her job so she can complete her task of taking Britain out of the European Union -- but her hopes of success now rest with her arch rival and opposition leader Jeremy Corbyn
  • Benoit Coeure, the European Central Bank Executive Board member in charge of markets, said he doesn’t see any reason to dilute the effect of negative interest rates on banks and signaled a new long-term loan series may be less generous than the previous round
  • China’s securities watchdog moved to curb cut-throat pricing competition among local debt arrangers looking to gain a bigger share in the world’s third-largest bond market
  • The new indictment accusing Carlos Ghosn of redirecting $5 million from Nissan Motor Co. to his personal accounts not only may extend his time in detention, it also threatens to undermine his argument that he’s a victim of corporate intrigue

Asian equity markets traded mixed as sentiment somewhat deteriorated from the mostly positive close in the US, where the energy sector surged after the US decided to end Iranian oil sanction waivers but with gains in the broader market capped ahead of this week’s heavy slate of earnings. ASX 200 (+0.9%) was led higher by the energy sector after crude prices rallied around 3% to 6-month highs and NZX 50 (+0.5%) topped the 10K level for the first time ever, while Nikkei 225 (+0.2%) barely held on to early gains and stumbled from the weight of a firmer currency. Hang Seng (U/C) and Shanghai Comp. (-0.5%) were subdued after PBoC inaction resulted to a net liquidity drain of CNY 40bln which pushed the Overnight SHIBOR higher by over 27bps and with Hong Kong tentative amid resistance ahead of the 30K level and as its reflected on the recent mainland underperformance on return from its 4-day closure. Finally, 10yr JGBs were relatively flat after having recovered from earlier weakness as risk sentiment in Tokyo soured, while weaker results at today’s 2yr JGB auction also ensured price action was drab.

Top Asian News

  • Maeda Says BOJ Will Consider Further Easing If Momentum Slows
  • Singapore’s Pre-Election Cabinet Change Sets Heng Up for Top Job
  • Fosun Could Only Buy Thomas Cook’s Tour Business: Citi
  • Cash-Flow King for Templeton Seeing More Riches in China Stocks

Major European Indices are slightly subdued [Euro Stoxx 50 -0.2%], after being essentially unchanged for much of the session, with stocks largely following on from the indecisive sentiment seen overnight in Asia as participants return from the Easter weekend. Sectors are similarly mixed, although the significant outperformance in energy names continues following on from the lifting of Iranian waivers; as such Shell (+2.0%) are firmly in the green with the Co. also aided by the agreement to sell their 50% stake in SAREF to Saudi Aramco for USD 631mln. Due to the strong performance in Shell, alongside the Co. representing 11.3% of the FTSE 100 due to it having two listings in the form of A and B shares, the FTSE 100 (+0.4%) is outperforming its peers. Other notable movers this morning include Umicore (-15.4%) who are underperforming the Stoxx 600 following the Co. warning that 2020 revenue and earnings growth will be below expectations. Separately, Wirecard (-2.9%) are down after the expiration of BaFin’s short selling ban on Friday April 19th. Elsewhere, Thomas Cook (+16.3%) are soaring after reports that the Co. has received approaches for sections/entirety of the Co., with names such as Forsum International, KKR and EQT citied as potential bidders.

Top European News

  • BlueMountain’s Europe CEO Church Is Said to Be Joining Och- Ziff
  • Partners Group Buys Norwegian Gas Pipeline Owner CapeOmega
  • Thomas Cook Up Most in 4 Months on Report of Buyout Interest
  • Ahold Falls as Stop & Shop Strikes Will Cut Grocer’s Earnings

In FX, the dollar index remains firm and comfortably above the 97.000 handle within a 97.281-402 range amidst Greenback gains vs most major counterparts and EM rivals as the latest rally in oil prices continues to undermine crude importers and risk sentiment more broadly to the detriment of high beta currencies. However, the DXY still needs to overcome early April highs at 95.517 to expose ytd peaks posted in the previous month and virtually matching late 2018 levels just above 97.700.

  • CHF/AUD/NZD/NOK/SEK - The G10 laggards and largest losers against the buoyant Buck, as the Franc extends its decline further towards 1.0200 and through 1.1450 vs a relatively resilient Euro, while the Aussie and Kiwi hover closer to the bottom of 0.7140-10 and 0.6685-57 ranges vs their US peer on more dovish RBA and RBNZ policy leanings compared to the Fed. On that note, the Aud will be eyeing Q1 inflation data overnight amidst the consensus for a slowdown in q/q and y/y CPI rates with caution given latest RBA minutes revealing discussions about the conditions that may warrant a lower OCR including weaker price developments along with any deterioration in the labour market. Elsewhere, even the Nok is underperforming alongside the Sek as the Scandi Crowns fall victim to overall aversion rather than gleaning more support from the aforementioned advance in oil, as the former retreats to circa 9.5900 and latter to around 10.5000 vs the Eur.
  • GBP/JPY/EUR/CAD - All narrowly mixed vs the Usd, as Cable recovers from pre-Easter lows to retest the 1.3000 level after holding above the 200 DMA (1.2966) and shrugging off heightened pressure on UK PM May as Parliament returns from its recess. Meanwhile, Usd/Jpy remains capped just ahead of 112.00 within a 111.97-66 range and decent option expiry interest between 111.50-65 and 111.90-112.00 (1.1 bn either side). Note also, reported Japanese import and investor bids above 111.50 and the 200 DMA (111.51) may be curtailing a more concerted pull-back. Expiries could be impacting Eur/Usd as well given 2.3 bn rolling off from 1.1250 to 1.1260, while the Loonie is pivoting 1.3350 in the run up to Wednesday’s BoC policy meeting and press conference from Poloz and Wilkins – full preview of the event available on the Research Suite (along with a BoJ primer for Thursday).
  • EM - Most regional currencies are on the back foot vs the Dollar, as noted above, but the Rand is also factoring in renewed concerns about SA’s Eskom in wake of reports that the Government had to bail out the company to the tune of Zar 5bn to avert non-payment and a call on state guarantees – Usd/Zar currently at 14.1900+ vs sub-14.1500 at one stage.

In  commodities, Brent (+0.6%) and WTI (+0.8%) prices are in the green, as the oil complex extends on yesterdays gains following the US announcing that they are not going to extend waivers for Iranian oil, which expire on May 2nd. For reference, Iranian exports averaged 1.3mln BPD in March as such if the US are successful in their goal of reducing Iran’s exports to zero then this would result in a significant supply reduction; although, some analysts believe that the complete elimination of exports is unlikely. RBC state that they believe around 700-800K BPD to be removed from the market in the short term as a result of the waiver elimination. Saudi Energy Minister Al Falih stated that Saudi Arabia will cooperate with other oil suppliers in order to ensure that there is sufficient supply and that the market will not go out of balance. In light of the US’ announcement to not extend waivers Barclays sees upside risks of at a minimum USD 5/bbl for the USD 70/bbl Brent 2019 forecast if their exports drop to zero; however, Goldman Sachs state that the price impact will be limited and reiterates their 2019 Brent range of USD 70-75/bbl. Looking ahead, we have the API weekly crude release where the expectations are for crude stocks to build by around 0.5mln barrels. Gold (-0.1%) is largely unchanged and trading within a narrow USD 4/oz range, largely in line with major stock indices and the generally indecisive risk tone as markets return from the extended Easter weekend. Elsewhere, the majority of steel mills in China’s Tangshan, Hebei province have been asked to cut around 40% of their sintering capacity due to the expected increase in pollution levels over the coming week.

Looking at the day ahead, we get housing data in the form of the FHFA house price index reading for February and March new home sales. We’ve also got the April Richmond Fed manufacturing index print due out. Away from that we’re due to hear comments from Larry Kudlow in Washington while the earnings highlights are Proctor & Gamble, Verizon, Coca-Cola, eBay and United Technologies.

US Event Calendar

  • 9am: FHFA House Price Index MoM, est. 0.5%, prior 0.6%
  • 10am: Richmond Fed Manufact. Index, est. 10, prior 10
  • 10am: New Home Sales, est. 649,000, prior 667,000; MoM, est. -2.7%, prior 4.9%

DB's Craig Nicol concludes the overnight wrap

Hope you all enjoyed the long weekend. Here in the UK, we even managed to dust off the barbecues such was the unseasonably hot weather. Mind you Jim probably didn’t feel quite so thrilled with it given that he’s in box moving and unpacking mode right now. The good news for him is that the temperature is expected to drop over the rest of this week while for markets there’s probably just enough in the week ahead to keep us distracted.

Indeed, in all likelihood earnings will probably dictate the direction of travel for now especially with a number of tech heavyweights due to report including eBay, Amazon, Facebook, Twitter and Microsoft.Last week saw the NASDAQ 100 hit a fresh all-time high with the broader NASDAQ one decent session away from its own record high, so this week should be a reasonable test as to whether or not we can hold those levels. More broadly, in total we’ve got 148 more S&P 500 companies reporting this week and the stats after 86 companies having reported so far is 67 beating on earnings, which is above the five-year average, but just 41 on revenues, which is below the five-year average. Not to be left out, it’s worth noting that this week will also see a number of European Banks report their latest quarterlies.

Outside of that we’ve also got a few high-profile meetings between politicians over the next few days.Markets will likely be most fixated by Trump’s meeting with Abe at the White House from Friday with trade talks likely to be high up on the agenda list. Before that, Abe is due to meet Tusk and Juncker on Thursday while also on the cards this week is a possible meeting between Putin and Kim Jong Un tomorrow. Oh, and UK politicians return from their Easter recess today. So that only means one thing for the prospect of Brexit headlines. The last 10 days was fun while it lasted.

Also worth flagging this week is the BoJ meeting on Thursday where no change in policy is expected, however the meeting does include the BoJ’s latest quarterly report. Finally, it’s fairly quiet for data releases however the Q1 advance GDP reading for the US is by some distance the highlight. In terms of what to expect, at the expense of Q2 growth and the recent strong retail sales data, our US economists recently revised up their forecast to 2.6% for Q1 which is ahead of the market consensus for 2.2%. That data is due out on Friday.

Ahead of all that Wall Street was open for business yesterday however it wasn’t a particularly exciting session with the S&P 500 and NASDAQ advancing +0.10% and +0.22% respectively, while the DOW retreated -0.18%. With volumes also 25% below average, the range on the S&P 500 was in fact just 0.45%. That makes 14 straight sessions with no intraday ranges of +/-1%, the longest streak since October.

The good news is that there was one big mover and shaker yesterday and that was oil where WTI rose +2.31% to a fresh 6-month high of $65.55/bbl. The catalyst was the surprise move by the US to end their waivers on Iran sanctions.These waivers had allowed eight countries to continue importing oil from Iran despite the Trump administration’s withdrawal from the nuclear accord last year, and their termination will likely result in further reductions to Iran’s exports. The US said that other countries would compensate for the fall in Iranian supply to leave the global market balanced. However, the risk of disruptions injected a risk premium into oil markets. In an immediate response, an Iranian military official said that they would close the Strait of Hormuz in retaliation if the US completely blocks their exports. The 5y Treasury breakeven was +1.5bps higher off the back of that move while 10y Treasuries more broadly speaking were +2.9bps higher. The energy sector also led gains for the S&P, closing up +2.05%, while HY energy spreads were -3bps tighter, in contrast to a moderate widening for the broader HY index. The currencies that gained the most included oil-exporters like the Russian Ruble (+0.40%) and Canadian Dollar (+0.33%), while oil importing EMs were hit negatively, with the Indian rupee (-0.46%) and South Korean won pacing losses (-0.41%).

This morning in Asia it’s been just as muted for equity markets with the Nikkei (-0.06%), Hang Seng (-0.08%), CSI 300 (-0.03%) and Kospi (+0.06%) all struggling for direction in thin trading conditions once again. Oil has held onto the gains from yesterday while US equity futures are flat.

As for other news yesterday, the data calendar was light with only a few releases in the US. The Chicago Fed’s National Activity Index rose to -0.15 from -0.31, though lower than the expected -0.10. A negative reading points to lower-than-average growth, not necessarily economic contraction. Existing home sales fell more than expected, at 5.21 million versus consensus expectations for 5.30 million, a -4.9% mom drop. That’s the sharpest monthly percentage drop since 2015 and the second sharpest since 2011. US homebuilder stocks fell -1.39% in response.

Elsewhere, President Trump announced via twitter that he will not proceed with nominating Herman Cain to the Federal Reserve Board.That came as media outlets reported fresh scrutiny of his other pick, Stephen Moore. His nomination is still reportedly on track though not officially submitted.

Finally, in terms of the day ahead, the only data release due out in Europe is the April consumer confidence reading for the Euro Area this afternoon. In the US we’ve got more housing data in the form of the FHFA house price index reading for February and March new home sales. We’ve also got the April Richmond Fed manufacturing index print due out. Away from that we’re due to hear comments from Larry Kudlow in Washington while the earnings highlights are Proctor & Gamble, Verizon, Coca-Cola, eBay and United Technologies.

Published:4/23/2019 6:41:39 AM
[Markets] Dow Jones Gets Boost From These 3 Key Stocks, But Still Slips Stocks finished mixed after the long weekend as the Nasdaq led but the Dow Jones Industrial Average lagged among the major indexes. Published:4/22/2019 3:38:41 PM
[Markets] Oil Jumps, Small Caps Dump On Lowest Volume Day Of The Year

The gap between global money-supply-fueled equity exuberance and macro- and micro-economic data has never been greater...

Nothing to see here.. move along...

 

With Europe away, volumes were the lightest of the year as China tumbled...

 

US Small Caps were the biggest laggard today and Nasdaq led, barely closing green...a buying-panic began at 1530ET which made things look a little better...

NOTE - it seems the machines forgot that EU was closed as they rallied the market into the "EU Close".

This is the 9th straight session of oscillating gains and losses for The Dow.

 

Small Caps have now underperformed Mega Caps for seven straight trading days...

 

But 2900 is all that matters for the S&P 500 traders...

(last 6 days closes for the S&P 500 - 2907, 2906, 2907, 2900, 2905, 2906)

 

Treasury yields were higher on the day, despite equity weakness (long-end underperformed)...

 

30Y remains below 3.00%...

 

The yield curve steepened further...

 

The Dollar flatlined for the second day as most of the world remained on Easter holiday...

 

Bitcoin is holding gains after some notable selling across cryptos on Saturday...

 

PMs trod water along with the dollar but crude spiked as copper was dumped...

 

WTI soared overnight - smashing through a significant technical level - on the back of Trump Iran waiver headlines...

But tried and failed to break $66 twice...

 

Finally, this morning's dismal housing data sent US Macro Surprise Index to its lowest since June 2017...

Because nothing says record high stocks like the worst macro economy in two years and worst relative to the world.

We're gonna need more cowbell (but no more cows)...

AOC will not be happy!!

Published:4/22/2019 3:10:47 PM
[Markets] S&P 500, Nasdaq finish higher as oil jumps; Boeing weighs on Dow S&P 500, Nasdaq finish higher as oil jumps; Boeing weighs on Dow Published:4/22/2019 3:10:47 PM
[Markets] Tesla Stock Falls, Halliburton Gains, and 3 More Monday Morning Movers Shares of Fastenal, Intuitive Surgical, and Lam Research were getting attention, while the Dow was poised to open lower. Published:4/22/2019 8:31:09 AM
[Markets] KeyW's stock soars after Jacobs Engineering buyout deal at 43% premium Shares of KeyW Holding Corp. shot up 42% to pace all premarket gainers Monday, after the engineering and technology company announced a deal to be acquired by Jacobs Engineering Group Inc. in a deal valued at $815 million, including $272 million in debt. jacobs' stock was still inactive. Under terms of the deal, Jacobs will pay $11.25 in cash for each KeyW share outstanding, which is 43% above Friday's closing price, and a level the stock hasn't seen during regular-session hours since January 2017, and implies a market capitalization of $563.2 million for KeyW. The deal is expected to close by the end of August. Jacobs expects the deal to add 25 cents to 30 cents to fiscal 2020 adjusted EPS, with annual run-rate cost savings expected to be about $15 million. Over the past 12 months, KeyW shares have lost 2.4% and Jacobs' stock has climbed 28%, while the Dow Jones Industrial Average has advanced 8.6%. Published:4/22/2019 6:30:43 AM
[Markets] Dow Jones Futures: Stock Market Rally Questions For Boeing, Facebook, Intel, Microsoft, Xilinx Dow Jones futures: Earnings reports will tackle key stock market questions this week. Can chips keep running and software rally? Will Facebook grow? How costly is the Boeing 737 Max mess? Published:4/21/2019 5:27:11 PM
[Markets] Dow Jones Futures: Five Key Stock Market Rally Questions Dow Jones futures: Earnings reports will tackle key stock market questions this week. Can chips keep running and software rally? Will Facebook grow? How costly is the Boeing 737 Max mess? Published:4/21/2019 5:27:11 PM
[Markets] The Stock Market Is Risky. Here’s What You Can Do About It. The stock market is risky—even when it is going in the right direction. Investors were reminded of that during the fourth quarter of 2018, when the Dow Jones Industrial Average and S&P 500 nearly suffered full-blown bear markets. Portfolio managers measure the “value at risk” of their portfolios, using recent volatility to calculate the loses they might sustain in a pullback. Published:4/20/2019 6:53:44 AM
[Markets] Stocks End Up on Strong Retail Sales Report and Mostly Positive Earnings The Dow Jones Industrial Average got a lift from a strong U.S. retail sales report and mostly better-than-expected earnings. nearly 2% after the credit card company posted stronger-than-expected first-quarter earnings, but rising expenses and rewards program costs ate into its bottom line. Stocks ended in positive territory Thursday buoyed by a strong U.S. retail sales report and mostly better-than-expected earnings. Published:4/19/2019 9:44:14 AM
[Markets] The Stock Market Did Nearly Nothing This Week. Why That’s a Good Thing. For investors, though, it’s a dream come true. The Dow Jones Industrial Average gained 147.24 points, or 0.6%, to close at 26,559.54, while the S&P 500 dipped 0.1% to 2905.03, and the Nasdaq Composite advanced 0.2% to 7998.06. Fears of a looming recession induced panic-selling in December and left investors wondering what had happened. Published:4/19/2019 9:22:36 AM
[Markets] Stocks Stay Steady for the Week as Nothing Much Happens — and That’s a Good Thing For investors, though, it’s a dream come true. The Dow Jones Industrial Average gained 147.24 points, or 0.6%, to close at 26,559.54, while the S&P 500 dipped 0.1% to 2905.03, and the Nasdaq Composite advanced 0.2% to 7998.06. Fears of a looming recession induced panic-selling in December and left investors wondering what had happened. Published:4/19/2019 4:41:26 AM
[Markets] Dow finishes up over 100 points as investors digest deluge of earnings Dow finishes up over 100 points as investors digest deluge of earnings Published:4/18/2019 3:39:28 PM
[Markets] Dow Jones Keeps To Upside, As 3 Blue Chips Post Solid Gains Dow Jones stock Travelers beat the Street's consensus estimates on revenue and earnings. American Express topped estimates on earnings but missed on sales. Published:4/18/2019 11:07:07 AM
[Markets] Health-care stocks keep getting hammered — Wall Street says this is why Four of the Dow Jones Industrial Average’s 10 biggest losers on Wednesday were health companies, including UnitedHealth Group Inc., Merck & Co. , Pfizer Inc. and Walgreens Boots Alliance Inc. Published:4/18/2019 6:36:37 AM
[Markets] Honeywell's stock surges after earnings and sales beat, raised outlook Shares of Honeywell International Inc. surged 1.9% in premarket trade Thursday, after the aerospace, building technologies and materials company reported first-quarter earnings and sales that beat expectations, and raised its full-year outlook. Net income was $1.42 billion, or $1.92 a share, compared with $1.44 billion, or $1.89 a share, in the same period a year ago. Excluding non-recurring items and spinoffs, adjusted EPS rose to $1.92 from $1.70, beating the FactSet consensus of $1.83. Sales fell to $8.88 billion from $10.39 billion, but was above the FactSet consensus of $8.63 billion. Within business segments, aerospace sales fell 16% to $3.34 billion, but beat the FactSet consensus of $3.24 billion. Building technologies and safety and productivity solutions also topped expectations while performance materials and technologies sales matched. For 2019, the company raised its EPS outlook to $7.90 to $8.15 from $7.80 to $8.10 and its sales guidance to $36.5 billion to $37.2 billion from $36.0 billion to $36.9 billion. The stock has rallied 24% year to date through Wednesday while the Dow Jones Industrial Average has gained 13%. Published:4/18/2019 6:04:43 AM
[Markets] JPMorgan's Lake steps down as CFO effective May 1, will head consumer-lending platform JPMorgan Chase & Co.'s CFO Marianne Lake is scheduled to step down as the bank's top financial officer after about seven years in the role, effective May 1, the bank said in an internal memo Wednesday afternoon. She will become head of all of the company's consumer-lending operations. The 49-year-old executive will be replaced as CFO by Jennifer Piepszak, JPMorgan's current CEO of card services. Lake was appointed CFO and member of the bank's operating committee back in 2012, and has been viewed by industry watchers (and still is) as a possible successor to CEO Jamie Dimon, when he steps down. Dimon said of the planned change: "We're extremely fortunate that she will be heading a major group of businesses that is core to how we serve millions of Chase customers." Lake will remain a member of the bank's operating committee and become CEO of consumer lending, which will include the bank's credit card, home and auto loan businesses. Meanwhile, Piepszak, 49, is a more than 20-year veteran at JPMorgan Chase. Shares of JPMorgan, the nation's largest bank by market cap, finished Wednesday's session up 2.8% and have gained 17.1% so far this year, with that rise aided by better-than-expected results from the bank last week. JPMorgan's stock performance has thus far outperformed the broad-market S&P 500 index , which is up 15.7% year to date, and the Dow Jones Industrial Average, where it is a component, which has returned 13.4% over the same period. Corrections and amplifications: Fixes the ages of both Piepszak and Lake, which was incorrectly stated in an earlier version. Both executives are 49 years old. Published:4/17/2019 6:01:29 PM
[Markets] Dow transports soar to buck broader stock market slump, led by CSX and United Continental The Dow Jones Transportation Average soared 120 points, or 1.1%, in midday trade, as better-than-expected earnings reports helped the transportation sector tracker buck the weakness in the broader stock market. The Dow transports was led higher by earnings reporters, as shares of railroad operator CSX Corp. shot up 4.6%, airline United Continental Holdings Inc. rallied 4.3% and Kansas City Southern hiked up 4.0%, after those companies all reported earnings that beat expectations. The stock price gains were adding a combined 73 points to the Dow transports' price. Meanwhile, the Dow Jones Industrial Average shed 52 points, or 0.2%, the S&P 500 gave up 0.3% and the Nasdaq Composite slipped 0.2%. Published:4/17/2019 11:33:57 AM
[Markets] The Dow transports are soaring, bucking a broader slump in stocks Wednesday The Dow transports are soaring, bucking a broader slump in stocks Wednesday Published:4/17/2019 11:33:57 AM
[Markets] Stocks open mostly higher, but IBM, UnitedHealth weigh on Dow Stocks open mostly higher, but IBM, UnitedHealth weigh on Dow Published:4/17/2019 9:03:16 AM
[Markets] Dow Futures Gain 30 Points as Earnings Remain Good Enough to Lift the Market STOCKSTOWATCHTODAY BLOG 6:38 a.m. The Dow Jones Industrial Average looks set to continue its slow rise toward new highs as earnings season continues. Dow futures have advanced 30 points, or 0.1%, while S&P 500 futures have risen 0. Published:4/17/2019 6:59:12 AM
[Markets] Honeywell Reports Earnings Tomorrow. Here’s What To Expect. Industrial conglomerate Honeywell is beating the market and beating its industrial peers in 2019. Its shares are up 22% year to date, better than the 13% gain in the Dow and the 20% gain in other industrial shares. Published:4/17/2019 5:28:34 AM
[Markets] U.S. stocks eke out gains but UnitedHealth's stock slump weighs on health-care sector U.S. stock indexes on Tuesday managed slight gains, led by a sharp advance in the financials sector, but limited by declines among some of the nation's largest health-care providers. The Dow Jones Industrial Average advanced 68 points, or 0.3%, at 26,452.45 (on a preliminary basis), the S&P 500 index edged up less than 0.1% to 2,907, as the Health Care Select Sector SPDR ETF, as measured by the health-care focused exchange-traded fund, declined by 2.1%, while the financial sector ETF, the Financial Select Sector SPDR ETF, climbed 1.4%, to lead the broad-market. UnitedHealth Group Inc. was in particular focus after Sen. Bernie Sanders called out the compensation of the CEO of the company's health-care unit UnitedHealthcare in a tweet. Shares ended down 4.1%, delivering a headwind to the Dow of which it is a component. Published:4/16/2019 3:26:22 PM
[Markets] Dow gets a lift from report that Boeing 737 Max software upgrade found 'operationally suitable' The Dow Jones Industrial Average gained some altitude Tuesday afternoon after a Reuters report said the Federal Aviation Administration's review board found an upgrade to software on the embattled 737 Max aircrafts "operationally suitable." Reuters cited a draft report from the FAA. Shares of Boeing a key Dow component, at last check, was rising 2.1%, or $7.69, delivering a jolt to the price-weighted blue-chip index. The gains for Boeing's stock equate to a rise of more than 50 points for the Dow industrials , which were currently up 0.3% at 26,456. A $1 move in any Dow component translates to a 6.8-point swing. Boeing's 737 MAX jets have been in focus after a pair of those jets suffered fatal crashes within six months of one each other, raising questions about anti-stall technology featured on those 2017-era aircraft. Published:4/16/2019 1:54:23 PM
[Markets] Stocks Jumps On Fresh China, Earnings Optimism As Volatility Disappears

Despite no reports of "China trade deal optimism" overnight, global markets are a sea of green this morning on optimism this time about China's economy itself, which is set to report its GDP tomorrow, coupled with renewed confidence that the equity rally will be supported by stronger than expected corporate earnings. The dollar edged up while Treasuries fluctuated around unchanged.

The MSCI world equity index, which tracks shares in 47 countries, edged up 0.1 percent in early European trade.  Europe's Stoxx 600 Index rose for a fifth day, now within inches of 8 month highs, driven higher by banks and retail shares. Germany’s DAX gained over half a percent, while Britain’s FTSE 100 also strengthened. The recent rally comes as a blanket of calm has descended across financial markets, with European stock volatility falling to its lowest since January 2018.

Across the Atlantic, S&P 500 futures pointed to a sharply higher open, one which puts the S&P's all time high within reach as better than expected earnings coming from both Bank of America and BlackRock. In Asia, shares in China and Hong Kong outperformed markets in Japan and South Korea. Emerging-market stocks climbed, though the currencies weakened. The yen inched higher.

While there was no immediate catalyst for the overnight optimism, Bloomberg notes that investors are spending the holiday-shortened week "assessing the chances that stocks will sustain their rally even as similar gains in investment-grade bonds have ebbed since late March. Optimism over earnings appears to be boosting bullish sentiment in equities, though volumes this week have been muted."

Natixis Cross Asset Strategist Florent Pochon echoes this take, saying that investors were mainly focused on U.S. earnings, especially after the first flurry of bank results made for mixed reading: “After the strong rally we have seen in equities, people are now waiting for the next catalyst,” Pochan said. “We do expect some more positive data from Europe which should give a bit of fresh air (to European assets)”

All eyes are now on a slew of Chinese data due on Wednesday, including industrial production and retail sales data but most important will be the latest quarterly GDP data which is expected to post another decline to 6.3% Y/Y. After a worrying start to the year, Chinese data have been more positive as authorities ramped up stimulus measures, soothing investor fears about a slowdown in the world’s second-biggest economy.

“The outlook for Asia critically hinges on the outlook of China’s growth and the ongoing U.S.-China trade talks,” wrote strategists at Bank of America Merrill Lynch. “On both fronts, policymakers and investors believe that the outcome of these two issues is turning more positive.”

Currency markets were generally quiet, although the Australian dollar took a dive lower after the Reserve Bank of Australia signaled in policy minutes that an interest rate cut would be appropriate should inflation stay low and unemployment trend higher. The Aussie shed 0.4 percent to $0.7140.

Elsewhere, an otherwise lackluster European trading session saw a brief flurry of activity as news that some ECB policy makers remained doubtful about the region’s growth prospects sent the euro lower, only to rebound after a separate report indicated ECB officials are reportedly lacking enthusiasm for sub-zero tiering, whilst there has been no talks to cut the deposit rate.

The dollar gained for a second day amid thin volumes ahead of U.S. industrial production data. The Aussie slid after RBA minutes showed policy makers discussed cutting rates, while the Canadian dollar slipped alongside oil prices as equities rose.

In commodities, after a rally to five-month highs this month, crude oil paused on the prospect of Russia and OPEC boosting production to fight for market share with the United States. U.S. West Texas Intermediate was flat at $63.46 per barrel after losing nearly 0.8 percent the previous day. Oil has been surging on tightening global supplies, as output has fallen in Iran and Venezuela amid signs the United States will toughen sanctions on those two OPEC producers, and on the threat that renewed fighting could stop production in Libya.

Industrial production is among scheduled economic releases. Companies reporting earnings include Johnson & Johnson, Bank of America, UnitedHealth and Netflix.

Market Snapshot

  • S&P 500 futures up 0.3% to 2,918.25
  • STOXX Europe 600 up 0.3% to 389.38
  • MXAP up 0.3% to 163.45
  • MXAPJ up 0.4% to 544.55
  • Nikkei up 0.2% to 22,221.66
  • Topix down 0.09% to 1,626.46
  • Hang Seng Index up 1.1% to 30,129.87
  • Shanghai Composite up 2.4% to 3,253.60
  • Sensex up 1.1% to 39,326.02
  • Australia S&P/ASX 200 up 0.4% to 6,277.45
  • Kospi up 0.3% to 2,248.63
  • German 10Y yield rose 1.0 bps to 0.066%
  • Euro up 0.04% to $1.1309
  • Brent Futures down 0.5% to $70.83/bbl
  • Italian 10Y yield rose 3.6 bps to 2.207%
  • Spanish 10Y yield rose 1.3 bps to 1.097%
  • Brent Futures down 0.5% to $70.83/bbl
  • Gold spot down 0.3% to $1,284.72
  • U.S. Dollar Index down 0.03% to 96.91

Top Overnight News from Bloomberg

  • The U.K. labor market remained robust in the three months through February as employment jumped and wage growth far outpaced inflation. The number of people in work rose by 179,000 to a record high, keeping unemployment at 3.9%, the lowest rate since 1975, the Office for National Statistics said on Tuesday.
  • German ZEW Expectations for April, a gauge of investor confidence, beat estimates.
  • Congressional Democrats issued subpoenas to Deutsche Bank AG and other banks to obtain long- sought documents indicating whether foreign nations tried to influence U.S. politics, signaling an escalation of their probes into President Donald Trump’s finances and any dealings with Russians.
  • Currency-only hedge funds were once a hot corner of the investment world. From 2000 to 2008 the tally of currency funds tracked by the BarclayHedge Currency Traders Index almost tripled, to 145. Now they’re looking more like an endangered species, with just 49 in operation.
  • The People’s Bank of China shifted its tone on the economy, emphasizing that it will control excessive money supply amid signs of a recovery. It said it’ll keep good control of the money supply "floodgate" and not "flood" the economy with excessive liquidity, according to a statement released late Monday.
  • Banco Santander SA has reassured investors in the riskiest type of bank debt with its decision to call $1.5 billion of its perpetual contingent convertible notes. Spain’s biggest lender said it will buy back the popular type of debt, known simply as CoCos.

Asian equity markets were mostly higher after the region eventually shrugged off the lacklustre lead from the US where mixed earnings from the large banks dampened risk appetite. ASX 200 (+0.4%) and Nikkei 225 (+0.2%) were initially cautious although sentiment gradually improved with Australia supported amid dovish views on the RBA and with Rio Tinto shares unfazed by weaker production numbers, while the Japanese benchmark just about remained afloat as several telecom names outperformed following reports NTT DoCoMo is to reduce mobile phone rates by as much as 40%. Hang Seng (+1.0%) and Shanghai Comp. (+2.4%) opened lower amid the early cautious tone across the region and tentativeness ahead of key Chinese data including GDP, Industrial Production and Retail Sales which are all due out tomorrow, although Chinese markets steadily improved to outperform their peers in the aftermath of the PBoC’s first liquidity injection in almost a month. Finally, 10yr JGBs were flat amid the indecisiveness in the region and uneventful price action in T-notes, while mixed results at the 20yr auction also failed to spur demand.

Top Asian News

  • HNA Unit Defaults on Interest Payment, Faces Asset Seizures
  • Citi Hails ‘Bullish Turn’ in China and Says Chase Metals Now
  • China Traders Bet on Tight Liquidity as Interest-Rate Swaps Rise

European equities crept higher during early trade (Eurostoxx 50 +0.4%) following an upbeat tail-end to Asia-Pac session wherein the Shanghai Comp advanced in excess of 2% ahead of tomorrow’s China GDP release. Germany’s DAX (+0.7%) marginally outperforms its peers whilst broad-based gains are seen across other major bourses. Sectors are relatively mixed with outperformance seen in financials whilst energy names lag amid the price action in the complex. Notable movers include Lufthansa (-0.9%), after recouping from a 5.5% drop at the open amid a downgraded in EBIT guidance. Meanwhile Hays (-3.2%) shares tumbled to the foot of the Stoxx 600 amid disappointing earnings. Finally, UniCredit (+2.7%) shares felt some reprieve after the bank agreeing to pay USD 1.3bln to resolve investigations by US authorities regarding allegations that the bank violated multiple US sanction programmes. Looking ahead, markets will be looking out for earnings from UnitedHealth (at 10:55BST), Johnson & Johnson (11:45BST) and IBM (after-market), three DJIA components with the former accounting for 5.9% of the bellwether index. On a broader note, Morgan Stanley strategists believe that US stocks “sell off more than the rest of the world during a broad market sell-off”. This was measured by the S&P 500’s downside beta to the MSCI AC World Index (which the bank highlights is a measure of the US index’s performance when global shares decline), which is at a pre-financial crisis highs.

Top European News

  • Nexi Declines in Milan After Europe’s Biggest IPO This Year
  • U.K. Labor Market Remains Robust as Employment Surges
  • Everyone ‘Exhausted’ by Brexit as Talks Drag On, EU’s Tusk Says
  • Takeover Target G4S Moves Ahead With Breakup as Sales Rise
  • Zalando Gains on German Online Retailer’s Unexpected Profit

In currencies, once again it seems that the official RBA policy statement failed to reveal all, as alongside the neutral stance and guidance maintaining no need to change rates in the near term there was a relatively detailed discussion about easing, to the extent that criteria was laid out. Hence, Aud/Usd has retreated to retest sub-0.7150 levels and the Aud/Nzd cross is back under 1.0600 even though the Kiwi also took heed of RBNZ Governor Orr reaffirming an easy bias overnight, with Nzd/Usd pivoting 0.6750 and now looking to the latest GDT auction and NZ CPI for more direction.

  • CAD/EUR/CHF - All weaker vs the Greenback as well, with the Loonie still suffering in wake of Monday’s somewhat cautious if not downbeat BoC business survey and extending losses to circa 1.3400 at one stage, while the single currency has lost grip of the 1.1300 handle after topping out around a Fib at 1.1316 yet again. The latest German/EZ ZEW survey was mixed, and the accompanying comments not exactly confident about economic developments, but the final straw for Eur/Usd came via sourced ECB comments suggesting that several members are concerned about forecasts for a growth rebound in H2 and the accuracy of the models used to formulate estimates. The headline pair is now just above another Fib (1.1284), while the Franc has also lost more ground vs the Buck towards 1.0060, but is pivoting 1.1350 vs the Euro.
  • GBP/JPY - Cable largely shrugged off broadly in line UK jobs and earnings data, but the Pound has drifted away from hefty option expiries at 1.3100 (1.6 bn) amidst a broader Dollar upturn as the DXY reclaims the 97.000 handle, albeit just and to the detriment of the aforementioned weakness elsewhere. Indeed, Usd/Jpy has slipped through 112.00 following another fade ahead of the 2019 peak and amidst export offers layered above the big figure.
  • EM - Only minor respite for the Lira via better than expected Turkish IP data as Usd/Try remains around 5.8000 and still eyeing recent highs on a mixture of negative domestic factors - political, fiscal and fundamental.
  • RBA Minutes from April 2nd meeting stated the board saw no strong case for near term move in rates but added that a rate cut would be appropriate if inflation stayed low and unemployment trended up, while the likelihood of a near-term rate hike was low given subdued inflation. The board also agreed inflation likely to stay muted for some time and expects further gradual progress on unemployment and inflation. (Newswires)

In commodities, WTI and Brent are choppy amid a lack of catalysts ahead of tonight’s API inventory release. Markets expect US crude stocks to build by around 2mln barrels whilst gasoline and distillates are forecast to draw by 2.55mln and 1mln barrels respectively. Elsewhere, metals are mostly lower as the dollar recoups some recent losses. In terms of precious metals, gold losses more ground below the 1300/oz level ahead of support at 1281/oz. Meanwhile, base metals trade marginally in the red ahead of tomorrow’s China GDP release. On that note, Rio Tinto stated that Q1 Pilbara iron ore shipments were at 69.1mln tons (Prev. 80.3mln tons Y/Y), whilst iron ore production 76.0mln tons (Prev. 83.1mln tons Y/Y), and copper output 143.9k tons (Prev. 139.3k tons Y/Y).

Looking at the day ahead, we’ve got March industrial production and the April NAHB housing market index print. Away from that we’re due to hear from the ECB’s Nowotny this afternoon at an event in New York, before the Fed’s Kaplan speaks this evening at a community forum event in New Mexico. Meanwhile the earnings highlights include Bank of America, Johnson & Johnson, UnitedHealth, Netflix and IBM.

US Event Calendar

  • 9:15am: Industrial Production MoM, est. 0.2%, prior 0.1%
  • 9:15am: Manufacturing (SIC) Production, est. 0.1%, prior -0.4%; Capacity Utilization, est. 79.15%, prior 78.2%
  • 10am: NAHB Housing Market Index, est. 63, prior 62

DB's Jim Reid concludes the overnight wrap

Easter week has started relatively quietly but as a reminder by the time the EMR lands through your virtual letter box tomorrow we’ll have a slew of important China data to digest. Will it confirm our suspicions from Q1 that China has created a new mini growth cycle? We’ll have a better idea this time tomorrow. This morning sees the German ZEW survey which is always closely followed, especially with the Germany economy at its current inflection point. So all that to look forward to as well as Thursday’s flash PMIs before you can unravel and devour those Easter Eggs. As for yesterday, after a bright start in Asia and Europe, equity markets dipped as US equity markets opened before a late run nearly got US markets back to flat. Nevertheless after a very good recent run some softness crept in as markets digested the latest US bank earnings and trade news. The end result was the S&P 500 closing -0.06% (-0.38% at the lows) and weaker for only the second time in the last 13 sessions. The last time we had such a run was October 2017. The NASDAQ (-0.10%) and DOW (-0.10%) also dipped while in Europe the STOXX 600 (+0.15%) ended with a small gain but slightly off the session’s high of +0.27%.

Just on those earnings reports, while the GS and Citi results beat at a headline level for earnings, revenues did disappoint slightly. So JPM’s bumper results on Friday might be a bit more company specific than sector wide. It’s also worth noting that earnings expectations have been heavily slashed in recent months which is certainly helping the optics. For GS for example, EPS of $5.71 was a long way ahead of the $4.97 consensus however that is down from $5.50 at the end of March and closer to $6.00 at the start of the year. The talk was also that equity trading revenues disappointed at GS along with the outlook for the investment banking business. Their shares fell -3.84%. Citi shares pared losses to end the session close to flat. It’s worth noting that BofA results are out later today.

As for other markets yesterday, 10y Treasuries pulled back to 2.551% which was -1.4bps lower, while bunds closed flat at 0.056%. They did hit a vertigo inducing 0.079% at lunchtime though. Greek 10-year yields extended their recent rally, trading -0.9bps lower to 3.274%, within 7bps of the lowest yields based on bbg data going back to 1997. Later I’m going to dig through the archives to see if I have any longer history for Greek government bonds. WTI oil prices slid -0.59%, though there were limited catalysts yesterday. Investors were possibly reacting to Friday’s data showing a second weekly increase in the US rig count, as well as data showing that speculative long positioning in the commodity has risen to its highest level since last October. Credit markets were quiet with HY spreads -1bps and -4bps in the US and Europe respectively. Staying with credit it is worth highlighting that Michal Jezek from my team published a new report last week entitled “Value of high-grade corporate bonds in Japanified Europe” (click here ). The note examines the European IG market in light of recent developments on the data and policy fronts, and identifies the most attractive opportunities. It also assesses how much a restarting of CSPP is priced in.

This morning in Asia markets are largely moving higher with the Shanghai Comp (+1.11%), Hang Seng (+0.63%), Nikkei (+0.18%) and Kospi (+0.06%) all up. Elsewhere, futures on the S&P 500 are also up +0.11%. In other news, South Korea’s Yonhap News reported that Russia is preparing for North Korean leader Kim Jong Un’s first summit with President Vladimir Putin. Separately the South Korea’s Maeil Business Newspaper reported yesterday that Putin and Kim’s summit will likely take place on April 24 in Vladivostok. However Russian government spokesman Dmitry Peskov said that plans were being made for a summit but offered no details on a time or place.

Moving on. In terms of the latest trade news, US Treasury Secretary Mnuchin said yesterday that US-China trade negotiations were “making a lot progress” but also that there “is more work to do…including enforcement”. That appeared to mirror a lot of what he had said over the weekend. Meanwhile, a separate Bloomberg story also suggested that China was considering a request from the US to shift certain tariffs on agricultural goods to other products “so the Trump administration can sell any eventual trade deals as a win for farmers ahead of the 2020 election”. Unconfirmed reports also circulated that President Trump may meet President Xi at the June 28-29 G20 summit, which could be an opportunity to finalize a trade agreement, though of course things can change over the next few weeks and months.

It wasn’t just US-China trade headlines yesterday though with Reuters also quoting the EU’s Malmstrom as saying that the EU is “ready to start trade talks” and that it is in the “US’ hands to see when talks start”. EU ministers yesterday gave the go ahead for formal talks to start and it’s worth noting that it’s just over a month until the S232 deadline for making a decision on auto tariffs, so we’re approaching a potentially important spell for trade talks.

In other news, it was a very quiet day for data yesterday with only the April empire manufacturing print in the US out. The headline reading was solid enough at 10.1, beating expectations for 8.0 and up from 3.7 in March however there was a big drop in the six-month outlook reading to 12.4 from 29.6 last month. That was in fact the lowest outlook reading since January 2016 so a fairly unusual dichotomy between the current conditions and the forward-looking readings.

Elsewhere Chicago Fed President Evans made some interesting public remarks. He is a voting member of the FOMC this year and has been near the centre of the committee on policy. He noted that economic data is “quite good” and that he expects to keep rates “flat and unchanged into the fall of 2020.” However, his more newsworthy remarks were in reference to the Fed’s policy review, as Evans said that “the Fed must be willing to embrace inflation modestly above 2 percent 50 percent of the time.” That would presumably suggest a preference for more dovish policy and higher inflation rates moving forward. Elsewhere, Boston Fed President Rosengren (voter) said in published remarks of a speech overnight that the US economy is doing quite well but inflation is “slightly below” the Fed’s 2% target and this is one of the reasons for the Fed to be patient. On policy review, he said that “My own preference is for the Federal Reserve to adopt an inflation range that explicitly recognizes the challenge of the effective lower bound,” while adding, “We might be forced to accept below-2% inflation during recessions, but we would commit to achieving above-2% inflation in good times, so as to provide more policy space to counteract the next recession.” Separately, the Bank of France Governor Villeroy said that economic growth is developing more weakly than he expected so far this year, though he expects a rebound later this year. He also said that the effects of negative rates are overall positive, but he did reiterate that he would be open to mitigating measures if necessary.

Finally to the day ahead which starts this morning in the UK with the February and March employment stats. Not long after that we get the April ZEW survey in Germany while this afternoon in the US we’ve got March industrial production and the April NAHB housing market index print. Away from that we’re due to hear from the ECB’s Nowotny this afternoon at an event in New York, before the Fed’s Kaplan speaks this evening at a community forum event in New Mexico. Meanwhile the earnings highlights include Bank of America, Johnson & Johnson, UnitedHealth, Netflix and IBM.

Published:4/16/2019 6:28:04 AM
[Markets] Stock futures move higher as investors await fresh round of earnings Stock-index futures pointed to a higher start for Wall Street Tuesday as investors remained glued to a steady stream of corporate results. Futures on the Dow Jones Industrial Average (YMM9) rose 132 points, or 0.5%, to 26,506, while S&P 500 futures (ESM9) rose 10 points, or 0.3%, to 2,915.50. Stocks on Monday ended slightly lower in the most lightly traded session of 2019, following a batch of mixed corporate earnings. Published:4/16/2019 6:28:04 AM
[Markets] UnitedHealth's stock rallies after profit and revenue rise above expectations, outlook raised Shares of UnitedHealth Group Inc. rallied 2.1% in premarket trade Tuesday, after the health insurer reported first-quarter earnings and revenue that beat expectations, and boosted its full-year profit outlook. Net income rose to $3.47 billion, or $3.56 a share, from $2.84 billion, or $2.87 a share, in the year-ago period. Excluding non-recurring items, adjusted EPS grew to $3.73 from $3.04, above the FactSet consensus of $3.60. Total revenue increased 9.3% to $60.31 billion, beating the FactSet consensus of $59.69 billion. Premiums rose 7.8% to $47.51 billion, topping the FactSet consensus of $47.44 billion and products grew 20.4% to $8.07 billion to beat expectations of $7.42 billion, while services increased 5.2% to $4.32 billion to miss expectations of $4.53 billion. The company's Optimum business grew revenue 11.9% to $26.4 billion. The company raised its guidance range for adjusted EPS to $14.50 to $14.75 from $14.40 to $14.70. UnitedHealth's stock has lost 7.6% year to date through Monday, while the SPDR Health Care Select Sector ETF has gained 4.2% and the Dow Jones Industrial Average has climbed 13.1%. Published:4/16/2019 5:53:24 AM
[Markets] Greenback Gains But Banks, Bitcoin, Bullion, & Bond Yields Slide

As Stocks rise, Volumes slide...

Trade appropriately...

 

China was ugly overnight with ChiNext down once again...

 

Europe ended the day practically unchanged after a solid open for Italy and Spain...

 

US markets more mixed with Small Caps and Trannies worst. S&P, Dow, and Nasdaq all levitated back towards unch in the last hour...

 

Goldman's results disappointed, erasing all of Friday's gains and the rest of the banks slumped...

 

And judging by the yield curve, financials still have a long way to go...

 

After tagging an 11 handle on Friday, VIX bounced up to 13 intraday before leaking lower...

 

Treasury yields edged lower today - in a tight range - after Friday's surge...

 

Having blow above 2.50% on Friday, 10Y Yields drifted very modestly lower today...

 

Following Friday's slump, the dollar index rebounded notably today, seemingly bid as US markets opened...

 

And while VIX was flashing an 11 handle - FX Vol collapsed to a 5 year low...

 

Cryptos suddenly lurched lower as Bloomberg reported on algos gone wild...

 

Which sent Bitcoin down to $5000, before bouncing back...

 

Commodities drifted lower for most of the last 24 hours, rebounding after US markets opened with silver ending best - unchanged...

 

Gold remains below $1300...

 

Finally, US Macro data is at its weakest since July 2017 as Chinese macro data surges to its best since May 2018 - but we have seen this kind of sudden divergence before...

Don't forget though - its not the economy, it's central banks stupid!

Published:4/15/2019 3:18:45 PM
[Markets] US STOCKS SNAPSHOT-Wall St ends lower dragged down by financials Wall Street ended slightly lower on Monday, dragged down by financials as underwhelming earnings from Goldman Sachs and Citigroup curbed investor enthusiasm. Based on the latest available data, the Dow ... Published:4/15/2019 3:18:45 PM
[Markets] Golf industry will likely get a bump from Tiger Woods Masters win: KeyBanc KeyBanc Capital Markets analysts expect the golf industry to get a "Tiger boost" from Tiger Woods' Masters win over the weekend. "Bottom line, we believe we have enough evidence to have reasonable confidence that Tiger Woods' success is good for industry sales, which is a favorable development as the industry faces tough compares in 1H19, and at the very least should bode well for investor sentiment around the health of the industry," the note says. This is Woods' first major win in 11 years, and President Trump tweeted that he intends to award Woods the Presidential Medal of Freedom. Soon after the win, Nike Inc. , a Woods sponsor, released an ad, though the brand moved away from the golf business in 2016. And Sports Illustrated has a feature on Woods' comeback. Nike stock is up 0.8% in Monday trading, and has rallied 17.2% for the year to date while the Dow Jones Industrial Average is up 13% for 2019 so far. Published:4/15/2019 2:49:32 PM
[Markets] GE's stock bounces into positive territory in attempt to snap 8-day losing streak General Electric Co.'s stock edged up 0.2% in afternoon trade Monday, erasing earlier losses of as much as 2.3%, in a late attempt to snap its losing streak at 8 sessions. The industrial conglomerate's stock had tumbled over the past eight sessions, highlighted by the 5.2% drop on April 8 after J.P. Morgan analyst Stephen Tusa downgraded GE back to underweight, after he had helped spark a rally in December with his upgrade to neutral. A ninth-straight decline on Monday would have been the longest losing streak since the 9-day stretch ended Nov. 5, 2018. GE's stock has still run up 24% year to date, while the Dow Jones Industrial Average has gained 13%. Published:4/15/2019 2:22:29 PM
[Markets] Goldman Sachs stock leads Dow losers with other indexes also in the red Monday Goldman Sachs stock leads Dow losers with other indexes also in the red Monday Published:4/15/2019 1:48:29 PM
[Markets] Stocks Fade As Dow Jones Banks Lead Declines Dow Jones stock Goldman Sachs and JPMorgan weighed on Monday's early action. Stocks sought direction as Q1 earnings season braced for a big day on Tuesday. Published:4/15/2019 9:17:10 AM
[Markets] US STOCKS SNAPSHOT-Wall Street opens flat after Goldman's disappointing results U.S. stocks opened flat on Monday as financial stocks fell after disappointing results from Goldman Sachs, offsetting a rebound in healthcare stocks. The Dow Jones Industrial Average fell 4.54 points, ... Published:4/15/2019 8:47:34 AM
[Markets] Stocks Tick Higher As Dow Jones Bank Takes Revenue Hit Dow Jones stock Goldman Sachs and Boeing weighed on Monday's early action, as stocks sought direction as Q1 earnings season gathered steam. Published:4/15/2019 8:47:34 AM
[Markets] Global Stocks Hit 6 Month High On, Drumroll, Renewed "Trade Talk Optimism"

This is the part in Groundhog Day where Phil Connors kills himself again, and again, and again.

With stocks itching for a new excuse to levitate higher, they got that overnight when a Reuters report on fresh "progress" in the U.S.-China trade talks and renewed "optimism" in a trade deal helped propel world stock markets to a 6-month high on steered investors away from save havens such as the Japanese yen, even as 10Y treasury yields dipped modestly, as the same catalyst that has driven stocks higher on virtually every single day in the past quarter has continued to do so again and again, right out of the cult groundhog movie.

“It seems like bullish sentiment has decent grip for now and everyone is focused on the year to date performance of the equity markets,” said Naeem Aslam, chief market analyst at TF Global Markets (UK) Ltd in London.

Overnight Reuters reported that US negotiators tempered demands that China curb industrial subsidies as a condition for a trade deal after strong resistance from Beijing, marking a retreat on a core U.S. objective for the trade talks. According to the report, in the push to secure a deal in the next month or so, U.S. negotiators have become resigned to securing less than they would like on curbing those subsidies and are focused instead on other areas where they consider demands are more achievable, Reuters sources said. Those include ending forced technology transfers, improving intellectual property protection and widening access to China’s markets, the sources said. China has already given ground on those issues.

“It’s not that there won’t be some language on it, but it is not going to be very detailed or specific,” one source familiar with the talks said in reference to the subsidies issue.

Separately, on Saturday during the latest IMF conclave, Treasury Secretary Steven Mnuchin said the US is "hopefully very close" to final round of China talks; adding that the U.S. is open to facing enforcement penalties which work "in both directions." all of which helped spawn a fresh sense of optimism that a deal announcement was imminent.

In addition to the new trade optimism, thanks to the pleasant aftertaste from China’s credit flood in March, which exceeded all estimates, concern over global growth has also eased, fueling demand for riskier assets. MSCI’s gauge for equities saw its 100-day moving average rise above the 200-day equivalent as the index rose 12 out of the past 13 days, signaling potential for further gains.

Following a muted Asian session, the European Stoxx 600 Index erased an earlier loss and extended gains to session highs with bank stocks contributing most to the increase. A gauge tracking lenders climbs for a third session as it holds above a barrier it breached last week. The European index advances 0.3% as of 11:30 a.m. in London, reversing a decline of as much as 0.1% earlier. BNP Paribas rose 2.5%, adding the most to the increase by index points. Other banks also stronger: Credit Suisse +2.2%; ING Groep +1.3%, Unicredit +2.2%

S&P500 futures nudged up after spending most of the session in the red, as results from Goldman Sachs and Citigroup loomed. In Asia, equities headed for a fresh six-month high, propelled by markets in Japan and Korea, after the Bank of China released upbeat credit data, although earlier, Chinese stocks closed in the red, fading initial trade-related gains as expectations for rate cuts fizzled following the latest credit deluge.

With Chinese trade and lending data showing signs of improvement for the world’s second-biggest economy, investors are turning to the US earnings season to confirm the resilience of corporate America in the face of numerous challenges to growth. JPMorgan Chase posted strong first-quarter results last week, Goldman and Citi report today and Bank of America is up on Tuesday.

“The environment of easier financial conditions is beginning to have an impact on the broader economy,” Principal Global's Binay Chandgothia told Bloomberg TV. “If that is the case and growth does pick up, you’ll see an uptick in analyst expectations and earnings as well, which should help continue the rally.”

Bunds, US Treausrys and Gilts were confined to very tight ranges, as BTPs trade in a choppier range with peripheral yield spreads widening to core at the margin. G-10 currencies drift sideways in quiet trade, SEK marginally outperforms peers, CAD and NOK lag on commodities weakness.

In FX, South Korea’s won led an advance among emerging-market currencies, while Turkey’s lira underperformed as the unemployment rate climbed to the highest level in a decade. G-10 currencies drifted sideways in quiet trade, with the SEK marginally outperforming peers, CAD and NOK lag on commodities weakness. The yen dropped toward its 2019 low on Monday and the Swiss franc hit its weakest in nearly a month. The dollar also weakened slightly, allowing the euro to cement gains above $1.13.

In commodities, oil slipped after the longest run of weekly gains in three years as a report showed increased U.S. oil-rig activity. Oil provided big milestones last week, with Brent breaking through the $70 threshold and the U.S. benchmark posting six straight weeks of gains for the first time since early 2016. Brent crude oil futures was last off 23 cents at $71.32 while crude futures, the U.S. benchmark, eased 33 cents to $63.56.

Expected data include Empire State Manufacturing Survey. Schwab, Citigroup and Goldman Sachs are reporting earnings.

Market Snapshot

  • S&P 500 futures little changed at 2,912.00
  • STOXX Europe 600 up 0.01% to 387.56
  • MXAP up 0.6% to 163.25
  • MXAPJ up 0.1% to 543.51
  • Nikkei up 1.4% to 22,169.11
  • Topix up 1.4% to 1,627.93
  • Hang Seng Index down 0.3% to 29,810.72
  • Shanghai Composite down 0.3% to 3,177.79
  • Sensex up 0.3% to 38,897.72
  • Australia S&P/ASX 200 unchanged at 6,251.44
  • Kospi up 0.4% to 2,242.88
  • German 10Y yield rose 0.5 bps to 0.06%
  • Euro up 0.2% to $1.1319
  • Italian 10Y yield rose 15.4 bps to 2.171%
  • Spanish 10Y yield rose 1.5 bps to 1.064%
  • Brent futures down 0.7% to $71.04/bbl
  • Gold spot down 0.3% to $1,286.95
  • U.S. Dollar Index down 0.2% to 96.80

Top Overnight News from Bloomberg

  • The release of the almost 400-page Special Counsel Robert Mueller report this week could help President Trump put two years of suspicion and risk from the investigation behind him -- or ensure that controversy over the Russia probe hangs over his re-election bid.
  • Trump, renewing his attack on the Federal Reserve, claimed the stock market would be “5000 to 10,000” points higher had it not been for the actions of the U.S. central bank. “Quantitative tightening was a killer, should have done the exact opposite!” he tweeted.
  • Job vacancies in London’s finance industry have halved in two years as uncertainty over Brexit knocks down business confidence, a survey by recruiter Morgan McKinley has found.
  • The mass production of iPhones will shift to India this year from China, Foxconn Technology Group Chairman Terry Gou said. The company is the largest assembler of Apple Inc.’s handsets and has long concentrated on China.
  • Finland looks set to get a more left-leaning government as voters rejected years of austerity in the tightest election in over half a century. Former trade unionist Antti Rinne is poised to become Finland’s first Social Democrat prime minister in 16 years, winning by fewer than 7,000 votes.

Asian equity markets began the week mostly positive as the region took impetus from last Friday’s gains on Wall St. where sentiment was underpinned by a strong start to earnings season and encouraging Chinese data. Nonetheless, ASX 200 (U/C) was dampened amid tentativeness ahead of key earnings and underperformance in gold miners, as well as trade-related news including a further decline of Chinese imports and dispute at the WTO on Australia's restriction on Chinese 5G technology. The rest of the major Asia-Pac indices are mixed as recent advances in USD/JPY fuelled the upside in Nikkei 225 (+1.4%), while Hang Seng (-0.3%) and Shanghai Comp. (-0.3%) finished lower but were initially boosted as most of the recent Chinese data surpassed estimates including New Yuan Loans, Aggregate Financing, Trade Balance and Exports with the latter at a 5-month high. Furthermore, reports the US softened its demands on China for reducing state industrial subsidies and that both sides have agreed to measures to avoid China currency manipulation, added to the hopes for a looming trade deal. Finally, 10yr JGBs were softer as they tracked the recent losses in T-notes and with demand also dampened by gains in riskier assets as well as a lack of BoJ presence in the market today.

Top Asian News

  • The $18 Billion Electric-Car Bubble at Risk of Bursting in China
  • Turkey Bleeds Jobs as Unemployment Climbs to Highest in a Decade
  • Economist Snatched at Night, Questioned for ‘Insulting’ Erdogan
  • Jack Ma Again Endorses Extreme Overtime as Furor Rages On

A tepid start to the week for European equities thus far (Eurostoxx 50 Unch) after the optimism seen in Asia somewhat waned, although Japan’s Nikkei 225 closed higher by almost 1.5% amid currency tailwind. In Europe, Italy’s FTSE MIB (+0.5%) bodes well as the bourse hit eight-month highs, bolstered by banking names amidst the optimism surrounding US banks’ earnings (ahead of Goldman Sachs and Citigroup earnings today). As such the banking sector in Europe outperforms (Stoxx 600 Banks +0.9%) whilst its peers remain mixed. In terms of individual movers, France’s Publicis Groupe (+3.2%) leads the gains in the CAC 40 (+0.1%) on the back of an optimistic revenue update, whilst also supporting its UK peer WPP (+1.3%) in tandem. Elsewhere, Covestro (-4.2%) is the marked laggard in the DAX (Unch) amid ex-dividend trade. Finally, IWG (+22.4%) rests at the top of the Stoxx 600 [Unch] after reports that Japan’s TKP are to acquire the Co.’s workspace leading unit for JPY 50bln coupled with a broker upgrade.

Top European News

  • Trafigura to Take Control of Europe’s Biggest Zinc Smelter
  • Finns Eject Austerity Government as Leftists Win Election
  • Draghi Sticks to Cautious Optimism About Euro-Area Bounceback
  • SNB to Raise Rate at Start of 2020, Same Time as ECB, UBS Says

In FX, the Sterling remains underpinned and relatively optimistic after another Article 50 extension to avoid a no deal Brexit and amidst reports that talks between the Conservative and Labour Parties have been more detailed and constructive than some expected, per UK Foreign Secretary Hunt. Cable is eyeing 1.3100 again, albeit with a hefty helping hand from a broadly soft Dollar, as Eur/Gbp trades largely sideways within a 0.8633-50 range. Technically, 1.3132 (last Friday’s high) forms nearest resistance, but data could become pivotal as the week unfolds given jobs and earnings on tap tomorrow, then CPI on Wednesday and retail sales ahead of the long Easter break.

  • EUR - As noted above, the single currency is also firm and outperforming the Greenback as the DXY slips a bit further below 97.000 to just under 96.800. Eur/Usd is inching towards 1.1300+ upside chart levels, like a 50% Fib circa 1.1324 and the 200 WMA around 1.1341. Note also, 2 banks are long of the headline pair and looking for sizeable rallies to 1.1650 and even 1.1800.
  • NZD/AUD/JPY/CHF/CAD - All narrowly mixed vs the Usd with the Kiwi and Aussie both deriving some support from reports overnight suggesting the US has relaxed some demands over Chinese industrial subsidies in ongoing trade negotiations, as Nzd/Usd hovers between 0.6763-82 and Aud/Usd in a 0.7164-80 range. However, Usd/Jpy has not advanced as much as risk-on sentiment might have suggested overnight with the pair fading just shy of the 2019 peak (112.14) amidst supply from Japanese exporters according to market contacts and now revisiting the 200 WMA (111.98). Meanwhile, the Franc is sitting tight within 1.0010-28 parameters and Loonie between 1.3320-47 ahead of the BoC’s Business Outlook Survey and against the backdrop of softer oil prices that are also undermining the NOK (sub-9.6100 vs the Eur as SEK holds above 10.4700).
  • EM - The Try has been hit hard again and got closer to recent lows vs the Usd in wake of latest Turkish jobs data revealing a spike in the rolling 3 month average unemployment rate to 14.7% vs 13.5% previously. The Lira has nursed some losses since on the aforementioned Buck weakness, but remains on the backfoot in a 5.7600-8115 band in stark contrast to the Rand that has extended gains through 14.0000 even though one institution is anticipating a reversal in the Zar’s fortunes and rebound to 14.2700.

In commodities, there has been subdued trade in the energy complex as WTI (-0.8%) and Brent (-0.8%) futures gave up some of Friday’s gains, with the latter now straddling around the psychological USD 71.00/bbl level. Friday’s CFTC data showed that hedge funds raise bullish ICE WTI crude bets by 30.7k to 281.7k lots, whilst speculators increased net long positions in Brent crude (for a fifth consecutive week) by almost 9.5k to just over 358k in the week to April 9th. Over the weekend, Russia’s Finance Minister stated that OPEC+ could decide to raise production (at the June 25/26 meeting) to fight for market share with the US. Currently OPEC+ have agreed to curb output by 1.2mln BPD until June 2019, with IFX noting that Russia’s April production fell by 150k BPD vs the benchmark October level. Back in December, Russia committed to reducing output by 228k BPD from October levels of 11.4mln BPD in a gradual manner which would take place over several months. Elsewhere, the precious metals sector is mostly in the red with gold (-0.4%) edging lower and breaching its 100 DMA (USD 1288/oz) to the downside as last week’s Chinese data somewhat eases fears of a global growth slowdown. Meanwhile, copper (-0.3%) gave up its overnight gains as the risk sentiment became more cautious during early EU trade. Finally, Shanghai steel futures hit a seven-and-a-half year high as the alloy is supported by firm demand, whilst its base metal, Dalian iron ore futures remained near record highs on dwindling Chinese stockpiles which declined the most since 2015, according to SteelHome data.

US Event Calendar

  • 8:30am: Empire Manufacturing, est. 8, prior 3.7
  • 4pm: Net Long- term TIC Flows, prior $7.2b deficit
  • 4pm: Total Net TIC Flows, prior $143.7b deficit

DB's Jim Reid concludes the overnight wrap

Right. I’m writing this only an hour or so after the first episode of the final Game Of Thrones season had its global premier and am selectively looking through my normal newsfeeds very nervous that I’m going to see spoilers. So if I’ve missed anything today that’s my excuse. I’m not going to watch it until we move into our new house immediately after Easter so I will unleash my dragons to anyone that tells me what happens. Someone important is bound to have died already so that’s going to be tough to avoid if true!! Rather aptly the most difficult spoiler I’ve ever had to avoid was 30 years ago this week around the Masters. In my Easter school holidays I had a paper round and had to be up at 4.30am. As such I had to go to bed early and video tape my hero Nick Faldo’s attempt at the Masters with the view of watching it when I’d finished. Obviously all the papers had the result on the back page (he won). So I had to deliver them all with my eyes closed. I remember it well and the great difficulty involved. The locals must have thought me very odd. The modern equivalent will be me closing my eyes every time I open the internet for the next 10 days. Staying with the Masters, I did find it emotional to see a remarkable comeback victory for Tiger Woods yesterday. Our careers have moved in parallel. He’s a year younger than me, has had 4 knee surgeries to my 3 and 4 back operations while I’ve had several injections in the spine. The only real difference is 15 major championships. But has he ever won an II analyst award? Anyway, nice to see that 40-somethings still have a place in the world.

It might be Easter holiday from Friday but we should know a bit more about the global economy before we go away. The continuation of our tactically bullish view relies a lot on China data bouncing back and dragging Europe along with it. Well on Wednesday we see the important monthly data dump with the release of March’s industrial production and retail sales data and also Q1 Chinese GDP. March’s data will be especially important in assessing whether the recent tick up in PMIs were a genuine positive signal or not. Last Friday’s bumper credit numbers (more later) reinforces our view that China is going through another mini credit cycle. Indeed our Chinese economists put out a note yesterday ( link here ) suggesting that there is upside to their 2019 forecasts. They’ll update these after Wednesday’s numbers.

The other main highlight will be the flash April PMIs on Thursday, with releases for the Eurozone, Germany, France and the United States. It’ll be particularly interesting to see the manufacturing PMI for the Eurozone, which fell for an eighth consecutive month in March, moving deeper into contractionary territory with a 47.5 reading. The German manufacturing PMI was even more contractionary last month, with a 44.1 reading. If we’re right on China these should be turning up soon.

In a similar vein, Germany’s ZEW survey for April comes out on Tuesday, which is an important number in light of the above. In March, the ZEW survey of current activity fell to 11.1, its lowest level since December 2014, although the expectation reading rose to -3.6, which was its highest since March 2018, so it’ll be worth looking to see if there are any signs of improvements here.

The main other highlights are US Retail Sales (Thursday) and Q1 US earnings season picking up through the week. Retail Sales will be looked at for signs the consumption soft patch either side of the turn of the year is behind us. In terms of earnings today we’ll see Goldman Sachs and Citigroup reporting. Tomorrow there’ll be earning releases from Bank of America, Netflix, IBM and Johnson & Johnson. On Wednesday, there’ll be Morgan Stanley and PepsiCo, and on Thursday, there’ll be Philip Morris International and American Express. The day by day week ahead is at the end.

Over the weekend, the US President Trump renewed his criticism of the Fed by tweeting, “If the Fed had done its job properly, which it has not, the Stock Market would have been up 5000 to 10,000 additional points.” I can only assume he means the Dow rather than the S&P 500! He further added, “Quantitative tightening was a killer, should have done the exact opposite!” President Trump’s comments came after the IMF conference in Washington where ECB President Draghi said that he was “certainly worried about central bank independence” and especially “in the most important jurisdiction in the world.” Elsewhere, at the same IMF conference Germany came under pressure from global policy makers to ease fiscal policy.

Meanwhile, on US/China trade talks, Treasury Secretary Steven Mnuchin said that the US and China are discussing whether to hold more in-person meetings after talks in recent weeks while adding that “we’re hopefully getting very close to the final round of these issues.” He also said on the enforcement mechanism that, “I would expect that the enforcement mechanism works in both directions, that we expect to honor our commitments, and if we don’t, there should be certain repercussions, and the same way in the other direction.”

Asian markets have started the week on a positive note with the Nikkei (+1.47%), Hang Seng (+0.58%), Shanghai Comp (+1.12%) and Kospi (+0.49%) all up. Elsewhere, futures on the S&P 500 are trading flattish (-0.04%).

In other news, Finland will likely get a more left-leaning government after voters, in the tightest election in memory, rejected years of austerity and seemingly demanded more spending on welfare. Former trade unionist Antti Rinne is poised to become Finland’s first Social Democrat prime minister in 16 years after winning by fewer than 7,000 votes but his party faces tough coalition talks ahead as the ultra nationalist Finns Party emerged as the second-biggest party, beating the establishment conservative National Coalition for the first time.

On Brexit, David Lidington, PM May’s de facto deputy, said on Sunday that the government believed it would be possible to get “the benefits of a customs union” - which Labour wants - “but still have a flexibility for the U.K. to pursue an independent trade policy on top of that.” He added that even though parliament is in recess until April 23, negotiations will continue. Sterling is up +0.18% this morning.

Recapping last Friday and the week overall now. Equity markets advanced on Friday with the S&P 500 +0.66% (+0.51% for the week), the NASDAQ +0.46% (+0.57%) and the STOXX 600 +0.16% (-0.18%). This was the third consecutive weekly gain for the S&P 500, which closed at its highest level for six months. Financials led the advance following strong earnings from JPMorgan, which reported net income of $9.2bn in the first quarter, sending its shares up +4.69% on Friday. They also reported net interest income of $14.6bn in the first quarter, up 8% on the same quarter a year ago, while return on common equity reached 16%. Impressive numbers. The STOXX Banks index ended the day +2.78% (+3.05% - week) to reach its highest level since October (also helped by the China data and rising bund yields). The S&P 500 Banks index was also up +2.40% (+2.39%).

The market was also supported by stronger-than-expected data releases. Firstly, we had the credit numbers out of China where new total social financing came in at RMB2.86tr, much stronger than the market consensus forecast of RMB1.85tr. New bank loans also surprised on the upside at RMB1.69tr compared with consensus of RMB1.25tr. M2 (broad money) growth rebounded to 8.6% in March from 8.0% in Feb but the most significant part, according to our economists, was the rebound in M1, whose growth rate jumped to 4.6% in March, up more than 4ppts from its trough at 0.4% in Jan. Again see their report mentioned earlier for more.

The Chinese trade data was also positive, with the March trade balance coming in at $32.65bn (vs. $5.70bn expected) indicating that exports had recovered. In Europe, the Eurozone industrial production figures fell by -0.2% mom in February but above the -0.5% decline expected, while January’s figure was revised up to 1.9% mom (from 1.4% previously). However, in the US the University of Michigan consumer sentiment index fell more than expected, coming in at 96.9 (vs. 98.2 expected).

Government bond yields rose as the global data was generally pretty positive, with ten-year bund yields +6.4bps on Friday (+4.9bps on the week) to return to positive territory (0.054%). 10yr Treasury yields rose +6.8bps on Friday (+7.0bps - week), and the US 2s10s curve steepened to end the day +2.9bps (+1.8bps). Bond yields in the European periphery came off their recent lows with the rise in yields but spreads edged tighter. In Greece though, ten-year yields fell to their lowest level since September 2005.

Published:4/15/2019 6:46:50 AM
[Markets] Goldman's stock gains as big profit beat helps offset revenue miss Shares of Goldman Sachs Group Inc. gained 0.5% in premarket trade Monday, after the blue-chip bank reported first-quarter earnings that were well above expectations but revenue that missed, as the institutional clients services and investing and lending businesses fell short of expectations. Net income fell to $2.18 billion, or $5.71 a share, from $2.74 billion, or $6.95 a share, in the same period a year ago. The FactSet EPS consensus was $4.89. Total revenue declined to $8.81 billion from $10.08 billion, below the FactSet consensus of $8.93 billion. Institutional clients services revenue fell to $3.61 billion from $4.39 billion, below the FactSet consensus of $3.69 billion, as fixed income, currency and commodities revenue of $1.84 billion topped the FactSet consensus of $1.81 billion but equities revenue of $1.77 billion was below expectations of $1.81 billion. Investing and lending revenue fell 14% to $1.84 billion, below expectations of $1.87 billion, while investment banking revenue was essentially flat at $1.81 billion to beat expectations of $1.65 billion. The stock has rallied 24.4% year to date through Friday, while the SPDR Financial Select Sector ETF has climbed 13.9% and the Dow Jones Industrial Average has advanced 13.2%. Published:4/15/2019 6:46:50 AM
[Markets] Trump Admits It's The Fed's "Job" To Push Stocks Higher

When President Trump demanded earlier this month that the Fed should cut interest rates to undo some of the damage it has done to the economy with its pernicious rate hikes, we pointed out the obvious dissonance between advocating for rate cuts while insisting that the economy is the strongest it has ever been.

But the incongruity disappears when one considers that the central bank's "dual mandate" simply masks its true purpose: To levitate asset prices and ensure that wealthy Americans get richer, while (at least for now) averting an all-out pension fund crisis.

Though the central bank's "third mandate" is rarely, if ever, directly acknowledged, President Trump violated this convention in a tweet on Sunday, when he declared that the central bank, had it "done its job properly" would have sent the Dow another 5,000 to 10,000 points higher, and that GDP growth would have been "well over 4%".

In essence, this is the president admitting that the Fed's only job is to push stocks higher, damn the deteriorating fundamentals that make leave valuations increasingly divorced from reality.

While this tweet will almost certainly elicit howls from economists warning about the damage Trump is doing to the Fed' precious 'credibility' (or whatever is left of it), we think it's refreshing to finally hear the most powerful man in the free world speak openly about its most powerful central bank.

Published:4/14/2019 9:43:45 AM
[Markets] "You Are Here..."

Excerpted from John Hussman's Weekly Market Comment,

There are three principal phases of a bull market: the first is represented by reviving confidence in the future of business; the second is the response of stock prices to the known improvement in corporate earnings, and the third is the period when speculation is rampant – a period when stocks are advanced on hopes and expectations.

There are three principal phases of a bear market: the first represents the abandonment of the hopes upon which stocks were purchased at inflated prices; the second reflects selling due to decreased business and earnings, and the third is caused by distress selling of sound securities, regardless of their value, by those who must find a cash market for at least a portion of their assets.
– Robert Rhea, The Dow Theory, 1932

Charles Dow once wrote, “To know values is to know the meaning of the market.” That quote may surprise trend-followers and adherents of technical analysis, because Dow’s work is often squeezed into a caricature focusing on nothing more than confirmation and divergence across the Dow Jones Industrial and Transportation averages. But Dow’s actual views, best elaborated by writers like Robert Rhea and William Peter Hamilton, were actually about something much more fundamental: identifying the position of the market in its complete bull-bear cycle. That’s a concept that investors have forgotten, encouraged by the illusion that the Federal Reserve’s buying of Treasury bonds is capable of saving the world from any form of discomfort. That illusion is likely to prove costly.

Probably the most useful exercise we can do at present is to examine where the markets and the U.S. economy are in their respective cycles – with 19 charts and detailed analysis.

The recent bull market clocked in as the longest in history. Even if the September 20, 2018 peak in the S&P 500 was the final high, the preceding advance outlived the 1990-2000 bull market by nearly 8 weeks. Likewise, the current economic expansion is just 3 months shy of the record 10-year expansion that ended in early 2001, the unemployment rate is down to just 3.8%, the entire post-crisis gap between actual real GDP and the CBO estimate of potential real GDP has been eliminated, and the expansion has already outlived the previous runner-up, which ran from 1961 to the end of 1969.

Meanwhile, based on the valuation measures we find best-correlated with actual subsequent market returns across history, the current market extreme already matches or exceeds those of the 1929 and 2000 peaks. There’s little question that the market is long into what Rhea described as the final phase of the bull market; “the period when speculation is rampant – a period when stocks are advanced on hopes and expectations.”

As I’ll detail below, the economic expansion we’ve observed since the 2009 economic low has been a rather standard mean-reverting recovery, with a trajectory no different than could have been projected on the basis of wholly non-monetary variables. The primary effect of extraordinary monetary policy wasn’t to drive real economic gains, but instead to amplify speculation and contribute to wealth and income disparities. Wages and salaries as a share of GDP are clawing higher from the historic low set in 2011, but have only begun to erode the elevated profit margins on which Wall Street is basing its permanent hopes and expectations.

Aside from historic extremes in the valuation measures best correlated with actual subsequent market returns, one measure of these hopes and expectations is that in 2018, according to the Financial Times, 81% of U.S. companies that went public reported losses in the 12 months before their initial public offerings, matching the high-water mark set at the height of the dotcom bubble (h/t Hadi Taheri). It’s the same kind of spectacle that Rhea described nearly a century ago, when he wrote:

“Worthless equities were being sky-rocketed without regard for intrinsic worth or earning power. The whole country appeared insane on the subject of stock speculation. Veteran traders look back at those months and wonder how they could have become so inoculated with the ‘new era’ views as to have been caught in the inevitable crash. Bankers whose good sense might have saved the situation, had speculators listened to them, were shouted down as deconstructionists, while other bankers, whose names will go down in history as ‘racketeers,’ were praised as supermen.”

Still, while it was important to Dow, Rhea, and Hamilton to understand valuations, and to recognize the position of the market in the cycle, they were also carefully focused on the behavior of prices, particularly the uniformity of behavior between their primary indices of interest – the Dow Industrials and Transports. While our own measures of market internals focus on the uniformity of a much broader set of securities, it’s enormously instructive to consider several critical features of market behavior that they understood even a century ago.

  • First, market fluctuations exhibit cycles that move between periods of extreme optimism and periods of profound despair.

  • Second, the extremes of each cycle are characterized by unusually elevated or depressed valuations, and these valuations comprise the true “meaning” of the market for investors.

  • Third, the speculative pressure toward higher prices, and the downward pressure toward lower prices, can be largely gauged by the “uniformity” of behavior across various groups of securities.

  • Fourth, it is enough to identify prevailing conditions and respond to them as they change, without any need to predict the extent or duration of a subsequent market movement.

Consider the situation in mid-1929, when, as the market pushed to obscenely rich valuations, Hamilton acknowledged the uniform behavior of the Dow averages, while also carefully placing the advance in a full-cycle context. That uniformity suggested that investors had taken the speculative bit in their teeth, despite the fact that the bull market, in hindsight, would reach its peak only a few weeks later.

“It goes without saying that the stock market, which has advanced with merely secondary reactions for five years and eight months, is almost necessarily in the third or last stage of such a movement, where stocks do not carry themselves on the dividend return, for the most part, and where sanguine expectations of the future exercise a greater influence than immediate results. All that the averages say when they give such a bull point as that of June 29 [when the Dow averages breached their previous May highs] is that stocks are due for a further advance. They do not predict the extent of that advance.”

The 1929 peak occurred on September 3rd of that year, followed immediately by a steep, waterfall decline. Hamilton’s confirmation of a “turn in the tide” was published the next month, on October 25, 1929, the Friday before Black Monday. By then, the Dow was already 20% off its high (that’s what safety nets and tail-risk hedges are for). The Dow would lose an additional 86% before setting its final low in 1932.

We presently have a financially disfigured economic expansion that’s three months shy of the longest in history, where the unemployment rate is down to 3.8%, and the most reliable measures of stock market valuation again rival the hypervalued extremes of 1929 and 2000. In this context, to call for an immediate 50 basis point rate cut and a resumption of quantitative easing from the Fed seems a frantic strategy to keep a hypervalued market and two-tiered economic “prosperity” in suspended animation.

In a hypervalued market, we do not need to embrace market risk as a result of speculative pressures, but we have to defer an overtly bearish investment outlook on immediate market direction. All of this effort to jam the speculative bit back into the horse’s teeth requires us to adopt a rather neutral outlook here, until we observe fresh deterioration in market internals. Given the late-stage condition of the financial markets and the economy, my sense is that, as in 1929, they may just run this poor horse straight up and over the cliff.

We’ll respond to shifts in valuations and market action as they emerge, so forecasts aren’t actually necessary. Still, full-cycle risks have a way of emerging in ways that investors wholly rule out at market peaks. Glorious half-cycle market advances leave investors vulnerable to catastrophe, because investors hold contempt for anyone who suggests there may be a cliff on the other side of the mountain.

Still, recall that I openly anticipated the 2000-2002 collapse (which wiped out the entire total return of the S&P 500 – over and above T-bill returns – all the way back to May 1996), estimated an -83% loss in tech stocks at their March 2000 peak (which rather improbably matched the actual loss of the tech-heavy Nasdaq 100), and, after a constructive shift in early 2003, projected the 2007-2009 collapse (which wiped out the entire total return of both preceding bubbles – over and above T-bill returns – all the way back to June 1995). The distressing thing is that, from a historical perspective, all of those losses were rather run-of-the-mill cycle completions.

Understanding potential downside risk at a market extreme has a way of concentrating the mind. If I were to offer a guess, I’d suggest that regardless of whether the S&P 500 registers fresh near-term highs, investors should allow for the S&P 500 to be perhaps -30% lower by the end of 2019, on the way to losing an additional -50% of its remaining value over the rest of the down-cycle. That, after all, is how a market loses -65% of its paper value. That’s not so much a forecast as a base case. A -65% loss, unfortunately, would presently represent a run-of-the-mill cycle completion from current valuation extremes. As I observed at the 2000 peak, “If you understand valuations and market history, you know we’re not joking.”

... the investors at greatest risk in the coming years will likely be those who take solace from Fed easing in environments where valuations are extreme yet investors are inclined toward risk-aversion. It will be necessary to refrain from too negative an outlook when overvaluation is joined by speculative psychology, and also to refrain from too aggressive an outlook when reasonable valuations are still joined by extreme risk-aversion. In any event, I expect that responding systematically to valuations and market action, particularly the condition of market internals, will be sufficient to navigate whatever policy makers throw at the markets.

Read more here...

Published:4/13/2019 3:06:39 PM
[Markets] Imminent Recession Risk "Doubled" - 3 Signals Sounding The Alarm

Authored by Alt-Market's Brandon Smith, originally published at Birch Gold Group,

It’s been more than 10 years since the last economic recession. Since the U.S. economy generally operates in cycles, it looks like the time is drawing near for another.

In fact, late last year the Dow Jones took a dive, but that was likely just an appetizer for the course to come…

A recent piece from Bloomberg reported the risk of a recession has “more than doubled this year as leading economic indicators deteriorate, the yield curve inverts and monetary policy tightens,” referencing a note by Guggenheim Partners.

And, according to CIO Scott Minerd, it appears the next recession could last longer than the previous one (emphasis ours):

The next recession will not be as severe as the last one, but it could be more prolonged than usual because policymakers at home and abroad have limited tools to fight the downturn…

Guggenheim oversees $200 billion as an investment banking firm. They issued this dire warning along with major concerns about corporate debt, a severe stock market drop, and uncertainty about the Fed.

Debt, Yield Curve Inversion & QE Signaling Recession Risk

We’ve previously reported that U.S. National, corporate, and consumer debt are at all-time highs. This dangerous “debt trifecta” has even gotten the attention of several billionaires.

Rising national debt currently tops $22 trillion. Corporate debt topped $6 trillion at the end of 2018. And the “ATM” of consumer debt has hit $4 trillion. Americans are tapped out. Combined together, this signal alone should sound recession alarms.

But this is just one of multiple major warning signs…

The yield curve is dangerously close to inverting at only 16 basis points between 2- and 10-year treasuries. What’s even more troubling is yield curve inversion has preceded every major recession over the last 50 years.

The third big warning sign comes from the Federal Reserve. They used Quantitative Easing (QE) to help bring the economy out of the depths of the last recession. But right now that process is going in reverse. In other words, they are sucking hundreds of billions of dollars out of the banking system in a process called Quantitative Tightening.

The Fed said they would stop unwinding QE in September. But for now, Wolf Richter reports this unwinding process is still on “autopilot” at $535 billion and counting.

So let’s review our recession risk:

  • Historic levels of debt — check

  • Major recession signal proven reliable for 50 years — check

  • Massive amounts of money being sucked out of the financial system — check

It’s pretty clear why Guggenheim is so worried. In fact, would not surprise us if their warnings are confirmed in the very near future.

Diversify Your Risk So It Doesn’t “Double”

These economic indicators will continue to develop, and it’s safe to assume it will result in plenty of uncertainty in the markets.

You don’t have to let a volatile market hit your retirement the way it did to so many people in our last recession. You can start taking action now to protect your savings.

Having a diversified portfolio with assets known for their protection during uncertain times is a strategic way to protect your retirement. Holding assets such as physical gold and silver could prevent your retirement savings from suffering the consequences of being overexposed to the risk of the markets.

Published:4/13/2019 12:36:20 PM
[Markets] What Is A Blue Chip Stock? The blue chip stock: In the current stock market, only three stocks in the Dow are outperforming the market. Published:4/13/2019 8:40:42 AM
[Markets] Dow Jones Leads Stock Market Rally Thanks To These 5 Key Stocks The Dow Jones Industrial Average led a broad stock market rally, thanks to big gains from Disney, Dow Inc. and three other Dow stocks. Published:4/12/2019 4:05:57 PM
[Markets] NewsWatch: Stocks close higher on robust bank earnings, Disney helps propel Dow up triple digits U.S. stocks end higher Friday after a series of strong bank earnings, led by JPMorgan, boosted confidence in the U.S. economy while the Dow gained more than 200 points as Walt Disney shares soared.
Published:4/12/2019 4:05:57 PM
[Markets] Dow finishes up over 260 points on solid bank earnings; Disney, JPMorgan jump Dow finishes up over 260 points on solid bank earnings; Disney, JPMorgan jump Published:4/12/2019 3:34:35 PM
[Markets] Disney, Dimon, & A China Debt Surge Lift Stocks As Economic Data Collapses

Just keep repeating: "the market is not the economy"...

Except that is the exact opposite of what former Fed Chair Alan Greenspan told the world this morning, explaining that much of the improvement has come from a rise in stock market prices:

He sees a “stock market aura” in the economy.

A rise of 10 percent in the S&P 500 corresponds to a 1 percent real GDP increase, he said. The S&P 500 has risen nearly 16 percent in 2019 and is on track for its best performance in history should current trends hold.

So who is right - Greenspan or the asset-gatherers and commission-takers?

*  *  *

China was weak on the week with ChiNext's worst week since before Thanksgiving (after rising for 9 straight weeks)...

 

Mixed picture in Europe this week with Italy and France outperforming and Spain the laggard...

 

US futures show the moment that China credit and trade data hit, sending stocks soaring...

 

On the week, Trannies were the big winners as Small Caps clung to gains and The Dow scrambled today to get back to breakeven on the week...(despite utter desperation in the algos, The Dow ended the week red)

 

Notable decoupling between the market and "most shorted" stocks the last two days - do not see this very often at all...

 

LYFT crashederer (blowing below $60!!)...

 

DISney lifted The Dow dramatically and sent NFLX lower...

 

Chevron tumbled as it bid for Anadarko...

 

And then there was JPM - which surged on record results and Dimon's bullish remarks - compared to Wells which was ugly...

 

Treasury yields were all notably higher on the week, led by the belly up 7-8bps...

 

10Y Yields rose back above 2.50%, back up to the March FOMC levels...

 

The market has erased almost all of the extra dovishness priced in since the March FOMC meeting...

 

The Dollar Index (DXY) ended the week lower, back below the Maginot Line of 97.00

 

For the seventh week in a row, China's Yuan was flat (thanks to a big jump overnight)...

 

Bitcoin and Ethereum held on to gains for the week as Ripple and Litecoin tumbled...

 

Despite the USD weakness, PMs were weaker (with silver slammed) as copper and crude gained...

 

Gold is trading at its 'richest' to silver (86.1x) since 1993...

 

Commodities and rates are aligned in their view of reflation (nothing much)...

 

Because, remember, fun-durr-mentals don't matter!!! Only global money supply does...

Never Forget... they're still out there...

Published:4/12/2019 3:04:16 PM
[Markets] Dow gains more than 200 points as Disney, JPMorgan jump, healthy bank earnings buoy broader market U.S. stocks rise Friday after a series of strong bank earnings, led by JPMorgan, boosted confidence in the U.S. economy while the Dow gained more than 200 points as shares of the banking giant and Walt Disney soar. Published:4/12/2019 2:03:49 PM
[Markets] Stocks climb after healthy bank earnings as Disney helps propel Dow higher U.S. stocks rise Friday after a series of strong bank earnings, led by JPMorgan, boosted confidence in the U.S. economy while the Dow gained more than 200 points as shares of Walt Disney soared following the unveiling of its new streaming service. Published:4/12/2019 12:33:26 PM
[Markets] Stocks rise on healthy bank earnings as Dow benefits from Disney surge U.S. stocks rise on global growth optimism, alongside bullishly received bank earnings and a big jump for shares of Dow component Walt Disney Company. Published:4/12/2019 10:32:59 AM
[Markets] U.S. economy looks good now simply because of rising stocks and that's going to fade, Greenspan says Federal Reserve officials have said the economy is in a "good place" but that's really due mainly to the recent rebound in stock prices, former Federal Reserve Chairman Alan Greenspan said Friday. "There is a bit of a stock market aura about the current economy," Greenspan said, in an interview on CNBC. Higher stocks tend to spur real gross domestic product with a one-quarter lag, Greenspan noted. The former Fed chairman was pessimistic about the longer-run outlook. "The short run looks reasonably good, the longer run fades very dramatically, in large part because rest of the world is sinking," he said. Year to date, the Dow Jones Industrial Average is up 12.1%. Published:4/12/2019 10:03:18 AM
[Markets] Disney CEO: "Hitler Would Have Loved Social Media"

Now that Disney CEO Bob Iger has finally committed to a timetable for retiring from his perch atop the world's largest entertainment company (or at least the world's argest media firm that doesn't  also dabble in telecommunications), he can start to loosen up a bit, and not be so reserved during interviews or when accepting a humanitarian award in front of a ballroom of Hollywood power players.

During a speech at the 2019 Humanitarian Award at the Simon Wiesenthal Center's annual National Tribute Dinner, an event ostensibly organized to celebrate charitable giving, Iger launched into a diatribe about the corrosive influence of social media, as the Hollywood Reporter reports.

Disney

While Facebook, Twitter, Instagram and the rest of their cohort has transformed the way people relate to one another and challenged the dominance of the "traditional media" (like the company Iger leads), it has also created a platform that helps reinforce groupthink and foster hatred and malice.

Iger lamented that "hate and anger are dragging us toward the abyss once again, and apathy is growing...consuming our public discourse and shaping our country into something that is wholly unrecognizable."

"Our politics, in particular, are now dominated by contempt," he said.

Then he went a step further, violating the cardinal rule of public speaking in the process: "Never say 'Hitler'".

Per the Reporter:

"Hitler would have loved social media," suggesting that it is "constantly validating our convictions and amplifying our deepest fears" and "makes it far too easy to deny our shared humanity." He emphasized that "it is possible to argue policy without attacking people" and that "we have to change how we talk to each other" before suggesting, "Maybe we should just start by reconnecting with those friends and family members that we haven't spoken to since the 2016 election."

Amid the flurry of Disney related news this week, the comment barely registered in the headlines. Yesterday, Disney unveiled its direct-to-consumer 'Netflix killer' (which is expected to lose money for at least five years). And investors were apparently so impressed that they have sent Disney shares on a double-digit tear. The stock was up more than 11% Friday morning, helping the Dow nearly erase its losses for the week.

Published:4/12/2019 10:03:18 AM
[Markets] Chevron's stock drop a bigger drag on Dow than boost from J.P. Morgan's stock Chevron's stock drop a bigger drag on Dow than boost from J.P. Morgan's stock Published:4/12/2019 7:05:51 AM
[Markets] J.P. Morgan Chase's stock surges after profit, revenue rise above expectations Shares of J.P. Morgan Chase & Co. surged 2.3% in premarket trade Friday after the banking giant reported first-quarter profit and revenue that rose above expectations, although fixed income and equity markets revenue fell. Net income rose to $9.18 billion, or $2.65 a share, from $8.71 billion, or $2.37 a share, in the same period a year ago. The FactSet earnings-per-share consensus was $2.35. Total revenue increased to $29.85 billion from $28.52 billion, above the FactSet consensus of $28.44 billion. Net interest income grew 8% to $14.6 billion, topping the FactSet consensus of $14.4 billion. Revenue for the consumer & community banking and corporate & investment bank business beat expectations, commercial banking revenue was inline and asset & wealth management revenue missed. Excluding a year-ago gain from an accounting change, markets reevnue fell 10%, as fixed income market revenue declined 8% and equity markets revenue slid 13%. "Even amid some global geopolitical uncertainty, the U.S. economy continues to grow, employment and wages are going up, inflation is moderate, financial markets are healthy and consumer and business confidence remains strong," said Chief Executive Jamie Dimon. The stock has rallied 8.8% year to date through Thursday, while the SPDR Financial Select Sector ETF has climbed 11.9% and the Dow Jones Industrial Average has advanced 12.1%. Published:4/12/2019 6:32:43 AM
[Markets] S&P Surges Above 2,900 On Chinese Credit Creation Flood, Trade Data Bounce

What was a muted overnight session, with traders wearily awaiting today's earnings from JPM and Wells, officially starting Q1 earnings season, and with mixed Asian equities prompting a nervous start in Europe, a sharp rebound in Chinese trade data coupled with a surge in Chinese credit creation, bolstered risk assets across the board, helping underpin "signs of resilience" in the global economy, and prompted a broad bid for risk. As a result, S&P futures rallied sharply back above 2,900, the highest since September 2018m ahead of the first major bank earnings in this cycle.

Europe Stoxx 600 Index erased earlier losses and U.S. futures extended gains after China reported a sharp rebound in March exports even as imports shrank for a fourth straight month and at a sharper pace, painting a mixed picture of the economy as trade talks with the United States reach their endgame. Export growth rebounded significantly to +14.2% yoy in March,the strongest growth in five months and  well above consensus expectations,  and up from -20.8% year-on-year in February, primarily on the Chinese New Year distortion.

Shipments picked up around 3% month-on-month, suggesting some improvement in foreign demand, Julian Evans-Pritchard, senior China economist at Capital Economics, said in a note. But he said exports have yet to fully recover from a sharp slowdown late last year.

“With global growth set to remain weak in the coming quarters, a strong rebound in exports looks unlikely,” he said.

Adding to the worries, China’s imports fell more than expected, suggesting its domestic demand remains weak: imports were down 7.6% yoy in March, below consensus. That left the country with a trade surplus of $32.64 billion for the month, much larger than forecasts of $7.05 billion.

 

Veteran China watchers told Reuters that export gains may be due more to seasonal factors than any sudden turnaround in lackluster global demand, as shipments were expected to jump after long holidays in February.

However, the catalyst for the spike in futures and sending the S&P sharply higher from 2894 to above 2,900 what China's release of far stronger lending growth, signaling a further firming of its nascent economic recovery. The PBOC reported new yuan loans of 1.69 trillion, far above 1.25 trillion estimate, while total aggregate financing in March soared higher 2.86t yuan, the highest March increase on record; smashing the 1.85t yuan estimate, and more than four times the February 703BN yuan increase. In total, March M2 rose +8.6% y/y; also stronger than the est. +8.2%, and well above the February +8%. In other words, it once again appears that China is doing everything in its power to flood the economy with new credit and reversing concerns from the sharp February TSF drop.

China's gift to markets, and the shift in sentiment came hours before the first-quarter reporting period begins in earnest Friday, with results from JPMorgan Chase & Co. and Wells Fargo & Co. The 10-year Treasury yield climbed above 2.54% and the greenback weakened versus most major currencies, particularly against the euro.

European equities moved back into positive territory, led by autos and basic resource sectors. 10Y German yields rose ~2.5bp back above 0%, with bund and UST futures snapping back towards the week’s lows in decent volume. Gilts followed, with yields up ~2bp across the curve; peripheral and semi-core European spreads tightened in tandem. WTI crude gained over 1%, lifting commodity currencies. Chinese yuan strength providing support for EMFX and metals markets.

Also of note, Chevron announced an agreement to acquire Anadarko for USD 33bln at USD 65/share; will assume estimated net debt of USD 15bln. Anadarko shares soared higher by around 20% in pre-market.

Elsewhere, the euro rose above $1.13 for the first time in more than two weeks, with its more favorable prospects reflected in options across tenors. Cable advanced before paring gains; market focus is on whether U.K. Prime Minister Theresa May can compromise on a post-Brexit customs union with the EU in talks with opposition Labour Party. Aussie rises versus the U.S. dollar; it dipped earlier after the central bank warned of the danger of a sharper global downturn and steeper losses in the local housing market in its Financial Stability Review.

In commodities, West Texas oil futures rose and headed into their sixth consecutive weekly advance, the best streak since 2016. The pound was steady after Prime Minister Theresa May accepted the European Union’s offer to push the Brexit deadline out to October.

Expected data include the University of Michigan Consumer Sentiment Index. JPMorgan, PNC and Wells Fargo are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.4% to 2,902.00
  • STOXX Europe 600 up 0.03% to 387.04
  • MXAP unchanged at 162.14
  • MXAPJ up 0.3% to 541.62
  • Nikkei up 0.7% to 21,870.56
  • Topix down 0.07% to 1,605.40
  • Hang Seng Index up 0.2% to 29,909.76
  • Shanghai Composite down 0.04% to 3,188.63
  • Sensex up 0.2% to 38,695.19
  • Australia S&P/ASX 200 up 0.9% to 6,251.32
  • Kospi up 0.4% to 2,233.45
  • German 10Y yield rose 1.7 bps to 0.008%
  • Euro up 0.4% to $1.1303
  • Italian 10Y yield fell 4.2 bps to 2.017%
  • Spanish 10Y yield fell 0.4 bps to 1.0%
  • Brent futures up 0.8% to $71.37/bbl
  • Gold spot little changed at $1,293.38
  • U.S. Dollar Index down 0.3% to 96.93

Top Overnight News from Bloomberg

  • China’s exports rebounded after the Lunar New Year holiday amid a pickup in trade talks optimism, while a continued slide in imports underscored the fragility of the domestic economy
  • Federal Reserve Chairman Jerome Powell asserted the central bank’s independence in remarks to Democratic lawmakers, telling them the Fed doesn’t consider political pressure in any way, according to two people in the room for the closed-door event
  • President Donald Trump has said privately that he knows Herman Cain will have trouble getting confirmed to the Federal Reserve Board, people familiar with the matter said Thursday

Asian equity markets traded mixed following an indecisive lead from Wall St. with participants tentative ahead of the latest Chinese trade data and big bank earnings in US. ASX 200 (+0.8%) benefitted from early outperformance in its largest weighted financials sector as top lender CBA gained on the reports it plans to reduce 10k workers, while Nikkei 225 (+0.7%) exporters found solace from favourable currency flows. Elsewhere, Hang Seng (+0.3%) and Shanghai Comp (U/C) lagged amid weakness in tech and gambling names, as well as cautiousness heading into the latest Chinese trade data. Finally, 10yr JGBs were lower as stocks in Japan remained afloat although downside for bonds was stemmed amid the BoJ’s presence in the market for nearly JPY 1tln of JGBs and with SoftBank pricing a record JPY 500bln offering.

Top Asian News

  • Philippines Central Bank Chief Says Rate Cut on the Table in May
  • Singapore Central Bank Keeps Policy Settings as Growth Slows
  • Arcelor’s $6 Billion Essar Deal Stymied by Fight Between Lenders
  • Another Warning on Asia’s $4 Trillion Stock Rally Is Flashing

European equities are marginally higher thus far [Eurostoxx 50 +0.2%] after having erased losses seen at the open. Broad-based gains are being seen across major bourses given the recent upturn of risk appetite wherein DAX breached 12k to the upside. Similarly, E-mini Jun’19 futures reclaimed the 2900 level ahead of the all time high just under 2940, last seen in October 2018. Back to Europe, sectors are mixed with outperformance in material names given the spike higher in sentiment-driven base metals. In terms of notable movers, Plus500 (-25%) fell over 40% at one point after reporting an 82% drop in revenue Y/Y, with IG Group (-3.0%) dragged lower in sympathy. Finally, markets are awaiting earnings from JP Morgan (11:55BST) and Wells Fargo (13:00BST) to kick off US earnings season.

Top European News

  • Thomas Cook May Have Inadvertently Breached Borrowing Limits
  • Stadler Rail Soars in Swiss Trading Debut After $1.3 Billion IPO
  • Carl Zeiss Meditec Boosts Full Year Ebit Margin Forecast
  • Plus500 Plummets After Losing $28 Million on Clients’ Bets

In FX, Eur/Usd and Usd/Jpy are both testing big figure levels, at 1.1300 and 112.00 respectively where decent option expiries lie (1.2 bn and 1.1 bn), but the move appears to be M&A driven and via the Eur/Jpy cross that spiked through 126.00 at the Tokyo fix overnight. Specifically, a 3 bn buy order is said to have been filled between 125.70 and 126.29, with the proceeds touted to be related to MUFJ’s purchase of a DZ Bank unit. Note, Eur/Jpy has now extended gains to circa 126.60 and the single currency is seeing spill-over buying across the board to around 1.1310 vs the Dollar and 0.8656 against Sterling where stops were expected on a break of 0.8650. Technically, 1.1316 in Eur/Usd may cap the upside as it forms 55 DMA and Fib resistance, while for Usd/Jpy several chart levels reside not far above 112.00, including the 200 WMA (112.04), a Fib (112.06) and the 112.13-16 ytd peak.

  • AUD/CAD/NZD - All benefiting from a more risk-on tone unfolding during the EU session and rebounding from lows vs their US counterpart, with the Aussie retesting 0.7150+ and Loonie paring losses from 1.3390 through 1.3350, but the Kiwi hampered to a degree by some weak NZ data overnight as it falls short of 0.6750. Note, Aud/Usd is now back within the realms of 1 bn expiries between 0.7150-55, as the DXY slips back under 97.000 again, albeit mainly due to the aforementioned Eur’s ascent and its biggest weighting in the index.
  • CHF/GBP - Also firmer vs the Greenback, as the Franc pares more losses from multi-week lows and inches closer to parity and Cable retains the bulk of its Brexit extension optimism within a 1.3050-80 range, but remains toppy on approaches to 1.3100 or just above given resistance around earlier April highs.
  • EM - Usd/Try has advanced further amidst the political turmoil and uncertainty over recent regional elections as the official Board has deferred a decision on a recount in one area of Istanbul that the ruling AK Party is contesting. The Lira lurched down below 5.8100 at one stage and closer to lows seen last month around 5.8490.

In commodities, WTI and Brent recently received a bout of demand as risk-on sentiment took the wheel, wherein the former reclaimed USD 64/bbl whilst the latter gained more ground above USD 71/bbl. Oil is poised for its third consecutive week of gains, as the benchmarks price in potential supply disruptions emanating from Libyan tensions. NOC Head Sanala warned that a renewal of fighting could wipe out the nation’s crude production which stood at 1.1mln BPD in March, according to secondary sources. Elsewhere, Europe’s largest oil refinery, Shell’s 404K BPD Pernis remains restricted at 65% of its normal output amid strikes conducted by a Dutch trade union which is expected to last until at least Monday. Finally, China’s trade report noted that the country’s crude oil imports in the first quarter rose 8.2% Y/Y, although March imports fell to the lowest since 2018. In the metals complex, gold remains below the USD 1300/oz level after having lost the mark as the Greenback recouped some recent losses. Elsewhere, copper prices received a boost from the risk appetite around the market. The red metal breached its 100 DMA to the upside at 2.8974/lb before briefly trading above the 2.950/lb level. Libya NOC chief said oil and gas exports face biggest threat since 2011 given the recent fighting, subsequently stating that a renewal of fighting could wipe out the nations crude production

US Event Calendar

  • 8:30am: Import Price Index MoM, est. 0.4%, prior 0.6%; Export Price Index MoM, est. 0.2%, prior 0.6%
  • 10am: U. of Mich. Sentiment, est. 98.2, prior 98.4; Current Conditions, prior 113.3; Expectations, prior 88.8

DB's Jim Reid concludes the overnight wrap

Happy Friday. Given that we barely had a moment to catch our breath on Wednesday the duller last 24 hours in markets has been most appreciated. Volumes in equities were certainly lower than of late. Indeed a bit of a lull in newsflow means we’ve been broadly back to trading a narrow range in equities with the S&P 500 last night closing with the smallest of gains that didn’t quite round up to +0.01% but technically ensured 10 winning days out of 11 now. It was a similar low key story for the DOW but that fell (-0.05%) slightly along with the NASDAQ (-0.21%) while the STOXX 600 nudged up +0.06%. Needless to say vol has been depressed as a result with the VIX (-2.1%) back down to around 13 at the close again yesterday and testing the YTD lows. The V2X in Europe is now at 12.60 and the lowest since August. So Q2 so far has very much been more of the same for vol. It’s worth noting though that we’re due to get results from JP Morgan and Wells Fargo today so there’s always the possibility of a bit of earnings headline news to inject some energy back into markets again. It’s worth noting that banks have been the worst performing sector over the past month. Those results are due out just prior to the US open.

As for other markets yesterday, Treasuries made a bit of 180 degree turn with yields creeping back up towards 2.50% again and closing at 2.497% and up +3.2bps on the day with the move coming despite a softish PPI print beneath the high headline print (more below) which as a reminder followed a similarly soft CPI reading on Wednesday. A fresh 49-year low on jobless claims seemed to be more important. There were some comments from the Fed however. Vice-Chair Clarida spoke and said that the outlook means current policy and the patient stance to further changes remains appropriate. He also said that he’s seeing some slowing in global macro data and that inflation remains muted but that he expects an upturn in global growth later in 2019. So by and large consistent with what he’s said in the past. Later on Williams spoke and said that the US economy still has positive momentum and that worries about a slowdown had receded. He was a bit more dovish on inflation however, and highlighted concerns about inflation expectations heading lower still.

Staying with the Fed, proposed Trump Fed nominee Herman Cain received a fourth GOP Senate rejection yesterday meaning that if Democrats all vote against them his nomination wouldn’t pass. This shows how difficult it will be for Mr Trump to deviate too far from the mainstream in terms of potential Fed board members.

In Europe yesterday we heard from a number of ECB speakers. Visco confirmed that the ECB is discussing and analysing the effects of negative rates and that the precise parameters of the new TLTRO will be clearly defined by June. There was a similar comment from Knot who also added that the next TLTRO needs to be more conservative and less generous relative to the last. Meanwhile Villeroy confirmed that there was a consensus within the ECB to analyse the effects of negative rates for banks. Bunds traded back up at the dizzying heights of -0.009% yesterday (+1.7bps) while BTPs (-4.2bps) were strong following a fairly solid auction.

This morning in Asia markets are trading mixed with the Hang Seng (-0.36%) and Shanghai Comp (-0.44%) down while the Nikkei (+0.44%) and Kospi (+0.10%) are up. Elsewhere, futures on the S&P 500 are up +0.09%. Crude oil prices (WTI +0.31% and Brent +0.25%) are again up this morning after falling yesterday (WTI -1.59% and Brent -1.25% ) as data indicated a 7.03 million-barrel jump in the US crude inventories last week to the highest levels since 2017.

Overnight, Bloomberg reported that Fed Chair Powell made an appearance at a Democratic retreat in Leesburg Virginia to address the concerns of lawmakers around the Fed’s independence. He asserted the Fed’s independence saying that the Fed doesn’t consider political pressure in any way while adding that interest rates are at about the right level given current economic conditions and that the benefits of U.S. economic growth haven’t been as widely spread as the Fed would like. He also endorsed the Earned Income Tax Credit as a way to distribute wealth more widely.

As for the latest on Brexit, there isn’t much to report. Theresa May confirmed in her statement that her government is to push for a deal by the European Parliamentary elections which in theory would enable the UK to leave before June. Opposition leader Corybn talked up the cross party talks while May also indicated that the gap on trade proposals between the Conservatives and Labour is actually fairly minimal. Sterling was fairly directionless yesterday and this morning trades at $1.3075 which is roughly where it started the day yesterday. Elsewhere, The Times reported that the DUP leader Arlene Foster and DUP deputy leader Nigel Dodds met Boris Johnson and members of his team in the commons for 40 minutes on Wednesday.

As for the latest data, fresh off a soft but albeit distorted CPI report on Wednesday, yesterday’s PPI report for March in the US was also disappointing at the core level (0.0% mom vs. +0.2% expected) even if the headline came in well above expectations at 0.6%. It’s worth flagging was the healthcare component, which at +0.07% mom was also soft and therefore will likely result in a drag to the core PCE health care reading. On a more positive note, claims set a new 49-year low record after dropping to 196k. More notably, the four-week average is now down to 207k and also more or less at a 49-year low. It’s possible that there is some distortion due to the timing of Easter this year however the data continues to paint a picture of a sturdy labour market.

Prior to this on the continent we had final March CPI revisions in Germany and France, however no changes were made to the +0.5% mom and +0.9% mom readings for each, respectively.

Finally to the day ahead, where this morning there should be some focus on the February industrial production print for the Euro Area. Expectations are for a -0.5% mom reading however much better than expected readings for France and Italy this week raise the risk of an upside surprise and something more akin to only a marginal decline. Meanwhile in the US this afternoon we’ve got the March import price index reading, and preliminary April University of Michigan consumer sentiment survey. Away from that we’re expecting comments from the BoE’s Carney at the IMF meetings this afternoon, while the ECB’s Praet is also due to speak. The aforementioned US bank earnings will also be worth a watch.

Published:4/12/2019 6:01:56 AM
[Markets] US Market Indexes Close Mostly Lower Thursday Dow Jones down 0.05% Published:4/11/2019 5:31:03 PM
[Markets] The Dow Is Stuck In a Rut – and Even Earnings Might Not Get It Going STOCKSTOWATCHTODAY BLOG Watching paint dry. The Dow Jones Industrial Average was up a little. And then it was down a little, and that is where it finished the day. A Brexit extension didn’t move the market, and neither did the fewest jobless claims in 49 years. Published:4/11/2019 4:58:57 PM
[Markets] Gold Tumbles Below $1300 As Dow Dumps To 10-Day Lows

Well that escalated quickly...

After trading in a very narrow (30 point) range for hours...

The Dow has tumbled below the week's lows as Europe closes... this is the lowest for The Dow since April 1st.

Trannies remain green...

The Dollar remains higher post-FOMC Minutes, but gold is suffering most...

Back below $1300...

No immediate catalyst for the move yet.

 

Published:4/11/2019 10:58:08 AM
[Markets] Dow Rises as Washington and Beijing Take Steps to Securing Trade Deal The Dow Jones Industrial Average rose after U.S. Treasury Secretary Steven Mnuchin said Washington and Beijing have "pretty much agreed on an enforcement mechanism" for when a trade deal is struck. plans to reveal details about its Disney+ direct to consumer streaming service at 5 p.m. ET on Thursday. shares fell following conflicting reports that Panasonic is reviewing its investment in battery production in Japan with the electric carmaker. Published:4/11/2019 9:26:25 AM
[Markets] Blind Faith Versus The Bottom Line

Authored by Charles Hugh Smith via OfTwoMinds blog,

There is more than a little "let them eat brioche" in the blind faith that the masses' patience for pillage is infinite.

We've reached an interesting moment in history where we each have a simple choice: we either go with blind faith or we go with the bottom line, i.e. the facts of the matter. So far, 2019 is the year of Blind Faith, as the charts below illustrate: the bottom line no longer matters.

Let's start with the Ray Dalio Effect, which strikes financiers who've exploited our rigged system to skim billions while creating zero goods and services or public good: discerning that the millions whose labor has created the actual goods, services and public good will eventually tear down his Bastille of ill-gotten wealth stone by stone, Mr. Dalio rigs a corporate media appearance (the door is always open to billionaire financiers) to weep alligator tears while decrying the very system he exploited and suggesting we throw a few more crumbs to the mob to distract them from the awareness that his billions were ultimately skimmed from the wealth they generated.

Nice timing, Mr. Dalio: It's awfully convenient of you to decry the system you helped create after you've skimmed your ill-gotten billions rather then before.

Then there's the blind faith that nose-bleed stock valuations can only go higher. Courtesy of The era of ‘price-insensitive buying’ has led to this troubling chart(MarketWatch), here's a chart of the valuation of the Dow Jones Industrial Average (DJI), which now exceeds the insane extremes of the dot-com bubble circa 1999-2000.

Blind faith was the punter's choice in late 1999-early 2000 as well. The bottom line no longer mattered.

In another victory of blind faith over the bottom line, IPOs with negative earnings have reached the profits-don't-matter craziness of the dot-com bubble: but blind faith assures us that this time it's different and this is not a bubble.Rewarding Reckless Risk Pricing... Again! (Zero Hedge)

Then there's the little spot of bother with everyone's favorite object of blind faith, Apple: iPhone sales have flatlined even as Apple slashes prices in weakening markets.

So what does Blind Faith do? Bid up Apple shares 40%.

Meanwhile, in the real world of people creating wealth with their labor, workers' share of the national income has cratered while the financiers piled up their billions. The greatest expansion of wealth in U.S. history has created the greatest expansion of wealth inequality in U.S. history.

There is more than a little "let them eat brioche" in the blind faith that the masses' patience for pillage is infinite. Here's a chart of healthcare-related costs and wages. Note the healthcare costs have soared far above the meager wage increases, which means disposable income has cratered. Rents, childcare, college tuition and local taxes/fees have similarly outpaced wages.

So by all means, put your blind faith in the Three Monkeys and ignore the bottom line. These monkeys agree with Marie Antoinette, "let them eat brioche".

*  *  *

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Published:4/11/2019 8:59:20 AM
[Markets] S&P Futures Flirt With 2,900 Despite Barrage Of Central Bank Warnings

With "super Wednesday" - which was a huge dud in terms of actual data surprises - now in the rearview mirror, and with just one day to go until the official launch of Q1 earnings season which is widely expected to be the worst once since 2016, stocks have continued their merry overnight levitation, with S&P briefly flirting with 2,900 before easing back modestly...

... as European stocks rebounded from earlier losses while Asian markets slumped after cautious European and U.S. central banks reinforced investors’ worries about the slowing global economy and trade protectionism which however did not prevent Treasuries to get sold off modestly while the dollar pushed higher.

Europe's Stoxx 600 Index trimmed earlier losses, as gains in travel companies counter-balanced declines in miners and the basic resources index, which fell as much as 1.5% and was the worst performing sector in the SXXP, as Goldman Sachs wrote in a note that China may temper its easing policy amid stronger economic performance. Chip stocks were also weak as downgrades hit Siltronic following its warning yesterday and analysts mulled what next week’s 1Q results from industry bellwether ASML might hold.

On Wednesday, the ECB kept its loose policy stance and warned that threats to global economic growth remained. The ECB has already pushed back its first post-crisis interest rate hike, and President Mario Draghi raised the prospect of more support for the struggling euro zone economy if its slowdown persisted.

Earlier in Asia, the MSCI index of Asia-Pacific shares outside Japan slipped 0.4% after four straight days of gains took it to the highest since last August. Japan’s Nikkei reversed early losses to end 0.1 percent higher. China's blue-chip CSI300 index dropped 1.7% while Hong Kong’s Hang Seng index stumbled 0.7%. Australian shares also lost ground, pressured by political uncertainty after the prime minister called a national election for May 18.

Emerging-market stocks were set to end their longest rising streak in more than a year as concern over the global economy dented investor sentiment. Currencies steadied near the strongest level in a month. MSCI index of developing-nation equities followed declines across stock markets, on track to end a 10-day rally that had added 5% to the gauge. Currencies were mixed, ranging from declines for the Turkish lira and the South African rand to gains for the Indian rupee and the Philippine peso.

Investor optimism on global stocks and commodities has begun to waver after a strong start to the year, as warnings about a global economic slowdown abound. Caution over economic pullbacks were expressed by the European Central Bank, the IMF and in the Federal Reserve minutes - which however was interpreted as bullish by traders, as it reinforced expectations that interest rates should be on hold for the rest of this year and may even be cut, resulting in further risk asset gains.

Wednesday data showed U.S. consumer prices increased by the most in 14 months in March but underlying inflation remained benign against a backdrop of slowing global economic growth. At the same time, minutes from a March 19-20 meeting of Federal Reserve policymakers showed they agreed to be patient about any changes to interest rate policy as they saw the U.S. economy weathering a global slowdown without a recession in the next few years.

“Traders continue to operate in a ‘wait and watch’ mode as they look for the next opportunity in a cautious market,” said Nick Twidale, Sydney-based analyst at Rakuten Securities Australia. “Two big event risks are now behind us with the ECB and Fed.” But, Twidale said, investors were still on the lookout for a trigger that would push markets out of their familiar trading ranges.

“If, as we expect, growth in the euro-zone continues to disappoint over the coming months, we think that ECB policymakers will adopt an even more accommodative stance,” analysts at Capital Economics wrote in a note.

In FX, the dollar advanced and commodity currencies came under pressure as oil retreated from a five-month high due to an increase in U.S. crude inventories. Treasuries slipped, euro-area bonds and stocks traded mixed, while a rally in emerging-market currencies lost steam. The Pound fluctuated and its volatility extended its sharp move lower as European Union leaders agreed to extend the Brexit deadline to

In commodities, Brent futures eased 27 cents to $71.46 a barrel. U.S. crude dipped 30 cents to $64.31. Gold hovered near a two-week top on Thursday at $1,306.97 an ounce.

Expected data include PPIs and jobless claims. Fastenal and Trulieve Cannabis are reporting earnings

Market Snapshot

  • S&P 500 futures little changed at 2,894.75
  • STOXX Europe 600 down 0.3% to 385.57
  • MXAP down 0.5% to 162.43
  • MXAPJ down 0.6% to 540.79
  • Nikkei up 0.1% to 21,711.38
  • Topix down 0.07% to 1,606.52
  • Hang Seng Index down 0.9% to 29,839.45
  • Shanghai Composite down 1.6% to 3,189.96
  • Sensex down 0.2% to 38,516.12
  • Australia S&P/ASX 200 down 0.4% to 6,198.67
  • Kospi unchanged at 2,224.44
  • German 10Y yield rose 0.2 bps to -0.024%
  • Euro up 0.04% to $1.1279
  • Italian 10Y yield fell 1.3 bps to 2.059%
  • Spanish 10Y yield fell 1.7 bps to 1.027%
  • Brent futures down 0.5% to $71.36/bbl
  • Gold spot down 0.3% to $1,304.10
  • U.S. Dollar Index little changed at 96.91

Top Overnight News

  • Julian Assange was arrested by London police Thursday after Ecuador withdrew diplomatic asylum from the Australian who had been linked to leaks of U.S. government secrets
  • The Brexit blueprint hashed out during six hours of talks in Brussels allows the U.K. to stay in the bloc until Oct. 31, with a review of progress to be held in June. British Prime Minister Theresa May accepted the offer and must now sell it to skeptical members of Parliament in London
  • ECB policy makers agree that euro-zone economic growth has held up in line with their official forecasts despite recent weak data, according to people with knowledge of the matter
  • New Zealand central bank governor Adrian Orr, who unexpectedly switched to an easing bias last month, said it’s not yet clear whether an interest-rate cut is warranted in May
  • The International Monetary Fund warned of “dangerous” consequences for the U.S. economy if moves such as President Donald Trump’s calls for Federal Reserve interest-rate accommodation lead to monetary policy mistakes
  • Global oil markets are tightening as OPEC supply falls, the International Energy Agency said, while warning it could lower demand forecasts because of economic threats
  • Prime Minister Scott Morrison called Australia’s election for May 18, with polls showing he’s facing an uphill battle to prevent a shift in power to the left- leaning opposition Labor party
  • Federal Reserve officials signaled on Wednesday they’re prepared to move interest rates higher or lower as needed, but an unusual mix of risks means they could remain on hold all year.
  • The U.S. and China have agreed to open “enforcement offices” as a way to make sure each side lives up to the terms of a trade deal still under negotiation, Treasury Secretary Steve Mnuchin said Wednesday
  • China’s consumer inflation surged in March on rising food prices, while factory- gate prices rebounded from close to zero
  • Oil struggled to extend gains beyond a five-month high as an increase in U.S. crude inventories to the highest since late 2017 overshadowed OPEC’s efforts to reduce production
  • North Korean leader Kim Jong Un urged a “severe blow” to those imposing sanctions on his country and told his ruling party to push “self-reliance,” signaling his determination to hold the line in talks with U.S. President Donald Trump

Asian equity markets were cautious as the region mulled over the prior day’s central bank activity from both sides of the Atlantic. ASX 200 (-0.4%) and Nikkei 225 (+0.1%) were subdued with Australia dampened by election risk after PM Morrison called for the election to be held on May 18th and with the ruling Coalition facing an uphill battle as it trails the opposition Labor Party by 52%-48% according to the latest polls, while risk appetite in Tokyo was hampered by recent currency flows in which USD/JPY briefly slipped below 111.00. Hang Seng (-0.9%) fell below the psychological 30k level and Shanghai Comp. (-1.6%) underperformed following somewhat inconclusive inflation data from China and as money market rates increased amid continued PBoC inaction. Comments from US Treasury Secretary Mnuchin also failed to inspire even though he noted that talks with China were very productive and that an enforcement mechanism had been agreed, as he also suggested there were still important issues to address. Finally, 10yr JGBs were subdued after a pullback from the 153.00 level and amid lacklustre trade in T-notes, while stronger demand at today’s enhanced liquidity auction for longer-dated bonds (20s, 30s, 40s) also did little to underpin demand for the 10yr.

Top Asian News

  • China’s Stimulus Arrives in Sector That Holds Recovery Key
  • China Vanke Said to Mull $1 Billion Property Management IPO
  • RBNZ’s Orr Says Mixed Picture Makes Next Rate Decision Difficult
  • Deadly ‘Super Fungus’ Fuels Surge in Chinese Drugmakers’ Shares

European equities trade with no firm direction [Eurostoxx 50 +0.1%] following on from a cautious Asia-Pac trade in the aftermath of the prior day’s central bank activity. France’s CAC 40 (+0.6%) is the marked outperformer as the index is bolstered by Sodexo (+5.0%) and LVMH (+4.6%) amid optimistic earnings. Sector-wise, consumer discretionary names lead the gains as the upbeat numbers from LVMH lifted fellow luxury names in sympathy with Swatch (+3.0%), Richemont (+1.7%), Kering (+1.8%) and EssilorLuxoticca (+2.0%) all benefiting from the tailwind. Meanwhile, utilities lag after reports that Ofgem are introducing new tougher entry tests from June 2019 for suppliers entering the market.In terms of individual movers, Prysmian (-8.6%) rests at the foot of the Stoxx 600 after the Co. said it could see a potential impact of EUR 60-80mln from issues regarding Western Link high voltage cable and damage claims. In terms of bank commentary, analysts at Citi now forecast 2% gains in global equities over the rest of the year, adding that their bear market checklist suggests buying into the next dip. However, Citi notes that the main risk to their forecast remains a full-blown global recession.

Top European News

  • ECB Officials Are Said to Agree Slowdown Hasn’t Worsened
  • Deutsche Boerse Is in Negotiations to Buy Refinitiv FX Units
  • U.K. Business Gets Dumped With Yet More Brexit Frustration
  • ASML Business Secrets Stolen by Staff Linked to China: FD

In FX, first we look at CAD/AUD/NZD as fall-out from the latest Fed minutes, which were less dovish than some anticipated, has been more pronounced across the commodity bloc where the high beta currencies are particularly sensitive/prone to swings in risk sentiment and underlying prices. The Loonie has lost most ground vs its US counterpart within a 1.3313-57 range as crude prices retreat from fresh 2019 peaks, closely followed by the Aussie and then the Kiwi that have both topped out after extending gains overnight and are retesting support/bids around 0.7150 and 0.6750 respectively.

  • JPY/GBP - Also losing out to a broadly firmer Usd post-FOMC minutes, as the DXY nudges back up towards the 97.000 axis, with Usd/Jpy also bouncing off the 200 DMA (110.90) and a little beyond the top end of hefty option expiries (1.7 bn) straddling the 111.00 level from 110.85 to 111.05 that could yet keep the topside in check ahead of 111.20. Meanwhile, Cable remains top heavy around or just above 1.3100 where short term chart resistance resides, and Eur/Gbp is still supported circa 0.8600 even though the EU has afforded Britain a longer A 50 extension and thereby prevented a Friday or May 22nd no deal Brexit. Note also, 1.4 bn expiries between 0.8600-10 may underpin the cross over the NY cut.
  • CHF/EUR - The Franc and single currency are holding up relatively well against the recovering Greenback, with Usd/Chf slipping back from multi-week highs towards parity and Eur/Usd reversing all and a bit more of its post-dovish ECB declines to revisit technical resistance protecting 1.1300.
  • SEK/NOK - The Swedish Krona has picked up the inflation baton from its Scandi peer in wake of Swedish CPI metrics that saw headline y/y rate and core m/m rates eclipse consensus. Eur/Sek slipped below 10.4200 in response, but has rebounded since, while Eur/Nok is also consolidating off Wednesday’s post-Norwegian inflation lows around 9.5800.
  • EM - The Lira’s woes simply go on, and regardless of Turkish data that should be supportive, such as narrower current account and trade deficits or a rise in weekly reserves. Instead domestic and geopolitical angst continues to trouble Try investors and the reaction to yesterday’s economic plan remains underwhelming. Hence, Usd/Try remains near the upper end of a 5.7300-6770 range.

In commodities, the oil complex remains lacklustre with upside in WTI (-0.7%) and Brent (-0.8%) futures capped by the wider-than-forecast builds in crude inventories this week. The IEA Oil Market Report provided little impetus for the benchmarks, despite leaving global oil demand growth estimates unchanged whilst its OPEC and EIA counterparts downgraded the measure.  However, the IEA and OPEC reports were relatively in-fitting in regard to OPEC output declining by over 500K BPD to just over 30mln BPD and both reports also highlighted that the slump in Venezuelan production led to the decline in global output. Elsewhere, gold (-0.3%) remains just above the USD 1300/oz level after giving up breaching its 50 DMA to the downside (1307) as the Greenback recoups some of the pre-FOMC losses. It’s also worth keeping in mind that South African production of the yellow metal declined 20.6% Y/Y in February (Prev. -22.5% Y/Y). Finally, copper (-0.5%) remains lacklustre amidst the overall risk tone around the market and as Chinese CPI provided little in the way of inspiration for the red metal.

US Event Calendar

  • 8:30am: PPI Final Demand MoM, est. 0.3%, prior 0.1%;
    • PPI Ex Food and Energy MoM, est. 0.2%, prior 0.1%;
    • PPI Ex Food and Energy YoY, est. 2.4%, prior 2.5%
    • PPI Ex Food, Energy, Trade YoY, prior 2.3%
  • 8:30am: Initial Jobless Claims, est. 210,000, prior 202,000; Continuing Claims, est. 1.74m, prior 1.72m
  • 9:30am: Fed’s Clarida Speaks at Annual IIF Meeting in Washington
  • 9:35am: New York Fed’s Williams Speaks in New York
  • 9:40am: Fed’s Bullard Speaks on Economy and Monetary Policy
  • 2pm: Fed’s Kashkari to Hold Q&A Via Twitter
  • 4pm: Fed’s Bowman Speaks on Community Banking

DB's Jim Reid concludes the overnight wrap

If I didn’t have a job and family then the next four days would go something like this. Masters golf on TV, bed, Masters golf, bed, play golf myself, Masters golf, play golf, watch Liverpool on TV, final round of the Masters and then the big one! Yes Game of Thrones starts at 2am Sunday night / Monday morning just after the Masters finishes. Of the above I’ll probably catch an hour or so of golf on the telly at some point before falling asleep on the sofa and maybe the Liverpool game while I cook the kids dinner. As for GoT I will be going off the grid for 10 days as of Monday avoiding spoilers as I want this to be the first thing my wife and I watch in our new house. Whether I can avoid any plot info for 10 days is highly debatable but I’m going to try.

If you’re planning on catching up with “Super Wednesday” in markets on demand later and don’t want the spoilers as to what happened then please look away now........ Basically we had the late night Brexit extension to Halloween, a fairly unexciting set of FOMC minutes, a dovish ECB that possibly opened the way for more rate cuts (yikes!) and a US CPI that just missed expectations but with one-offs again confusing the picture.

So late last night in Brussels, the EU27 agreed to offer the UK a nearly 7-month Brexit extension through to October 31. If we get that far I’m sure they’ll be lots of scary Halloween no-deal analogies. The UK PM May has accepted the offer and this will require the UK to participate in this year’s European elections. However, May has indicated that she still aims to leave by May 22 to avoid EU elections. Maybe she can bring her WA for one final vote sometime in the next 36 hours, but either way the odds of an early election continue to rise. She told EU leaders that’s she’s hopeful something can come of the cross party talks but the mood music domestically doesn’t suggest we’re close. She has previously promised binding Parliamentary votes on various Brexit preference so that should also come back onto the agenda soon. The pound appreciated +0.30% yesterday as the risk of a cliff edge Brexit this week reduced and is trading broadly flat (+0.04%) this morning.

The minutes of the March FOMC meeting provided a lot of interesting details, but not much in the way of market-moving revelations. On the hawkish side, the minutes said that most participants expected Q1 economic weakness to reverse later this year, and a few participants noted that the lower-for-longer rate environment could pose financial stability risks. On the other hand, a couple of them favoured using macroprudential policies to alleviate risks. Consistent with the dotplot, some participants judged further rate hikes to be appropriate later this year. On the dovish side, several participants said that rates “could shift in either direction” depending on how the economy develops. That’s one of the clearest signals yet that the committee is open to their next move being a cut, and several members also voiced concerns about low longer-term inflation expectations. So something for everyone in these minutes, and no lasting market impact.

For the ECB, the big takeaways were 1) to signal that deposit tiering is under consideration, 2) to open the possibility of a rate cut, 3) a decision framework for the TLTRO3s, and 4) the assertion that the inflation target is symmetrical and not a ceiling. The full review from our economists is available here .

On the first, Draghi confirmed that the ECB is discussing - and more importantly considering - whether the side-effects of negative rates need mitigating. There was no talk of a policy response yet which is in line with what our economists expected, and Draghi sounded generally non-committal during the press conference, however it’s clear now that it’s becoming an active policy discussion. Second, some form of tiering or mitigation technique would in theory make more-negative rates less painful to the financial sector, and therefore may make them more attractive as a policy option. Draghi emphasized that the ECB will use its entire toolkit as appropriate.

Third, TLTRO 3 pricing details are to “be communicated at one of the other forthcoming meetings.” The decision will be driven by the bank-based policy transmission mechanism as well as by the economic outlook. Draghi reiterated the party line on growth, which is risks to the Euro Area outlook are still “tilted to the downside”. The risk of recession for the Euro Area remains low however while inflation is expected to decline over the coming months. Fourth, Draghi reiterated that the inflation target is symmetrical and that the ECB would tolerate overshoots. This isn’t new policy, but it does emphasize how the ECB is determined to keep policy accommodative to ensure they don’t repeat the over-tightening mistakes of 2011.

European Banks were down as much as -1.75% from their intraday highs at one stage and finished the day down -0.71%. So that would suggest the sector is more concerned by the potential for further rate cuts, despite tiering in theory being positive for banks. Interestingly Draghi reiterated on numerous occasions that the market reaction to his ECB watchers speech showed that the market understood the ECB’s reaction function which is significant as this was when the market moved to price in more cuts.

As for other markets during the ECB, the euro weakened as Draghi spoke and was off as much as -0.51% from the intraday highs at one stage. However by the end of the European session it had completely pared losses and in Asia is trading at $1.1276 which is roughly similar to the pre-ECB levels. Meanwhile 10y Bunds finished-1.6bps lower at -0.026% which mirrored moves across most other European bond markets. Inflation breakevens also fell slightly, with the 5y5y inflation swap forward rate down to 1.34%, within 10bps of its all-time low from mid-2016. This suggests that the market doesn’t think rate cuts are the answer to the current low-inflation environment. Credit was little changed, while the STOXX 600, despite feeling the financials move, did manage to just about stay onside, closing up +0.26%, as real estate and utilities sectors rose.

Ahead of the FOMC minutes 10y Treasuries moved in sync with Bunds (a soft CPI reading also having a say however – more below) with yields down as low as 2.467% at one stage before the FOMC minutes. After the release of the minutes, yields rose slightly to end -3.4bps lower at 2.470%. The market also digested a $24bn 10-year auction with no problem. The S&P 500 was unfazed by the minutes, building on its rally to end the day +0.35% higher. The DOW closed flat while the NASDAQ rallied +0.69% to a new 6-month high. WTI oil prices rose +1.43% to $71.62 per barrel despite data showing another weekly build in US inventories.

In Asia this morning markets are heading lower with China’s bourses leading the decline – the Shanghai Comp (-1.36%), CSI (-1.98%) and Shenzhen Comp (-1.73%) are all down. There is some chatter (Bloomberg) that after a huge performance YTD the authorities are looking to curb margin leverage in equities and cool gains. We’ve also had the latest inflation data out of China which showed that both March CPI and PPI came in line with consensus at 2.3% yoy and +0.4% yoy respectively. Elsewhere the Hang Seng (-0.92%), Kospi (-0.10%) and Nikkei (-0.04%) are also down. Futures on the S&P 500 are little changed (-0.03%). The Aussie Dollar is down -0.17% after closing +0.66% yesterday. This followed Sky news reporting that PM Morrison has called a federal election for May 18th. The latest Newspoll poll showed that Labour leads by 4pts over the current ruling Liberal-National coalition.

Of the four blockbusters yesterday the US CPI report was probably the least significant certainly as far as markets were concerned. The +0.1% mom core reading was below estimates for +0.2% but it was more a matter of rounding given that the unrounded reading was +0.1475% mom. That said the annual rate did pull back to +2.0% yoy having been above it for 12 months. It’s probably worth taking the reading with a slight pinch of salt though given that apparel prices fell by the most since 1949 following a methodology change, contributing -8bps to the monthly rate and explaining the entire miss. On the plus side rents were a big upside surprise, rising +0.42% mom for the strongest move since 2007. The trimmed mean CPI metric, which excludes some outliers, showed a 2.28% yoy print. The 23bps gap between the trimmed mean and the actual core CPI is the widest in over seven years, suggesting some risks of convergence moving forward.

Given that it was one big outlier which determined the CPI move it’s unlikely to move the dial too much for the Fed. Speaking of which, Fed nominee Moore spoke yesterday and confirmed that he will be the “growth hawk” should he join the Fed. He added to this that he thought the US economy could grow at 3% or 4% but that “5% might be a stretch”. That should make for an interesting dynamic should he join.

As for the other data, the March monthly budget statement in the US which was out last night revealed a slight improvement in the budget deficit to ‘only’ -$146.9bn in March, better than the -$181.0bn expected.This fiscal year is still on track for the widest deficit since 2012 though. In Europe February industrial production prints for France (+0.4% mom vs. -0.5% expected), Italy (+0.8% mom vs. -0.8% expected) and the UK (+0.6% mom vs. +0.1% expected) all surprised to the upside, while the February GDP print in the latter came in at +0.2% mom (vs. 0.0% expected). The manufacturing sector drove that strong reading for the UK and combined with the labour market data, certainly aides the case for the BoE raising rates. How much will depend on to what extent stockpiling is driving the data at the moment, which as we’ve seen has also shown up in the PMIs.

To the day ahead now, where this morning we’ve got final March CPI revisions for Germany and France (no change from the flash estimates expected). This afternoon there’s more inflation data in the US to digest with the March PPI report where the consensus is for a +0.2% mom core reading. We’ll also get the latest claims reading at the same time. Away from that we’ve got scheduled speeches from the Fed’s Clarida, Bullard, Kashkari and Bowman. South Korean President Moon Jae-in is due to visit the White House and meet with President Trump, while it’s worth seeing if we get much in the way of headlines from the IMF/World Bank meetings too.

Published:4/11/2019 6:56:37 AM
[Markets] Disney, Amazon, Bed Bath & Beyond, National Enquirer - 5 Things You Must Know U.S. stock futures turned higher Thursday as minutes from the Federal Reserve's meeting in March showed that most central bank officials believe the current pace of U.S. economic expansion warrants leaving interest rates at their current levels for the rest of this year. Contracts tied to the Dow Jones Industrial Average rose 25 points, futures for the S&P 500 were up 2.75 points, and Nasdaq futures gained 5 points. Stocks ended higher Wednesday after the release of the Fed minutes. Published:4/11/2019 5:55:34 AM
[Markets] Short-Squeeze Sends Small Caps Soaring But Fed-Fear Triggers Bitcoin-Buying

As US economic data plunges to almost two year lows, the message from The Fed's Minutes was clear...

 

ChiNext ended the day lower despite China's National Team buying panic in the afternoon session...

 

Spain and Italy were worst-performers today as Germany rallied...

 

While The Dow trod water today (not helped by BA and HD), Small Caps soared...

 

Today's rebound was brought to you by yet another short-squeeze, erasing all the short's gains on the week...

Today was the biggest short-squeeze since Feb 27th.

Bank stocks bounced as Dems led the Congressional circus...

 

LYFT was lousy...

 

Treasury yields were notably lower on the day (3bps across the curve), despite equity gains...

 

With 10Y back well below 2.50%...

 

The dollar index popped briefly after the Fed Minutes, but faded back to the day's lows as the afternoon rolled on for the 3rd down day in a row...

 

Cryptos ripped after The Fed Minutes...

With Bitcoin pushing above $5400...

 

Copper drifted lower but PMs and Crude managed gains...

 

WTI rebounded as a big gasoline draw trumped a big crude build...

 

Gold surged solidly above $1300...

 

Finally, US Macro data plunged to its weakest since July 2017 and US earnings expectations remain dismally weak as stocks reach back towards record highs...

USA, USA, USA... is the number 1 worst economic data of the majors...

Published:4/10/2019 3:14:51 PM
[Markets] US STOCKS SNAPSHOT-Wall Street ekes out gains as investors shrug off Fed minutes Tech stocks led Wall Street slightly higher on Wednesday, with investors largely shrugging off benign U.S. inflation data and unsurprising minutes from the Federal Reserve's March meeting. The Dow Jones ... Published:4/10/2019 3:14:51 PM
[Markets] Gold Prices Are Going Higher, so Buy Barrick Stock, Says Analyst Gold prices are up just 2% year to date. The VanEck Vectors Gold Miners ETF is up 8.5% this year, 3.5 percentage points worse than the gain in the Dow Jones Industrial Average, but some on Wall Street think the metal’s underperformance is about to end. Deutsche Bank analyst Chris Terry upgraded shares of (ABX) (ticker: GOLD) to Buy from Hold on Wednesday. Published:4/10/2019 2:44:22 PM
[Markets] FOMC Minutes Show "Patient" Majority Expect Rates On Hold, Concern Over Flat Yield Curve

Alternative title: "FOMC Minutes show market is now in charge"

*  *  *

Since the uber-dovish flip-flop of The Fed on March 20th, the long-end of the US Treasury curve has outperformed all other asset classes...

The dollar and gold are also higher along with The Dow as we note that the yield curve flattened dramatically before rebounding back to almost unchanged...

And mirroring the yield curve, the market's expectations for Fed rate-changes in 2019 plunged (dovishly right after the March FOMC) only to rebound hawkishly in recent weeks...

Recall the FOMC held rates steady, forecast no additional hikes this year and announced plans to end balance sheet shrinkage in September, and as Bloomberg reports, that led markets to price in interest rate cuts by next January.  The minutes could push back against those expectations for actual cuts as the committee lays out conditions needed for a cut -- or a hike.

Bloomberg Chief U.S. Economist Carl Riccadonna warned that "an important focal point of the minutes will be to determine the extent to which Fed officials expect the sources of recent economic weakness to be transitory. This, in turn, will signal how they might respond to signs of firming hiring, consumption and output ahead of the Fed’s next rate decision on May 1."

All eyes will be on any signal of rate-change direction (after Powell said in the last press conference, he didn’t know whether the central bank’s next move would be to raise or lower its short-term benchmark rate), as well as what to expect when the balance sheet run-off ends.

The Minutes highlighted a sheepishly dovish FOMC...

  • *FED MAJORITY SAW RISKS WARRANTING RATES ON HOLD THROUGH 2019

  • *SOME FED OFFICIALS SAW FURTHER MODEST INCREASE LATER THIS YEAR

  • *FED OFFICIALS SAW `SIGNIFICANT UNCERTAINTIES' AROUND OUTLOOK

  • *SEVERAL FED OFFICIALS CONCERNED YIELD CURVE WAS QUITE FLAT

  • *SEVERAL FED OFFICIALS POINTED TO INCREASED DEBT, LEVERAGE

Key highlights include:

On the outlook:

"With regard to the outlook for monetary policy beyond this meeting, a majority of participants expected that the evolution of the economic outlook and risks to the outlook would likely warrant leaving the target range unchanged for the remainder of the year."

On the direction of rates rate:

"Several participants noted that their views of the appropriate target range for the federal funds rate could shift in either direction based on incoming data and other developments."

"Some participants indicated that if the economy evolved as they currently expected, with economic growth above its longer-run trend rate, they would likely judge it appropriate to raise the target range for the federal funds rate modestly later this year"

On concerns about the flat yield curve:

"Several participants expressed concern that the yield curve for Treasury securities was now quite flat and noted that historical evidence suggested that an inverted yield curve could portend economic weakness"

"Several participants expressed concern that the yield curve for Treasury securities was now quite flat and noted that historical evidence suggested that an inverted yield curve could portend economic weakness..."

Yet others were unconcerned:

... however, their discussion also noted that the unusually low level of term premiums in longer-term interest rates made historical relationships a less reliable basis for assessing the implications of the recent behavior of the yield curve.

On what "patient" means:

"Several participants observed that the characterization of the Committee’s approach to monetary policy as ‘patient’ would need to be reviewed regularly as the economic outlook and uncertainties surrounding the outlook evolve."

"A couple of participants noted that the ‘patient’ characterization should not be seen as limiting the Committee’s options for making policy adjustments when they are deemed appropriate."

On the lack of inflation:

"Participants also discussed alternative interpretations of subdued inflation pressures in current economic circumstances and the associated policy implications."

On the risks to the US economy:

"Participants commented on a number of risks associated with their outlook for economic activity."

On the risks to the international economy:

"A few participants noted that there remained a high level of uncertainty associated with international developments, including ongoing trade talks and Brexit deliberations, although a couple of participants remarked that the risks of adverse outcomes were somewhat lower than in anuary."

On implementing a Reverse Repo Ceiling facility

"Some participants suggested that, at future meetings, the Committee should discuss the potential benefits and costs of tools that might reduce reserve demand or support interest rate control."

On concerns about rising leverage:

"Several participants pointed to the increased debt issuance and higher leverage of nonfinancial corporations as a development that warranted continued monitoring."

And how this could get worse:

"A few participants observed that an economic deterioration in the United States, if it occurred, might be amplified by significant debt service burdens for many firms."

"Several participants pointed to the increased debt issuance and higher leverage of nonfinancial corporations as a development that warranted continued monitoring."

On asset prices:

"Participants noted that asset valuations had recovered strongly and also discussed the decline that had occurred in recent months in yields on longer-term Treasury securities."

Finally, on the fact that the Fed's forecasts and dot plot have become a joke:

"The Chair noted that he had asked the subcommittee on communications to consider ways to improve the information contained in the SEP and to improve communications regarding the role of the federal funds rate projections in the SEP as part of the policy process."

And the punchline: the Fed is angry that the investing public thinks it has a clue what is going on:

Several participants expressed concerns that the public had, at times, misinterpreted the medians of participants’ assessments of the appropriate level for the federal funds rate presented in the SEP as representing the consensus view of the Committee or as suggesting that policy was on a preset course. Such misinterpretations could complicate the Committee’s communications regarding its view of appropriate monetary policy, particularly in circumstances when the future course of policy is unusually uncertain

Finally, on the bright side, Treasury Secretary Steven Mnuchin said he was right to recommend Jerome Powell as Federal Reserve chairman despite President Donald Trump’s frequent criticism of the central bank leader.

“I don’t feel like I picked the wrong person,” Mnuchin said Wednesday in an interview on CNBC.

“But I respect the president’s views and his views of the economy, where he’s had tremendous insight.”

*  *  *

Full Minutes below:

Published:4/10/2019 1:18:58 PM
[Markets] Intelsat lost communication with Boeing-made satellite Intelsat S.A. said Wednesday it lost communication with its Intelsat 29e satellite, made by Boeing Co. , that continues to affect wireless operator, aeronautical and maritime customers in the North Atlantic, Latin America and Caribbean regions. Intelsat's stock fell 1.2% and Boeing shares shed 0.9% in morning trade. The satellite network company said the satellite suffered damage to its propulsion system over the weekend that resulted in a service disruption. And while working to restore services, the satellite experienced on Tuesday a second "anomaly" that caused a loss of communication to the satellite. Intelsat said it continues to work with Boeing on recovering communication with the satellite. The company is working to migrate customer services to other satellites. Intelsat said it won't determine the financial impact of the of the service disruption until the recovery mission concludes. Intelsat's stock has tumbled 28% over the past three months, while the Dow Jones Industrial Average has gained 8.9%. Published:4/10/2019 10:14:41 AM
[Markets] Stock markets open with slight gains as Wall Street awaits Fed minutes U.S. stock indexes opened with modest gains Wednesday as investors took an important reading of inflation, and updates from European and U.S. central banks. The Dow Jones Industrial Average rose 44 points, or 0.2%, to 26,195, the S&P 500 index climbed 0.2% to 2,883, while the Nasdaq Composite Index added 0.2% to 7,924. The European Central Bank announced Wednesday it made no changes to its interest rates or monetary policy measures, as expected, leaving its main lending rate at 0% and the deposit rate, which it pays on deposits parked overnight at the central bank, at negative 0.4%. Meanwhile, minutes of the Federal Reserve's March meeting are to be released at 2 p.m. Eastern Time. On the data front, the Labor Department issued its reading of the consumer-price index, which showed prices rising at the fastest pace in 14 months. In corporate news, CEOs from JPMorgan Chase & Co. , State Street Corp. , Bank of America Corp. , Morgan Stanley , and Goldman Sachs Group Inc. , will testify about the health of the financial market on Capitol Hill Wednesday morning. Published:4/10/2019 8:42:24 AM
[Markets] Stocks Bounce Ahead Of Wednesday's Data Deluge

One day after the equity rally sputtered following Trump's threat to impose new tariffs against the EU, global stocks are once again green across the board even as a barrage of critical economic, political and central bank events - including the ECB's rate decision, the FOMC minutes, the Brexit-related EU Council meeting and US CPI data - is on deck and earnings season is set to begin in two days. Stocks in Europe rose, Asia was mixed, while US equity futures jumped to session highs, while Treasuries were mixed and the dollar dipped.

Europe's Stoxx 600 index rose for the first time in three days, led by miners and oil companies, while Emini futs edged 8 points higher and just 10 points away from 2,900 as investors ignored the Trump administration’s threat of new tariffs on European goods and the IMF’s worst growth forecasts since the financial crisis. Network International shares surged in London after the payments processor raised 1.1 billion pounds ($1.4 billion) in Europe’s biggest IPO this year.

Earlier in the session, MSCI’s index of Asia-Pacific shares ex-Japan dropped 0.1%, a day after rising to its highest since Aug. 1, as shares fell in Japan and Hong Hong Kong earlier, while Chinese and Korean equities rose. Ten-year Treasury yields were stuck at 2.5%, but its yields in China that grabbed attention again, as China’s 10-year sovereign bond yield rose 3bps to 3.33%, the highest level since Dec. 24.

Sentiment rebounded from a Tuesday hit, when the IMF’s somber report on global growth highlighted fears about the outlook for the world economy that have simmered for months, while the U.S. appeared to open another front in its trade dispute with the European Union, and negotiations with China remain unsettled. Federal Reserve minutes, American inflation data and the ECB rates decision Wednesday could add to anxieties or help provide calm, with investors also focusing on the first-quarter earnings season getting under way this week.

With the rally fizziling, analyst commentary turned more soure:

  • "Before we preview those, risk assets have been threatening to take their foot off the pedal in recent sessions and yesterday we finally saw that with a delayed reaction to the US/EU tariff headlines from yesterday’s Asian session seemingly doing much of the damage" said Deutsche Bank’s chief market strategist Jim Reid.
  • “It’s quite a tricky environment because clearly the economy isn’t in great shape,” Patrik Schowitz, global multi-asset strategist at JPMorgan Asset Management, told Bloomberg TV in Hong Kong. “Central banks going into easing mode, the Fed pivot -- that would not be happening if the economy was firing on all cylinders. At the same time, recession risks are overdone.”

Much of today's attention will be on the ECB which is “going to come out with some more details on the TLTRO,” said Francois Savary, chief investment officer at Prime Partners. "The global picture has been set, now we are waiting for the details about what they do and if they are going to speak maybe about the adjustment of the negative interest rate policy on reserves."

Israeli stocks and the shekel climbed as Benjamin Netanyahu looks set for a fifth term as prime minister. Turkey’s lira fluctuated as the government announced plans to bolster banks, while emerging-market stocks climbed for a 10th day, extending their longest run since January 2018.

Elsewhere, global debt yields held mostly steady, with the 10-year German Bund yield little changed around the zero percent mark. As a reminder, overnight Saudi Aramco sold $12 billion in debt with its first international bond issue after getting more than $100 billion in orders. It was a record-breaking vote of confidence by investors despite the murder of Saudi journalist Jamal Khashoggi in October.

Ahead of the ECB and US CPI print, major currencies are little changed before a European Union summit and the ECB meeting. The euro edged higher and the pound gained as the EU looks to delay Brexit by as long as a year. The Bloomberg Dollar Spot Index erased its Asia-session advance as the market awaits U.S. inflation data and minutes of the Federal Reserve’s latest review. Norway’s krone reached its strongest level in five months against the euro after the nation’s inflation rate rose at the fastest pace since 2016, boosting the case for interest-rate increases. Australia’s dollar rose against all its Group-of-10 peers except the krone after Deputy Governor Guy Debelle suggested the central bank is in no rush to cut rates despite slowing global growth.

Elsewhere, EU leaders are likely to grant British PM Theresa May a second delay to Brexit, but they could demand a much longer extension as France pushed for conditions to limit Britain’s participation in EU affairs. The British pound rose to session highs, inching close to $1.31 again. The dollar was flat at 111.19 yen, having fallen 0.5 percent so far this week.

In commodities, oil prices remained near Tuesday’s five-month highs as fighting in Libya raised supply disruption concerns. U.S. crude futures stood at $64.32 per barrel, up 0.3 percent after rallying to a five-month high of $64.79 on Tuesday. Brent crude futures were at $70.81 per barrel and in reach of Tuesday’s five-month peak of $71.34.

Expected data include mortgage applications, inflation and Fed minutes. Delta Air Lines and Bed Bath & Beyond are among companies reporting earnings

Market Snapshot

  • S&P 500 futures up 0.3% to 2,890.50
  • STOXX Europe 600 up 0.2% to 386.51
  • MXAP down 0.2% to 163.14
  • MXAPJ up 0.1% to 544.21
  • Nikkei down 0.5% to 21,687.57
  • Topix down 0.7% to 1,607.66
  • Hang Seng Index down 0.1% to 30,119.56
  • Shanghai Composite up 0.07% to 3,241.93
  • Sensex down 0.5% to 38,737.95
  • Australia S&P/ASX 200 up 0.03% to
  • German 10Y yield rose 0.4 bps to -0.006%
  • Euro up 0.04% to $1.1268
  • Italian 10Y yield fell 6.0 bps to 2.072%
  • Spanish 10Y yield fell 0.9 bps to 1.066%
  • Brent futures up 0.4% to $70.91/bbl
  • Gold spot little changed at $1,304.50
  • U.S. Dollar Index little changed at 96.98

Top Overnight News from Bloomberg

  • EU leaders will finalize the length of the Brexit delay at a summit on Wednesday. European Council President Donald Tusk wants them to agree to an extension of up to a year, and diplomats from member states say the debate now is between December and next March for the new departure date.
  • ECB policy makers have a lot to ponder over -- the U.S. has set off a fresh tariff threat, Italy’s government has almost given up on growth this year, and Brexit remains unresolved. On top of that, the International Monetary Fund on Tuesday cut its global outlook yet again. No policy shift is expected as officials scrutinize the economy to calibrate a new bank lending program announced last month.
  • In what could be this year’s largest U.S. IPO, investors could get their first look at hundreds of pages of detailed information about Uber Technologies Inc. as soon as Thursday. As the ride-hailing giant gears up to publicly file for an IPO, with one of the people familiar said the company was looking to raise about $10 billion.
  • Brexit anxiety is seeing South Korean borrowers sell Swiss franc bonds at a record pace. They are taking advantage of increased demand from European investors for such notes on expectations that Switzerland will be largely insulated from Brexit-related trouble in the region, according to UBS Group AG.

Asian equity markets were mostly negative amid spill-over selling from Wall St where all majors finished lower and the S&P 500 snapped an 8-day win streak as sentiment was pressured by EU-US trade tensions and downward revisions to IMF's global growth forecasts. ASX 200 (U/C) was initially subdued with the energy sector pressured by a pullback in oil prices and with heavy losses seen in Crown Resorts after Wynn Resorts abruptly ended takeover talks, although the index has since pared its losses amid strength in gold miners, tech and the largest weighted financials sector. Nikkei 225 (-0.5%) suffered from the recent flows into JPY and disappointing Machine Orders, while Hang Seng (-0.1%) and Shanghai Comp. (U/C) conformed to the global downbeat risk tone amid further PBoC inaction and as participants awaited upcoming central bank activity and any fresh developments in the US-China trade saga. Finally, 10yr JGBs were marginally higher as they tracked gains in T-notes amid the risk averse tone across the region, while the BoJ were also present in the market with today’s Rinban operation heavily focused on the belly.

Top Asian News

  • Top China Investor Only Has Eyes for One Mainland Stock
  • CLSA Culture Clash Boils Over as More Top Executives Quit
  • Singapore Bans Former HSBC, UOB Bankers for Fraud, Dishonesty
  • Untouchable in 2018, China Bank Stocks Are Now All the Rage
  • Turkey to Bolster State-Owned Banks in Bid to Revive Economy

Major European indices have been drifting higher [Eurostoxx 50 +0.5%] since the open following on from a downbeat Asia-Pac session where equity markets conformed to the negativity seen on Wall Street.  European bourses are mostly higher by around 0.2-0.3% whilst the FTSE 100 (Unch) remains the laggard ahead of the crucial Brexit summit set to take place later today. Broad-based gains are seen across most sectors, although some underperformance is experienced in healthcare names.  JP Morgan (from today’s note) believe that the consumer sector is currently the most oversold sector in Europe whilst autos “may be seeing tentative signs of recovery”. Furthermore, analysts at JPM think that the banking sector continues to look cheap and “continued underperformance means valuations remain extreme historically, notably on dividend yields where the sector now offers a 2% yield pick-up versus the market”. In terms of notable movers, UK’s Indivior (-72%) wiped out around three-quarters of its market cap (so far) after the US DoJ said the Co. has been charged with having engaged with fraudulent marketing schemes designed to increased opioid-based drug prescriptions. Finally, Tesco (+0.6%) shares rose after the supermarket raised its dividend, despite reporting below-forecast sales figures.

Top European News

  • U.K. Economy Set for Strong Quarter as Output Rises in February
  • Italy Government Turns on Itself as Forecasts Confirm Stagnation
  • Network International Jumps After $1.4 Billion London IPO
  • Deutsche Boerse Buys Axioma for $850 Million, Adds Analytics

In FX, NOK and AUD were the major outperformers and outliers, as Norwegian inflation slowed less than expected in March to underpin H2 Norges Bank rate hike guidance after yesterday’s disappointing GDP data raised a few doubts. Meanwhile, RBA deputy Governor Debelle was less dovish than anticipated earlier, with little sign of leaning towards an ease even though he acknowledged conflicting economic trends via strength in jobs vs weakness in consumption and production. Eur/Nok is testing technical support around 9.5900 and Aud/Usd is back up near 0.7150 after retreating to circa 0.7110 at one stage overnight. Note, however, hefty option expiry interest may hamper the Aussie given 1.5 bn sitting between 0.7145-25 and 1 bn from 0.7100 to 0.7090.

  • NZD/GBP - The next best of the G10 bunch, as the Kiwi continues to largely track its Antipodean peer on cross consolidation within a 1.0595-43 range and while Aud/Nzd remains capped ahead of 1.0600. Nzd/Usd is back above 0.6750 ahead of US CPI data and the FOMC minutes that together with the ECB meeting and EU Brexit Summit form the key elements of ‘super Wednesday’. On that note, the Pound is underpinned towards the top end of 1.3085-45 trading parameters vs the Greenback after above consensus UK data in the form of GDP, ip, manufacturing and construction output, but will be prone to what evolves from the aforementioned EU gathering and especially the decision whether to grant Britain more breathing space, how much longer and on what terms etc.
  • EUR - Also firmer vs the Dollar as the DXY continues to pivot 97.000, but like the index extremely rangebound just shy of Tuesday’s high and above 1.1250. Eur/Usd is still facing pre-1.1300 big figure resistance as 21 and 31 DMAs lie at 1.1280 and 1.1284 respectively, while expiries are also keeping the headline pair relatively contained (1.3 bn at 1.1245-50 and 2 bn at 1.1260-75). As noted, the ECB meeting looms and a full preview is available via the headline feed and Research Suite section.
  • CAD/JPY/CHF - All narrowly mixed vs the Usd as the Loonie flits between 1.3320-41 and Yen trades just below 111.00 after a fractional/fleeting breach yesterday fell short of the 100 DMA (110.90). Weak Japanese machine orders and more dovish BoJ commentary courtesy of Governor Kuroda also in the mix along with decent expiry interest just under 111.00 at 110.90-75 (1.7 bn). Meanwhile, the Franc is back on the parity handle awaiting the impending major events.
  • EM - The Rand has appreciated further against the Buck and is now testing 13.9700 having cleared the psychological 14.0000 mark, but the Lira continues to struggle amidst the post-regional election results tussle with little support from the eagerly-awaited Turkish Economic plan. Indeed, Usd/Try is still elevated, albeit closer to the base of a 5.7200-6700 band.

In commodities, WTI (+0.7%) and Brent (+0.6%) prices continue climbing despite the wider-than-forecast build in API crude inventories last night (+4.09mln vs. Exp. +2.3mln) where prices saw marginal short-lived downside in the immediate aftermath. Supply woes continue to provide a short-term bullish outlook for the complex with sources stating that Libyan air force undertook airstrikes on military targets for Haftar in the City of Gharyan, in close proximity of the pipeline connecting the El-Feel (340k bpd) oil field to the Zawiya port. Elsewhere, the UAE Energy Minister emerged on the wires, stating that there is a high probability of achieving market balance by the end of this year. It is worth keeping in mind that Russian Energy Minister Novak previously stated that Russia will not extend cuts if the market is expected to be balance in H2 2019. Finally, energy traders will be keeping an eye on the OPEC monthly report which is due to be release at 12:10 BST ahead of the weekly DoE inventory and production data at 15:30 BST. Gold (+0.1%) is essentially flat and trading within a narrow range just above the key USD 1300/oz level, as the yellow metal continues to trade cautiously ahead of today’s ECB decision, FOMC minutes & emergency Brexit summit, whilst copper similarly trades with no firm direction ahead of these key risk events. Separately, sources report that Venezuela removed eight tonnes of gold from its central bank’s vaults, expectations are that Venezuela are to sell the metal in order to generate funds in response to US sanctions.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior 18.6%
  • 8:30am: US CPI MoM, est. 0.37%, prior 0.2%; CPI Ex Food and Energy MoM, est. 0.2%, prior 0.1%
    • US CPI YoY, est. 1.8%, prior 1.5%; CPI Ex Food and Energy YoY, est. 2.1%, prior 2.1%
    • Real Avg Hourly Earning YoY, prior 1.9%; Real Avg Weekly Earnings YoY, prior 1.58%
  • 2pm: FOMC Meeting Minutes
  • 2pm: Monthly Budget Statement, est. $181.0b deficit, prior $208.7b deficit

DB's Jim Reid concludes the overnight wrap

With less than two weeks until I move house after a 2-year project, yesterday my wife went to the house and learnt that our newly installed front door has been accidentally made 2cm too small. It may not sound a lot but everything now is all out of alignment with the surrounds and there’s a sizeable gap!! A bit like trouser legs that need to be taken down. Unbeknown to me there were numerous stressful meetings on site yesterday with my wife and the builder working out what to do about it. No agreement could be made and like Brexit, talks resume today. Unlike Brexit we can’t extend our membership of the rental accommodation and there will be a hard rentexit in a couple of weeks whether we have doors, windows, toilets, showers or a working kitchen in the new place or not. It’s touch and go on a number of these at the moment.

It’s a busy day to keep my mind off these stresses as today sees the quadruple whammy of an ECB meeting, the Brexit-related EU Council meeting, the US CPI report and FOMC minutes to look forward. Before we preview those, risk assets have been threatening to take their foot off the pedal in recent sessions and yesterday we finally saw that with a delayed reaction to the US/EU tariff headlines from yesterday’s Asian session seemingly doing much of the damage. Bloomberg reported that the EU is preparing retaliatory tariffs which will do little to appease the situation. The EU called the US complaint “greatly exaggerated” and Airbus said the US’s move was “totally unjustified.” Barbara Boettcher published a new note examining the tariff threats (link here ), where she argues that the proposed measures are small, but that risks are elevated moving forward, especially as we await the Section 232 decision on auto tariffs.

The S&P 500 (-0.59%) finally brought to an end an eight-session consecutive winning run with cyclical sectors like energy, industrials and financials really feeling the pinch. The DOW (-0.72%) and NASDAQ (-0.56%) also closed in the red while in Europe there was a fairly heavy fall for the DAX (-0.94%) while the STOXX 600, which in fairness traded higher in the early going, ended down -0.47%. An across the board global growth downgrade from the IMF also hurt sentiment although they were only catching down to more regularly updated street forecasts.

Credit didn’t struggle quite so much with HY spreads just +2bps wider in the US and flat in Europe. Meanwhile rates nudged lower, as Treasuries again flirted with the 2.50% level before ending -2.2bpts lower at 2.501% (down -1.3bps this morning to 2.487%). Bund yields fell back down to -0.01%. Interestingly 10yr BTPs rallied -6.2bps in spite of sharp downgrades to growth from the Government and the IMF and an increase in the forecast deficit from the former (see details later) which could raise tensions with the EC again. However in a way it was good to see Italy trade like a conventional government bond and rallying on weak economic news, rather than a more risky credit as it often does.

EM FX was mostly flat, though the Argentine peso (+0.87%) outperformed sharply. WTI Oil (-0.48%) gave back some of Monday’s gains after Russian President Putin said that he opposes “uncontrollable” increases in oil prices which would negatively impact the non-energy parts of Russia’s economy. He also talked about coordination with Opec, possibly hinting that he would not support a new round of production cuts.

This morning in Asia markets are largely following Wall Street’s lead with the Nikkei (-0.60%), Hang Seng (-0.42%) and Shanghai Comp (-0.39%) all down while the Kospi (+0.12%) is up on the back of news that the South Korean government is planning to draw up a supplementary budget of up to KRW7tn ($6.1bn) to support the slowing economy. Elsewhere, futures on the S&P 500 are trading flat (+0.03%). In terms of overnight data releases, Japan’s March PPI came in at +1.3% yoy (vs. +1.0% yoy expected) while February core machine orders came in at -5.5% yoy (vs. -4.6% yoy expected).

We should mention that yesterday our China Chief Economist Zhiwei Zhang published a short update on the property and land markets in China. He notes that while the land market remained weak in Q1, there are green shoots of signs of stabilisation that are now emerging. He expects more policy easing in the land and property markets in Q2 and a rebound in land sales in H2. This fits in with the narrative of our HouseView that although growth is weak, we’d expect momentum is actually improving. See his full report here .

In terms of the ECB today our economists published their expectations last week in a note you can find here . In summary, following an underwhelming message last month, they see the ECB press conference as an opportunity to inject confidence into the economy and the monetary policy process. They see there being two steps necessary to correcting. The first is for the ECB to talk up the economy and the second is clarification around the reaction function and talking up policy. From the perspective of managing risk, TLTRO3 is not sufficient in our colleague’s view and they now expecting tiering as part of their baseline in the coming months, however it’s unlikely that any new policy will be announced today with June more likely.

As for the FOMC this evening, expect the minutes to shed some light on what sets of conditions compel the Fed to shift from its decidedly neutral policy stance – in either direction. Prior to this we get the March CPI report in the US where the consensus is for a +0.2% mom core reading which would be enough to hold the annual rate steady at +2.1% yoy. Our US economists mirror the consensus.

It’s another crucial day for PM Theresa May with the emergency EU Council meeting deciding the UK’s EU membership extension request. How many more of these crucial days are we going to have before this saga ends? In terms of timing, leaders are due to arrive at 5pm CET (4pm BST) with the working dinner and meeting with PM May not taking place until 6.30pm CET. Tusk and Juncker are then due to host a press conference once the meetings finish however it’s anyone’s guess as to when that might be. We’d imagine there’s a reasonable bid-offer for that market.

There wasn’t a huge amount of new Brexit news to update going into that meeting. The press seems to be suggesting an extension to the end of 2019 (or March 2020) is the most likely take it or leave it offer from the EU, though there may be appetite for a short extension through May 22 if the UK passes the WA over the next two days and maybe the ability to cut short the extension if an alternative agreement can be found further down the line. EU Council President Tusk said in statement that “a rolling series of short extensions” would create “new cliff-edge dates,” seeming to argue in favour of a long extension. He was responding to the desire by some in the EU to insert rolling good behaviour clauses in any long extension.

Staying with the UK, yesterday the IMF cut its growth outlook to 1.2% this year which was a downward revision of -0.3pp from three months ago. The growth rate of the world economy was revised down two tenths to 3.3% which would be the weakest rate of growth since 2009. That is also the third downward revision in the last six months. The US was cut to 2.3% (down two-tenths) and Euro Area to 1.3% (down three-tenths) - but still notably above DB’s forecast of 0.9%. It wasn’t all doom and gloom though with China revised up one-tenth to 6.3%. The biggest downward revisions were reserved for Germany and Italy however, where both were revised down five-fifths to 0.8% and 0.1% respectively. Separately, as discussed earlier it’s worth noting that the Italian government yesterday downgraded growth also to 0.1% for 2019 compared to a previous 1% estimate. The deficit was also set at 2.5%. None of these numbers should have been a surprise yesterday but the headlines didn’t help sentiment.

To quickly recap yesterday’s relatively sparse data releases, the highlight in the US was the JOLTS job report for February, which showed the private quits rate staying at 2.6%, a post-crisis high. That bodes well for wage growth moving forward. In Europe, the only notable release was Italy’s retail sales figure for February, which rose +0.1% mom, beating expectations for -0.2%, with January’s figure revised up 0.1pp to 0.6% as well.

Finally to the day ahead which as mentioned above is headlined by the ECB, the EU Council meeting, FOMC minutes and US CPI report. Away from those we’ll also get the February industrial production report in France and the UK along with trade data in the latter and the February GDP reading. Late this evening in the US we’ll also get the March monthly budget statement. Also worth keeping an eye on today are scheduled comments by the Fed’s Quarles this afternoon and ECB’s Coeure this evening. Former Fed Chair Yellen is also scheduled to take part in a discussion with the Fed’s Kaplan.

Published:4/10/2019 6:41:42 AM
[Markets] Stock Market Hesitates As Trump Threatens Europe With Tariffs In the stock market today, a third of the Dow stocks dropped 1% or more. Only two stocks pegged gains: Apple and Disney. Published:4/9/2019 11:08:38 AM
[Markets] Dow on track for steepest slide in two weeks amid Trump's European tariff threat The Dow Jones Industrial Average fell more than 200 points in early Tuesday action, with investors wrestling with the threat of escalating trade tensions between Europe and the U.S. The Dow was down by about 200 points, or 0.8%, at 26,133, with its decline representing the sharpest since March 22, according to FactSet data, if it holds. The S&P 500 index was off 0.5% at 2,880, while the technology-laden Nasdaq Composite Index retreated 0.3% at 7,933. Shares of Boeing Co. were the worst performer among the Dow's components, producing the stiffest headwind for the blue-chip index for a second session amid the aeronautic and defense contractor's prolonged grounding of its 737 MAX fleet. President Donald Trump Tuesday morning tweeted that the EU has taken advantage of the U.S., adding that it would "soon stop". Meanwhile, the IMF's latest economic forecasts cut the outlook for growth in 2019 to 3.3% from estimates of 3.5% in January and 3.7% in October. The decline has been broadly felt, with all major advanced economies, including the U.S. Published:4/9/2019 9:05:56 AM
[Markets] Rally Fizzles, Futures Drift As Trump Opens New Trade War Against Europe

The global equity rally stumbled for the second day, and risked running out of steam ahead of Wednesday's action-packed event bonanza, even as Asian and European shares gained while US equity futures pared losses as investors appeared to shrug off threats from President Trump for new tariffs on goods produced in the EU in retaliation for Airbus subsidies. Treasuries were unchanged, as the dollar drifted lower.

Amid a generally muted tone, Asia rose to an 8-month high overnight with European shares initially opening flat after the office of the U.S. Trade Representative sent its proposals to the World Trade Organisation, saying the EU had provided $11 billion worth subsidies to Airbus; however the Stoxx Europe 600 inched higher in morning trade, up 0.1%, with the banking sector rising before the ECB meeting Wednesday, overshadowing losses in the tech sector, led lower by SAP.

In notable moves, SAP fell 2.5% after being downgraded to hold from buy at HSBC, cut to neutral from buy at UBS ahead of the software company’s 1Q results later this month. Airbus shares dropped as much as 2.5 percent in early deals, with many of its key suppliers lost between 0.7 percent and 1.2 percent, though much of the early losses were then recovered.

While most Asian markets were higher, Chinese stocks dipped modestly, down 0.2%, but it was the ongoing surge in Chinese 10-year sovereign yields that continues to grab attention, with the paper rising another 4bps to 3.294%, the highest level of the year following a torrid surge last week, when yields jumped 19bps, the most since November 2013.

Aberdeen Standard Investment’s head of global multi-asset strategy, Andrew Milligan, told Reuters that "signals like this just remind people... that the strategic rivalry between the U.S. and other countries is serious and is not going to go away.”

Ahead of "Super Wednesday", the other focus was set to be the International Monetary Fund’s half-yearly forecasts, which will reinforce the message that the global economy continues to slow down for a variety of reasons, which in turn will likely push stocks even higher. According to Reuters, the Fund is expected to make quite a sizable cut to its growth number and Germany’s benchmark 10-year bond yield stayed just below zero percent on bets interest rates are set to stay extremely low globally.

Finally, the reason why markets may be subdued today is because all hell is set to break loose tomorrow when the EU emergency Brexit summit, ECB meeting, US CPI report and FOMC minutes all take place.

In currencies, Sterling was largely unchanged, after earlier jumping on speculation Germany would accept a 5-year time limit on the Irish backstop; the jump quickly fizzled after a German government spokesman denied the report. Additionally, Prime Minister Theresa May is set to meet Germany’s Angela Merkel and France’s Emmanuel Macron to ask for another Brexit delay.

Overnight volatility in the euro stayed relatively low even as the ECB meets Wednesday and an EU summit on Brexit kicks off. The euro posted modest gains amid tight ranges for most major currencies. Elsewhere, the The Australian and Canadian dollars and Norwegian crown and Russian rouble also rose as a surge in oil prices to five-month highs lifted most other commodity-linked currencies too, as the dollar continued its 2-day slide.

In commodities, Brent rose as high as $71.34 a barrel, the highest since November, while WTI crude also hit a November 2018 high of $64.77 and was up 22 cents at $64.62. Oil prices are up more than 40 percent this year, jumping on expectations that global supplies will tighten due to fighting in Libya, OPEC-led cuts and U.S. sanctions against Iran and Venezuela.

Levi Strauss is due to release earnings after its IPO last month. Economic data include JOLTS job openings, small business optimism.

Market Snapshot

  • S&P 500 futures down 0.1% to 2,894.75
  • STOXX Europe 600 up 0.09% to 387.85
  • MXAP up 0.3% to 163.34
  • MXAPJ up 0.4% to 543.47
  • Nikkei up 0.2% to 21,802.59
  • Topix down 0.09% to 1,618.76
  • Hang Seng Index up 0.3% to 30,157.49
  • Shanghai Composite down 0.2% to 3,239.66
  • Sensex up 0.3% to 38,800.85
  • Australia S&P/ASX 200 up 0.01% to 6,221.82
  • Kospi up 0.1% to 2,213.56
  • German 10Y yield fell 0.9 bps to -0.002%
  • Euro up 0.08% to $1.1272
  • Brent Futures up 0.2% to $71.26/bbl
  • Italian 10Y yield rose 0.8 bps to 2.132%
  • Spanish 10Y yield fell 0.6 bps to 1.081%
  • Brent Futures up 0.2% to $71.26/bbl
  • Gold spot up 0.3% to $1,301.75
  • U.S. Dollar Index down 0.1% to 96.95

Top Overnight News from RanSquawk

  • The EU is preparing retaliatory tariffs against the U.S. over subsidies to Boeing, significantly escalating transatlantic trade tensions hours after Washington vowed to hit the EU with duties over its support for Airbus SE. Trump’s administration on Monday said it would impose tariffs on $11 billion in imports from the EU because of the European aid
  • The EU and China managed to agree on a joint statement for Tuesday’s summit in Brussels, papering over divisions on trade in a bid to present a common front to Trump, EU officials said
  • The slump in the Chinese car market showed no signs of easing, with retail sales of sedans, sport utility vehicles, minivans and multipurpose vehicles dropping 12 percent to 1.78 million units in March, the China Passenger Car Association said Tuesday. That follows an 18.5 percent drop in February and 4 percent decline in January
  • Turkey’s ruling party will demand a rerun of last month’s local election for the mayor’s seat in Istanbul after tallies showed it lost the vote, according to Recep Ozel, a ruling party official assigned to the election board. The election looked like it had stripped the city from President Recep Tayyip Erdogan and parties affiliated to him for the first time in 25 years
  • Societe Generale SA said it plans to cut about 1,600 jobs after a slump in trading revenue pushed Chief Executive Officer Frederic Oudea to intensify efforts to boost profit at the investment-banking unit

Asian equity markets eventually turned mostly positive on what was a predominantly cautious session following a mixed performance on Wall St amid tentativeness ahead of upcoming earnings season and this week’s central bank activity including FOMC Minutes and ECB policy meeting. ASX 200 (U/C) and Nikkei 225 (+0.2%) were indecisive but with losses in Australia stemmed by strength in the energy sector as the escalating conflict in Libya lifted oil prices, while Tokyo sentiment mirrored a choppy currency. However, the region was not without its success stories as Crown Resorts surged over 20% after it announced it was in discussions regarding a takeover approach by Wynn Resorts and with Sony higher by more than 7% on news Third Point was building an activist stake in the Co. and called for a review on ownership of several divisions. Hang Seng (+0.3%) and Shanghai Comp. (+0.1%) were also tepid amid a lack of any firm drivers and as trade-related news quietened down, while the PBoC also continued to refrain from open market operations. Finally, 10yr JGBs were lacklustre amid an indecisive risk tone and as participants awaited a 5yr auction, as well as Saudi Aramco’s USD 10bln bond offering which was more than 7x oversubscribed. Prices later recovered off their lows as the 5yr JGB auction later proved to better than previous with an improvement seen across most metrics including a higher b/c and accepted prices.

Top Asian News

  • China Investor Loves This Tiny Maker of Floating Flamingos
  • Malaysia’s Felda Is Said to Seek $1.5 Billion Government Rescue
  • Japan to Cut Japan Post Stake to >1/3 in Sale This Year: Nikkei
  • Tumbling China Bonds May Soon Look Good to Foreign Investors

Choppy trade for European equities thus far [EuroStoxx 50 +0.2%] following a cautious Asia-Pac session where China was tepid amid the lack of any firm drivers ahead of tomorrow’s risk-packed session. Analysts at HSBC believe that the Chinese economy has bottomed, and growth will pick-up in the coming months as the private sector feels the effects from corporate tax cuts. Over in Europe, stocks nursed some of the losses seen at the open after jitters from the US’ release of prelim tariffs on USD 11bln of EU products [Full list available on the headline feed] somewhat waned after sources noted that the legal actions taken against Airbus (-1.5%) subsidies are “greatly exaggerated”, and the EU remains open to dialogue with the US. Furthermore, upside in equities was initially exacerbated amid reports that German Chancellor Merkel is reportedly willing to put a 5yr time limit on the Northern Irish backstop, although equities shed some gains after this was dismissed, but remain in positive territory. Sectors are relatively mixed with no clear outperformer or laggard. In terms of individual stocks, Swiss heavyweight Novartis’ (-9.8% unadj.) Alcon unit (+5.2%) began its first trading day on the front foot and opened above the CHF 46.50-53.50 indicative range at CHF 55.00. Elsewhere, SAP (-2.1%) fell to the foot of the DAX in light of downgrades at HSBC and UBS. Finally, Italy’s Prysmian (-3.9%) extended on losses seen at the open following further failed commission tests.

Top European News

  • U.K. Minister Sees ‘Common Ground’ With Labour: Brexit Update
  • Debenhams Lenders Poised for Control as Ashley Falls Short
  • Telenor Takes on Telia in Nordics With $1.7 Billion DNA Deal
  • Porsche Bets on 911 Demand to Rally Sales to Record After 1Q Dip

In currencies, Sterling leapt towards the top of the G10 table amidst reports that German Chancellor Merkel may be open to a fixed backstop timeframe (5 years touted), which could appease some of those unwilling to back the WA, according to a Brexiteer. Cable cleared the 55 DMA (1.3096) and 1.3100 handle on its way to 1.3121 in response, while Eur/Gbp retreated to 0.8595 from 0.8627 at one stage before a denial by the German Government. Looking ahead, UK PM May’s is in Berlin to see her German counterpart and has a subsequent meeting with French President Macron before Wednesday’s emergency EU Summit. Meanwhile, talks between Tory Cabinet members and the Labour party are ongoing to try and strike a deal, and interim updates remain mixed.

  • AUD/NZD - The Aussie has extended gains to 0.7150 vs its US counterpart and 1.0600 against the Kiwi as commodities continue to rally and overnight data in the form of housing finance confounded expectations to the upside. Aud/Usd is now looking at bullish chart levels including the 100 DMA and a 50% Fib at 0.7142 and 0.7149 respectively to maintain momentum on a closing basis, with decent if not insurmountable option expiries between 0.7150-55 (circa 770 mn) also on the radar. Meanwhile, Nzd/Usd is trying to tag along and trying to breach 0.6750 ahead of offers said to be sitting at 0.6760.
  • JPY - Usd/Jpy has drifted down within a 111.57-24 range and into a relatively heavy expiry zone, as 1.8 bn runs off from 111.20-25 vs 1.7 bn at 111.35-40, with the Yen seeing some safe-haven demand due to renewed US/EU tit-for-tat tariff posturing. Chart-wise, 111.25 also represents the 10 DMA, while resistance ahead of the 112.00 big figure comes via a daily formation around 110.78.
  • EUR - The single currency has consolidated yesterday’s clearance of 1.1250 vs the Dollar and is eyeing 1.1280 as the DXY slips a bit further below 97.000 to test support at 96.806 amidst broad declines in Usd/major pairings. However, a thick cluster of option expiries may drag Eur/Usd back down given 5.8 bn rolling off between 1.1245-75, not to mention a further 3.1 bn lower down.
  • CAD/NOK - Both benefiting from the ongoing strength in oil prices, and the latter to the extent that a knee-jerk spike in Eur/Nok in wake of weak Norwegian GDP data has already been reversed, with the cross currently straddling 9.6200 vs a high just shy of 9.6500. Meanwhile, the Loonie is pivoting 1.3300 vs its US counterpart and just eclipsed its previous April high.
  • EM - More thrills and spills for the Lira, as an initial rebound made on a reduced recount in Istanbul was thwarted by another rejection of the electoral board’s decision by the AKP that is insisting on a full election rerun. Usd/Try back up near 5.6700 vs 5.6425 and 5.6949 at the extremes.

In commodities, another day of gains in the energy complex with WTI and Brent futures trading in proximity to USD 64.50/bbl and USD 71.00/bbl respectively; although the complex is trading towards the bottom of the days range. Developments in Libya remain a key factor in the upside seen recently with analysts at TD noting that “military tensions in Tripoli, Iranian sanctions and difficulties in Venezuela may cause deficits as OPEC+ is reducing supply and US shale activity is flattening — USD 68/bbl WTI in the cards”. That said, analysts at Goldman Sachs, due to lower projected inventories, expect further backwardation and modest upside in oil prices whilst forecasting the WTI/Brent spread to tighten to USD 4.50/bbl from Q4 2019 onwards. GS also raised its Q2 2019 Brent forecast to USD 72.50/bbl (Prev. USD 65.00/bbl) and maintained its USD 60.00/bbl 2020 forecast. Meanwhile, Russian Energy Minister Novak stated that there is no need to extend the OPEC+ output deal if the market is forecast to be balanced by H2, which his Saudi counterpart previously said was only 70-80mln barrel away. Elsewhere, metals are benefitting from the recent pullback in the Buck, with gold also profiting from recent flows into the yellow metal ahead of tomorrow’s risk-filled day. Copper gained amid continued strength in Chinese commodity prices in which Dalian iron ore futures gained for a 7th consecutive session amid tightening supply. Finally, Platinum caught a bid as markets speculate the impact of labour strikes in South Africa, which saw the metal break through key resistance levels whilst also triggering CTA short covering, according to TD.

US Event Calendar

  • 6am: NFIB Small Business Optimism, est. 102, prior 101.7
  • 10am: JOLTS Job Openings, est. 7,550, prior 7,581

DB's Jim reid concludes the overnight wrap

I know that all parents think their children are special and highly gifted but I have to tell you that I genuinely think that one of my twins - 19 month old Jamie - is showing serious skills that already could mark him down as a future professional footballer. I’ve asked a few people who have seen him perform and they agree that they’ve never seen someone so proficient at his age. Yes, Jamie is going through a phase at the moment that whenever he doesn’t get his own way he launches into the most theatrical dive and bursts into tears. He then rolls about all over the floor and demands action. At times I swear he’s waving an imaginary card at the referee (usually mum). All that’s left is to try to teach him how to kick a ball and the family can retire off his 2035 Premier League contract. On that good luck to all those fans of teams in the Champions League quarter-finals over the next couple of evenings... unless of course you are a Porto fan where I instead wish you all the bad luck in the world (but please still vote for us in II).

In footballing terms if tomorrow is the Champions League of bumper days for markets, yesterday was like watching a lethargic pub team training session as Easter holidays seemed to have started in earnest. News flow has livened up overnight though as the US Trade Representative office has released a list of EU goods which will be subjected to additional tariffs if the EU continues to provide subsidies to Airbus. In the accompanying statement, the USTR office cited the WTO’s finding that the aid to Airbus has “repeatedly” caused “adverse effects to the United States.” The threatened tariffs are on some $11bn of imports from the EU and will be implemented only after the WTO give the final go-ahead this summer. The Trump administration hasn’t always trusted the WTO on these matters so its interesting that they are here. Proposed items in the list include new passenger helicopters, various cheeses and wines, ski-suits and certain motorcycles. This news might also remind investors that the US report on the national security risk of auto imports was delivered back in February without any official response yet. Having said that the US first complained to the WTO about Airbus subsidies 15 years ago so this has been a long running dispute.

Despite the tariff threat, markets are eking out modest gains overnight with the Hang Seng (+0.31%), Shanghai Comp (+0.14%) and Kospi (+0.11%) all up after erasing early losses while the Nikkei (+0.02%) is trading flattish. Elsewhere, futures on the S&P 500 are trading flat (-0.08%).

Before this the S&P 500 spent most of yesterday in the red, but clawed back during the New York afternoon (+0.10%) to extend its winning streak to eight consecutive days. That’s the longest stretch since October 2017. The NASDAQ also squeaked out a positive day (+0.19%) while the DOW (-0.32%) limped to a small loss, suffering from another drop for Boeing (-4.44%). Prior to this, the STOXX 600 (-0.19%) closed lower with all but three sectors in the red, while the story in bond markets was a slight tick up in Treasury yields (10y +2.3bps) and the 2s10s curve back up +0.7bps to 15.9bps. It’s worth noting that ever since the curve went below 20bps in December last year it’s traded in just a 10bp range. Meanwhile in commodities, WTI oil rose +2.16% following the Libya conflict news over the weekend, putting it at the highest since October 31st. The main story in EM was further weakening for the Turkish Lira (-1.14%) after President Erdogan suggested that there were “widespread irregularities” in the local elections. Other emerging markets performed well, with the Russian ruble (+0.72%) and Mexican peso (+0.52%) gaining alongside the advance in oil prices.

As for the daily Brexit update, Mrs May is travelling to see Mrs Merkel and Mr Macron today ahead of tomorrow’s summit that will decide on the UK extension request. So expect headlines from these meetings. Yesterday saw Labour receive an updated offer from the government as part of the ongoing Brexit negotiations. Supposedly there are still ongoing discussions about whether it will include a clear offer of moving to a customs union. The BBC’s Laura Kuenssberg also suggested that there is anxiety on the Labour side as even primary legislation could still be unpicked by the next Tory leader. This means that even if both sides can reach an agreement on a customs union it’s not entirely clear that they’ll be able to deliver a deal politically. It’s worth recapping that our house view base case is for no agreement between Labour and the Tories this week, but indicative votes going forward instead of a compromise solution. Later last night, the House of Lords passed its version of the bill to prevent a no-deal Brexit, though the issue has been a bit overtaken by events since PM May has already promised not to allow a no-deal outcome and is committed to following Parliament’s decision. Sterling floated between gains and losses during the European session before rallying +0.21% during the US session and overnight it has strengthened +0.14%.

As mentioned at the top this week should really kick into gear from tomorrow with a main course of the ECB meeting, the emergency EU Council meeting to discuss the Brexit extension, the FOMC minutes and US CPI data all on the cards. However we’ve got a couple of appetisers to look forward to today with the World Bank/IMF Spring Meetings kicking off, as well as the latest Euro Area bank lending survey covering Q1. A reminder that the survey for Q4 had a much softer tone. The net percentage of banks reporting tightening standards to enterprises was closer to even with -1 in Q4 compared to -6 in Q3. Demand for loans also continued its slowing trend from recent quarters with the net balance to enterprises falling to +9 versus +12 in Q3. It was a similar story for housing loans although demand for the latter did pick up. At a country level the softness was mostly reserved for Italy and Spain. Notably the outlook for Q1 also implied further moderation. So worth keeping an eye on today’s survey to see whether or not there are pockets of improvements. Given the only recent China rebound it might be too early to expect too much.

While we’re on the ECB there was a Bloomberg story doing the rounds yesterday which suggested that Committee members “are said not to have discussed tiering options” since Draghi’s comments towards the end of last month. There was a slight knee jerk reaction for European Banks post that headline however the story didn’t really seem to gather much momentum thereafter. European Banks did however still close down -0.72% while Bunds ended broadly flat and a notch above 0% at 0.007%.

In other news, there wasn’t much to write (or WhatsApp) home about from the data yesterday. In the US February factory orders were confirmed as declining -0.5% mom, matching consensus expectations. Core capex orders were also unrevised at -0.1% mom. Prior to this, in Europe the Sentix investor confidence reading for the Euro Area improved slightly to -0.3 (from -2.2) while February export data in Germany was weaker than expected at -1.3% mom (vs. -0.5% expected).

Finally to the day ahead, which is notably sparse for data releases with nothing due in Europe and only the March NFIB small business optimism print and February JOLTS report due out in the US. Away from that the Fed’s Clarida is set to speak at a “Fed Listens” event in Minneapolis late tonight, while as mentioned above the annual Spring Meetings of the World Bank and IMF begin today, and at some stage we’re expecting to get an update of the IMF’s World Economic Outlook. So expect headlines there. As discussed earlier, we’ll also get the Euro Area bank lending survey today.

 

 

Published:4/9/2019 7:09:26 AM
[Markets] Pentair slashes profit and sales outlook, citing weather and 'moderating growth' Shares of Pentair PLC are indicated down nearly 3% in premarket trade Tuesday, after the water solutions company slashed its earnings and sales guidance, as first-quarter results were "significantly impacted" by adverse weather in its higher-margin aquatics and ag-related businesses. The company cut its first-quarter net earnings-per-share outlook to 30 cents from a range of 47 cents to 50 cents, and its adjusted EPS outlook to 43 cents from a range of 52 cents to 55 cents. The FactSet EPS consensus was 54 cents. The company said it now expects sales to decline 6% to $689 million, compared with previous guidance of flat to up 1% and the FactSet consensus of $734 million. "To start 2019, in addition to the adverse impact from weather, we have seen moderating growth in several of our end markets," said Chief Executive John Stauch. "We are also experiencing higher than anticipated inventory levels in some of our key distribution channels." The stock has run up 19.8% year to date through Monday, while the Dow Jones Industrial Average has gained 12.9%. Published:4/9/2019 6:09:21 AM
[Markets] Is Bitcoin Responding To Brexit?

Authored by Tom Luongo,

“Brace Yourself Arthur as Corporate America  tries to sell us its wretched things!” (Turns on TV)
— The Tick

Bitcoin has been on fire since April began. It’s been an impressive move so far. And no one has a good reason why.

So I’m asking a simple question. Is Bitcoin’s rally part of the post-Fed safe haven rally we’ve seen across asset classes? Or is it just an overdue long probe mixed with some short-covering?

At Money and Markets I make the argument that is was simply time for a rally which was set up by a strong Q1 close.

Bitcoin and the rest of the cryptocurrency market have been mired in a bear market for fifteen months now since the spectacular bubble of 2017 burst. And that’s enough time for the market to become unbalanced enough that it needed a counter-trend correction. 

All it was looking for was a catalyst.

To me, political turmoil is creeping up around the world. So, the idea of people quietly accumulating Bitcoin below $4000 doesn’t seem outrageous given how much our financial lives are now tracked.

With all of the uncertainty surrounding Brexit, an imploding German economyU.S. foreign policy insanity and upcoming European Parliamentary elections, there has to be a political component to Bitcoin’s big pop since it drifted higher over the weekend.

Looking at the daily chart it’s obvious that there was a big spurt of activity on the breakout days which pushed the price through $4100 and up close to $5300.

And now we’re looking at a low-volume meander higher as bulls won’t give up the dream.

But back to the broader question. We’ve seen a titanic set of moves in all safe-havenassets. German Bunds carry negative yield out to 10 years. (10 YEARS!). President Trump has nominated an outsider and personal friend, Herman Cain, to the FOMC board, nominally to frighten the Fed into cutting rates at the next meeting.

He wants more QE and lower rates, mistakenly thinking this will be inflationary and good for his “Best Economy Evahr!”

But it won’t be.  QE is deflationary.  It signals a frightened central bank that doesn’t believe credit markets are healthy enough to operate without support.  

Markets are already struggling with valuations. It’s why we’re seeing multi-sigma moves in the Dow, U.S. Treasuries and major currencies while the central banks try to keep a lid on volatility.

Brexit threatens to upend the smooth flow of capital between Europe and the City of London. If no deal is reached by Friday and the U.K. leaves the EU on WTO terms there will be retaliation by the EU for that outcome.

They will trash the pound. They will impose the harshest tariffs they can and deny travelers, supplies and the rest.

There will be a reckoning.

It’s a bluff in the long run, but a very real threat in the short run. Their economies are too linked to separate violently. And Germany is too weak to keep it all from coming unglued.

What the EU fears is having to react to new market forces. A U.K. trading on WTO terms would pressure them to lower tariffs.

It would rather subsume everyone else than reform itself.

Hence, no movement on trade talks with the U.S. Harsh treatment of the U.K. over Brexit, if not outright assault. No reform possible for Italy. More TARGET 2 imbalances, Bail-in rules for banks, Article 7 censuring of Hungary and Poland.

The list goes on.

When you look at it that way smart people preparing for chaos simply makes sense.

We have precedence for this. A lot of the Bitcoin’s transactional volume during the 2017 bull market came from Europe. Capital controls have been inhibiting cross-border flows since the 2011 debt crisis.

Gold and bonds are confiscated across borders within the EU.

Oh the tragic irony, people can move freely but not money.

Bitcoin’s very nature invites this behavior. In times of extreme stress Bitcoin functions as a safe haven asset. And it doesn’t take much to move the price.

So, one big European whale could set off a 25% relief rally during the chaos surrounding Brexit. And once he’s done buying, the natural rhythms of markets take over.

I’m not convinced this move is anything more than that, however. I don’t think this is the new bull market.

The real test is this week and the strength of any push towards $6000. If that fizzles, then we’ll see Bitcoin relax back towards $4000.

And a lot of that will depend on what happens this week with Brexit.

*  *  *

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Published:4/9/2019 4:37:24 AM
[Markets] Nasdaq Erases Losses, Dow Jones Falls; Will These 3 Tech Stocks Outperform Apple? Boeing weighed on the Dow Jones Industrial Average but the Nasdaq edged higher. Watch these 3 tech stocks, not just Apple, leading the current market. Published:4/8/2019 2:30:19 PM
[Markets] P&G's stock rallies toward record high after Wells Fargo boosts rating, price target Shares of Procter & Gamble Co. rallied 0.9% toward a record high in morning trade Monday, after Wells Fargo analyst Bonnie Herzog turned bullish on the consumer products company, saying she still sees upside as management now appears to have a sense of urgency and accountability. Herzog raised her rating to outperform, after being at neutral since November 2016, and bumped up her stock price target to $115 from $91. While Herzog acknowledges she "late to the game," she sees potential for more stock price gains, driven by positive earnings revisions and multiple expansion as investors appreciate P&G's fundamentals, which are becoming increasingly superior to its peers. Herzog said she expects gross-margin expansion for the first time in nine quarter, which suggests there is potential for management to raise its fiscal 2019 earnings guidance. In addition, she believes organizational changes to be implemented in July could be a "multi-year driver of improved results over the long term." The stock has climbed 33% over the past 12 months while the SPDR Consumer Staple Select Sector ETF has gained 6.2% and the Dow Jones Industrial Average has advanced 10%. Published:4/8/2019 10:29:32 AM
[Markets] Dow off 150 points early Monday as investors begin to turn attention to earnings Dow off 150 points early Monday as investors begin to turn attention to earnings Published:4/8/2019 8:58:45 AM
[Markets] Boeing's stock set to cut over 100 points off the Dow Shares of Boeing Co. shed 4.2% in premarket trade Monday, after the aerospace giant said it was "temporarily" cutting its 737 production rate to account for continued halts in 737 MAX deliveries since the aircraft's grounding. Boeing's stock could be blamed for the Dow Jones Industrial Average's early weakness, because the stock's implied price decline ahead of the open would cut the Dow's price by about 114 points, while Dow futures dropped 83 points. Analyst SunTrust RH analyst Michael Ciarmoli said that while Boeing production cuts will allow the company to allocate resources toward certifying, fixing and returning the 737 MAX jets to flight, but he views the news as "a negative surprise that has the potential to weigh on industry-wide financials, sentiment and valuation." Boeing's stock has rallied 21.5% year to date through Friday, while the Dow industrials has gained 15.4%. Published:4/8/2019 7:58:33 AM
[Markets] More Boeing Backlash: China Suspends $6 Billion Order For 100 737s

Dealing another blow to public confidence in Boeing's ability to swiftly reassure regulators that its 737 MAX 8 can be made safe for passenger travel, the South China Post on Monday reported that China Aircraft Leasing Group Holdings has put an order for 100 new 737s on hold, until it can be assured of the aircraft's safety.

This follows a decision by Indonesia's national carrier to cancel a $6 billion 737 MAX order. The airline had been planning to order 49 planes. Boeing last week said it would cut its pace of production by 20% to just 42 a month.

China was the first country to ground the 737s after Ethiopian Airlines flight ET302 crashed just minutes after takeoff - the second deadly incident involving the planes in just 5 months. A preliminary report from investigators found that the pilots followed Boeing's safety procedures, but were still unable to right the plane.

Boeing is working on an update of its MCAS anti-stall software, which is believed to have contributed to both the crash of ET302 and a deadly Lion Air crash that occurred just five months earlier, but the fix is taking longer than anticipated.

Boeing

Per its original delivery schedule, the first 737 was supposed to be delivered to the aircraft lessor in Q3 of this year. Originally, the lessor signed its contract with Boeing in June 2017, ordering 50 aircraft, then increasing it by 25 with an option for another 25. The order for the initial 50 aircraft was valued at $5.8 billion.

The company said it has stopped paying installments on the planes it has ordered.

The Hong Kong-listed lessor, controlled by the state-owned conglomerate China Everbright Group, placed an order for 50 aircraft in June 2017. CALC then increased it by another 25 in December with an option for 25 more as part of its plan to grow its overall fleet from 133 in 2018 to 232 by 2023. According to the original schedule, the first MAX jet was expected to be delivered to CALC in the third quarter of this year and continue up to 2023.

"The purchase has been suspended and we have stopped paying the installments," said Chen Shuang, chairman of CALC and chief executive of China Everbright, the financial arm of China Everbright Group.

Airlines around the world have grounded the 737s, and last week, the FAA set up a joint review task force that is expected to include other aviation regulators, including possibly China's, which has been invited to join.

Most of the deliveries weren't expected until 2021, so the hold won't impact the lessor's operations, its spokesman said.

A CALC spokeswoman said that since most of the deliveries to the company were to be made from 2021, "so we see little or no impact on our operations."

Chen said that they have received assurances from Boeing that “a better solution will be submitted to CALC within two months”, adding that they have not yet discussed compensation.

Chen said both sides are actively seeking a solution to the problem.

"One option being considered is to replace it with other aircraft. But there aren’t too many options," said Chen.

Of course, the last thing Boeing shareholders wanted to hear after last week's string of negative headlines was more bad news, particularly after the late-Friday announcement of its production cut, which the company had clearly hoped to sneak by the market. And following the revelation that Boeing might soon have a second large cancellation on its hands, Boeing's shares - already lower - have sunk even further in premarket trading, weighing on the Dow.

Published:4/8/2019 6:58:19 AM
[Markets] The Dow Is Set to Slide Monday Because Boeing Stock Got Downgraded Dow futures have dropped 77 points, or 0.3%, as (BA) (BA), its largest component, has dropped 4.1% to $376 in pre-open trading. S&P 500futures have dipped 0.1%, and the Nasdaq Composite has declined 0.1%. This week looks to be all about the micro, not the macro, as earnings season looks set to begin—and analysts tweak their ratings ahead of reports. Published:4/8/2019 6:29:59 AM
[Markets] Wells Fargo, Boeing, Tesla and 'Shazam!' - 5 Things You Must Know U.S. stock futures declined Monday as investors looked ahead to the start of the first-quarter earnings season and interpreted mixed statements on trade talks between Washington and Beijing. will kick off earnings season on Friday amid solid U.S. creation data but weakening economic signals from around the world. The Dow closed about 1.5% off its record close of 26,828.39 on Oct. 3, 2018. Published:4/8/2019 4:57:59 AM
[Markets] New Dow gets first bearish analyst call Shares of Dow Inc. were headed for their first loss as a newly independent public entity, after J.P. Morgan analyst Jeffrey Zekauskas became the first analyst to take a bearish stance on the materials science company. Published:4/7/2019 9:24:12 AM
[Markets] E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Trader Reaction to 26509 Will Set Tone on Monday Based on Friday’s price action and the close at 26394, the direction of the June E-mini Dow Jones Industrial Average futures contract is likely to be determined by trader reaction to Friday’s high at 26509. Published:4/7/2019 5:30:46 AM
[Markets] Dow Ends in Positive Territory as Investors Respond to Strong Jobs Report Stocks ended in positive territory Friday after U.S. employers hired at a faster-than-expected pace in March, a rebound from the prior month's dismal results that had raised alarms about the magnitude of an economic slowdown. Nonfarm payrolls in the U.S. last month rose by 196,000, the Labor Department said. The Dow Jones Industrial Average ended up more than 40 points, or 0.15%, to 26,424.99, the S&P 500 rose 0.46%, while the Nasdaq climbed 0.59%. Published:4/6/2019 11:46:56 AM
[Markets] Bond Yields & Bitcoin Bounce But Trade-Talk Trumped Terrible-Data For Stocks

Remember Sunday... when a single Chinese 'soft' data survey beat prompted panic-buying around the world? Well, by the end of the week, Global macro data had extended its decline (but that never stopped stocks)...

Because only one thing matters... "a trade deal"

Never mind though, the market is not the economy and so "It's not the economy, everything is awesome, stupid!"

China was closed last night but the last five days have been insane in Chinese stocks leaving ChiNext up over 9%... (SHCOMP's 2nd best week since March 2016 to its highest since March 2018)

 

Germany's DAX led European markets higher, despite a collapse in its factory orders...

 

China is leading the world with another leg higher, crushing Europe and US...

 

US markets all gained solidly, helped by the Monday gap open after China... Trannies were best on the week...

 

Odd day for The Dow, rallied after the close on Xi comments, ripped on the jobs data, dumped at cash open, dumped after Europe close, then pumped and dumped into the close...

 

This was the biggest short-squeeze week in 2 months...

 

And buyback-related stocks soared... (biggest 2-week jump since the start of 2019)

 

Huge week for semi stocks, surging to a new record high...best week for semis in 5 months

 

Credit and equity protection costs plummeted this week...

 

But VIX and stocks remain decoupled...

 

But the jaws between bonds and stocks remain the widest...

 

Despite some gains today, bonds were ugly this week with yields up 8-10bps across the curve...

 

But 10Y remained below 2.50% (and 30Y below 3.00%)...

 

Inflation Breakevens were up on the week but flatlined the last few days even as Oil exploded...

 

The Dollar ended the week unchanged (despite all the excitement over a trade deal) despite some volatility intraweek...

NOTE the resistance at 1200 for Bloomberg Dollar Index.

Cable mirrored the dollar as Brexit headlines dominated once again to leave the pound unchanged...

 

Cryptos had their best week of the year with Bloomberg's Galaxy Crypto Index up 21.5%... led by Bitcoin Cash and Litecoin...

 

With Bitcoin holding above $5000...

 

PMs ended the week unch - in line with the dollar - but crude and copper diverged dramatically...

 

In precious metal land, palladium's pukefest continues as platinum has become the new favorite (on the week, gold and silver were unch)...

 

As an aside, Copper/Gold and the UST 10Y yield have recoupled (just like Jeff Gundlach said)...

 

WTI surged today, breaking above $63 to a new cycle high (BRENT topped $70)...

 

And Lean Hogs soared as asian piggy flu struck...

 

Finally, it's different this time... for now...

And while 'risk-on' is in full swing, positioning in 'risk-off' assets is not playing along with the theme at all!!

And remember, Q1 was hedge funds' worst start to a year since 2012 (presumably since they follow some rational investment thesis that simply does not compute with the new normal equity market)...

 

Published:4/5/2019 3:14:41 PM
[World] The Ratings Game: New Dow gets first bearish analyst call Shares of Dow Inc. were headed for their first loss as a newly independent public entity, after J.P. Morgan analyst Jeffrey Zekauskas became the first analyst to take a bearish stance on the materials science company.
Published:4/5/2019 12:13:13 PM
[Markets] McDonald's to launch an abbreviated late-night menu on April 30 McDonald's Corp. will launch a "simplified" late-night menu starting April 30 that will include the Big Mac, Chicken McNuggets, items from the all-day breakfast menu like the sausage biscuit, and the Happy Meal.The fast-food giant has been grappling with slower service times due to a more complex menu. The new menu will apply after midnight "so customers can get the most popular favorites as fast as possible." McDonald's stock has gained 7.2% for the year so far while the Dow Jones Industrial Average has gained 13.2% for the period. Published:4/5/2019 11:11:00 AM
[Markets] Premarket Trading Gains On Jobs Data; Can S&P 500 Extend Rally? Chips edged higher and Boeing led the Dow after the March payrolls report Friday, as the S&P 500 aimed for a seventh straight advance. Published:4/5/2019 8:13:11 AM
[Markets] Intel stock falls after Wells Fargo downgrade Shares of Intel Corp. are down 0.9% in premarket trading Friday after Wells Fargo analyst Aaron Rakers cut his rating on the stock to market perform from outperform. "Weak semi demand data points thus far in 2019, coupled with an expectation of cautious outlooks into 2Q19, leave us to consider some downside risk to our / street 1H2019 estimates for Intel - or at the very least limited upside to current estimates," Rakers wrote. He also said that while the company's recent data-centric product launches "highlight the company's portfolio breadth as a competitive differentiator," he didn't see anything in the latest announcements "that will change an increasingly visible AMD vs. Intel share gain narrative through 2019." Intel's stock has gained 18% over the past three months, to close at a 10-month high, as the Dow Jones Industrial Average has risen 13%. Published:4/5/2019 7:42:40 AM
[Markets] Dow Jones Industrial Average’s 6-month drought nears an end — but key hurdles remain Is it time for Wall Street to break out the Dow 27,000 hats that were summarily shelved back in October as a stock-market rally ran out of steam? It’s hard to say for certain, but the Dow Jones Industrial Average (DJIA) nonetheless, is on the verge of not just a fresh psychological milestone but also its first record in six months. As of Thursday, the Dow stood less than 2% (about 1.7%) shy of its record close at 26,828.39 that was put in on Oct. 3. Published:4/5/2019 7:10:10 AM
[Markets] Global Stocks Rise On, What Else, "Trade Talk Optimism"

Another day, another round of "US-China trade talk optimism."

Global stocks continued their drift higher to close the week, with the MSCI World Index on track for a second straight week of gains while emerging-market stocks extended their winning streak to seven days, the longest stretch in more than a year, as both China and the U.S. claimed progress in trade talks.

"Buy algos" were encouraged after both China and the US claimed progress in talks to end their trade war, with President Xi Jinping pushing for a rapid conclusion and President Donald Trump talking up prospects for a “monumental” agreement that might be announced within four weeks, although he warned that it would be difficult to allow trade to continue without an agreement. Benchmark bond yields ground higher and the dollar reached a three-week high against the yen before U.S. job data. Better-than expected industrial output data out of Germany and receding fears of a disorderly Brexit also helped perk up sentiment.

While Chinese markets were closed, US equity-index futures advanced alongside Asian stocks, European bourses and Chinese stock futures after a Xinhua report that President Xi Jinping said substantial progress had been made on the text for a trade deal. “The main overnight news, which is positive if not very substantial, is around the U.S.-China trade deal,” said Mizuho strategist Antoine Bouvet. “German industrial orders yesterday added to worries in the manufacturing sector, but industrial production today actually surprised to the upside.”

“There’s a little bit of a risk that it’s a sell-on-the-news event,” Ann Miletti, a fund manager at Wells Fargo Asset Management, said of U.S.-China trade talks. “The devil is really in the details - how good is this deal going to look?”

Europe's Stoxx 600 traded sideways, shrugging off trade optimism and Brexit news ahead of today’s U.S. payrolls. Eurostoxx 50 is little changed, Markets in Paris and London added 0.1%. German stocks were treading water, with modest gains in basic resources and autos sectors offset by weakness in real estate and telecoms, though the index was on track for its best week since December 2016. German industrial output rose by 0% percent in February, better than the 0.5% expected, as mild weather helped a surge in construction activity. But manufacturing production dipped as Germany continues to suffer from trade friction with China and Brexit angst after narrowly avoiding recession last year. Leading economic institutes slashed their forecasts for 2019 growth on Thursday and warned a long-term upswing had come to an end.

Earlier in the session, trading volumes throughout Asia were muted, with cash markets in China and Hong Kong shut for a holiday.

S&P futures pointed to modest gains for stocks on Friday, with S&P 500 edging up 0.16% to 2,887, only 1.75% away from its Sept 2019 closing high, which is prompting some caution: “Share markets have run hard and fast from their December lows and are vulnerable to a short-term pullback,” said Shane Oliver, head of investment strategy at AMP Capital. “But valuations are okay, global growth is expected to improve into the second half of the year, monetary and fiscal policy has become more supportive of markets and the trade war threat is receding.”

Attention now turns to the March payrolls report, which is forecast to rebound to 177,000 in March, following February’s surprisingly low 20,000 rise. As Jim Reid writes overnight, "how markets fare today will likely be dictated by the March employment report."

A reminder that last month we had that huge plunge in payroll growth to just +20k which was the lowest since September 2017 and the third lowest since January 2011. Expectations are for a bounce back 177k print however that is still below the average of the last three (186k), six (190k) and twelve (212k) months. To be fair there is a decent range on the Bloomberg survey at 110k to 277k. Our US economists have a 165k forecast and they note that the hostile weather in mid-March also raises the risk of another downside miss. As for earnings, the consensus is for a solid +0.3% mom reading (DB at +0.2% mom) which should keep the annual rate at +3.4% yoy. The unemployment rate is also expected to hold steady at 3.8%. So lots to look out for as ever.

In focus will be hourly earnings, which climbed to 3.4% in February, the fastest pace since April 2009. Hopes for a solid number were boosted by data on jobless claims, which fell to a 50-year low last week. With traders betting that the next Fed move will be to lower interest rates, not raise them, the fixed-income market could be affected by any signs of wage strength in today’s report.

In other overnight news, President Trump commented that there would be a 25% tariff on car imports from Mexico if he decides to apply tariffs but also said that Mexico has done good regarding the border during past 4 days, while he added that he did not say the border would stay open for a year but that he would place tariffs first. Trump also confirmed he has recommended Herman Cain to the Fed board.

In the latest Brexit news, UK PM May sent a letter to EU's Tusk proposing an extension for Brexit until 30th June 2019 with potential to terminate early should a deal be ratified before then. Letter states that the UK will begin to prepare to host European elections and that the UK needs to provide a clear plan by Tuesday (the day before the EU Council meeting). Separately, there were reports EU's Tusk is preparing to offer the UK a 12-month flexible extension, according to a senior EU source; which has since been confirmd by a Senior EU Official.  EU Council President Tusk's proposal of a year long extension to Brexit would permit the UK to leave as early as 1st July if the UK has passed with Withdrawal Agreement by that point, according to a senior EU official.

The optimistic mood again weighed on safe-haven debt, with government bond yields in Europe and the United States rising in early trade. 10 Year US and German bond yields climbed to a two-week high, the latter just above zero, the former rising to 2.535%.

In currencies, the progress on trade was enough to keep the safe-haven yen under pressure and lift the dollar to a three-week high of 111.79. The dollar steadied before the release of U.S. payrolls data, while sterling initially advanced after the U.K. asked the EU to kick the Brexit can down the road once again, only to sink below Thursday lows after.

An index of developing-nation currencies was little changed, with Indonesia’s rupiah leading gains versus the dollar along with South Africa’s rand and Mexico’s peso. President Xi Jinping reportedly said substantial progress had been made on the text for a trade deal, raising hopes of a swift end to the dispute that has weighed on the global economy

In commodities, Brent crude futures were off 23 cents at $69.17 after touching $70 a barrel for the first time since November, as expectations of tight global supply outweighed rising U.S. production. WTI priced at $62.16 a barrel. Spot gold dipped to $1,291.61 per ounce but held above a near 10-week low hit overnight.

Market Snapshot

  • S&P 500 futures up 0.2% to 2,887.00
  • STOXX Europe 600 unchanged at 387.88
  • MXAP up 0.02% to 162.40
  • MXAPJ down 0.1% to 538.85
  • Nikkei up 0.4% to 21,807.50
  • Topix up 0.4% to 1,625.75
  • Hang Seng Index down 0.2% to 29,936.32
  • Shanghai Composite up 0.9% to 3,246.57
  • Sensex up 0.3% to 38,802.54
  • Australia S&P/ASX 200 down 0.8% to 6,181.26
  • Kospi up 0.1% to 2,209.61
  • German 10Y yield rose 1.5 bps to 0.009%
  • Euro up 0.05% to $1.1227
  • Brent Futures down 0.5% to $69.08/bbl
  • Italian 10Y yield fell 2.1 bps to 2.165%
  • Spanish 10Y yield rose 0.7 bps to 1.117%
  • Brent Futures down 0.1% to $69.35/bbl
  • Gold spot down 0.2% to $1,289.19
  • U.S. Dollar Index little changed at 97.27

Top Overnight News

  • Through a message passed to U.S. President Donald Trump via Chinese Vice Premier Liu He, President Xi called for an early conclusion to trade negotiations, the official Xinhua News Agency said. Liu, who took part in talks this week in Washington, said the two sides had “reached new consensus on such important issues as the text” of a trade agreement, according to Xinhua
  • A potential U.S.- China trade agreement could face challenges from other World Trade Organization members depending on the details and whether other nations feel it unfairly hurts them, the group’s chief said.
  • May’s request for another Brexit postponement sets up a battle with the EU ahead of a key summit next week. Tusk favors a 12-month extension that could be ended early if a withdrawal deal is approved before the year is up, according to an EU official
  • German Chancellor Angela Merkel reiterated her vow to do everything she could to avoid a no-deal Brexit, while maintaining solidarity with Ireland
  • Cleveland Fed President Loretta Mester, answering a question about the likelihood the next policy move will be a cut rather than a hike, says “I’m biased to either keeping rates where they are or moving them up a little bit”
  • President Trump intends to nominate Herman Cain, the former pizza company executive who ran for the 2012 Republican presidential nomination, for a seat on the Fed Board, according to people familiar
  • China has drafted rules to regulate the nation’s $109 billion peer-to-peer lending sector as part of a plan to clean up the market by 2020, according to a document seen by Bloomberg
  • Norway’s $1 trillion sovereign wealth fund got the go-ahead to cut emerging markets from its fixed income holdings as part of an overhaul of its $310 billion bond portfolio
  • Italy’s cabinet approved a series of measures to boost the economy, even as the Treasury prepares to slash growth forecasts for the year and raise its projected budget deficit

Asian equity markets traded slightly mixed following a similar indecisive lead from Wall St. as US-China trade optimism was partially offset by pre-NFP caution and holiday thinned conditions from closures across the Greater China region. ASX 200 (-0.8%) was the laggard and extended on its pullback from 7-month highs, with the declines led by tech which mirrored the underperformance of the sector stateside. Nikkei 225 (+0.4%) was positive with the index underpinned by favourable currency moves and trade-related hopes, while the KOSPI (+0.1%) remained afloat as index giant Samsung Electronics weathered a miss on its Q1 earnings guidance. Chinese markets were shut for national holidays although there was certainly no lack of relevant news flow with trade talks remaining in the limelight, in which leaders from both sides noted substantial progress was made and President Trump suggested that a deal could be announced in the next 4 weeks. Finally, 10yr JGBs were pressured amid spill-over selling from T-notes and as stocks in Japan remained afloat, while the BoJ were only present in the market today for T-bills. US President Trump said rapid progress is being made in trade discussions with China and we're getting very close to trade deal, but added it is not yet made and could be announced in the next 4 weeks, maybe more or less. Furthermore, US President Trump said he will hold a summit with Chinese President XI in Washington if there is a deal and that he will discuss tariffs with Chinese Vice Premier Liu He, while he cited tariffs as well as IP theft when asked about sticking points.

Top Asian News

  • Jokowi Gambles on Rural Voters as Discontent Grows in Cities
  • India Didn’t Shoot Down Pakistan’s F-16, U.S. Magazine Says
  • Energy Tycoon $1 Billion Richer as Vietnam Bet Boosts Stock
  • Lucrative Coal Trade Beckons Those Bold Enough to Test China

A cautious start for European equities [Euro Stoxx 50 Unch] after a relatively mixed Asia-Pac session, as is usually the case ahead of US jobs data. Italy’s FTSE MIB (+0.4%) modestly outperforms its peers as Saipem (+3.0%) rose to the top of the Stoxx 600 on the back of a positive JP Morgan broker move. Sectors are mixed with no clear standout.

Top European News

  • May Writes to Tusk Seeking to Delay Brexit to June 30
  • France Backs Banking Consolidation Amid German Merger Talks
  • Swedbank Chairman Quits as Scandal Rips Through Top Ranks
  • There Is an Art to Issuing a ‘Good’ Profit Warning, RBC Argues

In FX, AUD/NZD/GBP/EUR all bucked the broader trend of consolidation and sideways trading into NFP and Canada’s latest employment report, albeit not by much in terms of moves vs the Greenback. However, the Aussie has extended its rebound from post-RBA lows and outperformance vs the Kiwi in the process. Aud/Usd has retested recent 0.7100+ peaks as Aud/Nzd advances through 1.0550 towards 1.0575 and Nzd/Usd declines to new early April lows below 0.6740. The catalysts, more momentum towards a US-China trade agreement, per latest reports from Beijing especially, another rise in iron ore prices and a supportive Aussie note from GS that Is going against the grain with an unchanged RBA policy call to support its revised forecasts for Aud/Usd over 3 and 6 month horizons (0.7400 and 0.7500 from 0.7200 and 0.7300 respectively). Recall, the US bank also went long of Aud/Nzd yesterday and decent option expiry interest sits at the 0.7100 strike (1.6 bn). Elsewhere, Cable remains volatile and fixated on Brexit headlines around the 1.3100 handle amidst latest reports about a potential lengthier A 50 extension to mid-year or end March 2020 with a flexible early termination option. Eur/Usd is still rangebound between 1.1200-50 after topping out not far above a 1.1246 Fib again on Thursday, but deriving some underlying support from better than expected German IP data and Italy’s ISTAT suggesting that its leading economic indicator points to signs of a recovery or base. Note also, hefty option expiries may be keeping the headline pair in check, as 2 bn resides between 1.1185-1.1200 and 2.5 bn from 1.1240-50.

  • CHF/CAD/JPY - Minimal deviation against the Usd that is equally restrained pre-US and Canadian labour updates, with the DXY firm, but confined between 97.177-331. The Franc is pivoting parity and Loonie straddling 1.3350, while Usd/Jpy is just off a marginal new wtd high of 111.80 having breached its 200 DMA (111.49).
  • EM - Contrasting fortunes for regional currencies as the Lira continues to lick wounds amidst the ongoing political contention following local Turkish elections and wrangling with the US over its S-400 order from Russia. Moreover, Usd/Try remains elevated near 5.6000 ahead of next week’s Economic Plan and the next CBRT policy meeting, in contrast to Usd/Zar below 14.1000 and not far from the 100 DMA (14.0625) in wake of SA’s ratings reprieve for the Rand by Moody’s earlier this week.

In commodities, tentative trade in the energy complex as WTI (Unch) and Brent (-0.3%) gear up for this week’s US jobs data.  WTI rests just above its 200 DMA at 61.38, whilst its global counterpart straddles just below its 200 DMA at 69.54. Oil is on track for its longest weekly winning streak since the back-end of 2017, overall supported by the output decline in Venezuela coupled with growing hope of a US-Sino trade truce. Crude has advanced around 40% this year thus far as OPEC+ supply curbs counter record high US shale production. As a reminder, tonight will see the release of the Baker Hughes rig count, although price-action may be muted amidst macro-newsflow. Not much price action in the metals complex (thus far) with gold (U/C) treading water around yesterday’s close after briefly breaching its 200 DMA (1283) to the downside yesterday, whilst copper (-0.1%) remains tentative amidst the cautious risk-tone. Finally, Australia’s Port Hedland’s iron ore shipments to China declined by 8% M/M, totalling 30.7mln tonnes vs. 33.5mln tonnes in February after the port was shut for almost 4 days due to cyclones hitting Western Australia.

US Event Calendar

  • 8:30am: Change in Nonfarm Payrolls, est. 177,000, prior 20,000
    • Unemployment Rate, est. 3.8%, prior 3.8%
    • Average Hourly Earnings MoM, est. 0.3%, prior 0.4%; YoY, est. 3.4%, prior 3.4%
    • Average Weekly Hours All Employees, est. 34.5, prior 34.4
  • 3pm: Consumer Credit, est. $17.0b, prior $17.0b

DB's Jim Reid concludes the overnight wrap

Good morning from Munich, one of my favourite cities in Europe and not just because Liverpool beat them in the Champions League last month. It always brings back memories when I pass the Bayerischer Hof in Munich as when I was staying there in 2002 on a work trip unbeknown to me Liam Gallagher of Oasis was also there at the same time and evidently required some major dental work after a fracas in the hotel nightclub. It was all over the newspapers on my return. Fortunately I was long tucked up in bed when it happened.

Markets were certainly waiting for something to get their teeth stuck into for most of yesterday as everyone awaited the news of the Trump-China VP Liu He meeting and also held fire ahead of today’s payrolls. The former ended after the US markets closed last night. The officials announced no major breakthrough on trade talks but the direction of travel seems to continue to be positive. Trump did float a potential timeline: four more weeks of talks, then two weeks to schedule and attend a summit with President Xi. He said that IP protections, certain tariffs, and enforcement are all still being negotiated. In the meantime, Chinese President Xi Jinping said that substantial progress has been made in trade talks with the US and called for an early conclusion of the US-China trade text.

Equity markets in the US were already shut by the time those headlines hit however sentiment overnight in Asia is slightly on the positive side with the Nikkei (+0.41%) up and Kospi (+0.04%) flatish. Markets in China and Hong Kong are closed for a holiday. Elsewhere futures on the S&P 500 are up +0.15% and 2y and 10y treasury yields are up c. 1bps this morning.

How markets fare today will likely be dictated by the March employment report in the US this afternoon. A reminder that last month we had that huge plunge in payroll growth to just +20k which was the lowest since September 2017 and the third lowest since January 2011. Expectations are for a bounce back 177k print however that is still below the average of the last three (186k), six (190k) and twelve (212k) months. To be fair there is a decent range on the Bloomberg survey at 110k to 277k. Our US economists have a 165k forecast and they note that the hostile weather in mid-March also raises the risk of another downside miss. As for earnings, the consensus is for a solid +0.3% mom reading (DB at +0.2% mom) which should keep the annual rate at +3.4% yoy. The unemployment rate is also expected to hold steady at 3.8%. So lots to look out for as ever.

Back to yesterday and it wasn’t an overly exciting day in markets with the S&P 500 (+0.21%) advancing a bit as gains for energy and materials were offset by losses for utilities and tech. The index has traded in a tight 0.93% range over the last three sessions, its second tightest of the year. The NASDAQ closed -0.05% to leave the winning run behind at five days with Tesla (-8.23%) doing some of the damage, however the DOW (+0.64%) did outperform helped by gains for Boeing (+2.89%). In Europe the STOXX 600 (-0.27%) faded to a small loss. WTI oil remained tame (-0.58%), capping its narrowest three-day trading range since last September. The moderate risk off lifted bonds with 10y Treasuries down -1.1bps and Bunds (-0.6bps) back into negative territory again. At my Munich dinner last night of 10-15 clients, I asked who thought Germany should take advantage of ultra low yields and borrow 50yr or 100yr money and invest it in their economy. Everyone raised their hands. I thought there would be a more conservative balanced response and was therefore pleasantly surprised.

Elsewhere the USD (+0.20%) was firmer which weighed on some EM currencies. The Turkish lira outperformed, advancing +0.64% (down -0.48% this morning) after Bloomberg reported that the European Bank for Reconstruction and Development as well as the World Bank’s International Finance Corporation are looking at increasing their Turkish NPL portfolios. It wasn’t clear if this was a policy change or just consistent with their standard operating procedure, but the currency rallied sharply on the headlines.

The fact that it’s taken this many paragraphs to get to Brexit suggests that there’s been a dip in the newsflow. Indeed, perhaps fitting of the current state of affairs in Parliament, the most entertaining story was a water leak forcing a debate on tax legislation in the Commons to be suspended yesterday. So a rare chance for MPs to discuss a non-Brexit topic was scuppered by rusty pipes. The only notable Brexit news was the suggestion that any more votes on Brexit proposals might not take place before PM May travels to Brussels next week. That raises the risks that Mrs May goes to Brussels next Wednesday and asks for an extension with no firm plan. That will increase the risks of a hard Brexit a week from today. I still think that’s unlikely but it will put the EU in a difficult position if no progress has been made. Talks between May and Corbyn are ongoing with Tories saying they were “productive” whereas Labour didn’t offer up any descriptive word about them. One gets the sense that both sides realise they have a lot to lose by agreeing a grand bargain however both BBC’s Laura Kuenssberg and ITV’s Robert Peston tweeted last night that their sources suggested the talks are credible and could result in something. It’s possible we’ll learn more this afternoon. Sterling closed -0.62% yesterday as the stakes were raised.

In other news, it’s worth flagging another ECB deposit tiering story yesterday, this time from the FT. The article suggested that the arguments in favour of tiering are building within the ECB camp. The story made the point that the key argument is the increasing likelihood of rates remaining at current low levels for an extended period of time. As such, tiering could be part of a package in which the ECB adjusts its forward guidance to endorse market pricing, which is no hikes until at least later in 2020.

Speaking of the ECB and tiering, the minutes from the March meeting which were out yesterday didn’t offer much in the way of new hints. The text revealed that “concerns were voiced that over time the effects of persistently low rates could depress banks’ interest margins and profitability with negative effects on bank intermediation and financial stability in the longer run. It was recalled that the consequences of low rates differed across the maturity spectrum and across banks, depending on their business models and the structure of their assets and liabilities”. Crucially, there was no direct reference to tiering.

As a final point on Europe, there were a couple of GDP downgrade headlines which hit the screens early yesterday. The first was Germany where “institutes” revised down their 2019 growth forecast to 0.8% from 1.9%. However it turned out that the 1.9% was from back in September so it wasn’t all that surprising given the six months of slowing data since then, and compares to the IFO forecast at 0.6%. Shortly after, Bloomberg reported that the Italian Treasury is set to slash its 2019 growth forecast to 0.1% from a 1.0% forecast previously. Again though, this is closer to where the market is. So both headlines were really more noise than anything else.

Turning quickly to yesterday’s Fedspeak, where the overall message was consistent with the existing policy stance. NY Fed President Williams said that “policy is in the right place” and that growth should slow to around 2% this year. Separately, two of the more hawkish committee members, Cleveland’s Mester and Philadelphia’s Harker, maintained their positions for a pause in policy for now, with Mester arguing for “no urgency to change our policy stance” and Harker saying “I continue to be in wait-and-see mode.” They both left the door open for future hikes though. Mester said if the economy evolves as she expects, then “rates may need to move a bit higher” and Harker said “my outlook for rates remains, at most, one hike for 2019 and one for 2020.” Finally, Bloomberg reported that President Trump plans to nominate former presidential candidate Herman Cain for one of the vacant Fed Governorships. He would need to be confirmed by the senate.

Wrapping up the few data prints that were out yesterday. In the US claims continued their trend of reversing the Q4 spike, dropping 10k to 202k (vs. 215k expected) and in fact to a new 49-year low. The four-week moving average is now down to 214k and the lowest since October. Prior to this, we had another disappointing factory orders print in Germany where orders fell -4.2% mom versus expectations for a +0.3% mom lift.

Finally to the day ahead now, where this morning we’ve got more data out of Germany with the February industrial production print, followed by the February trade balance print and March house price data and Q4 labour costs data in the UK. The aforementioned March employment report in the US is the highlight today while late this evening we’ll get the February consumer credit print for the US. Away from that, the Fed’s Bostic speaks this evening while the big US banks will today submit their capital plans with stress test results announced in June.

Published:4/5/2019 6:40:08 AM
[Markets] US Market Indexes Close Mostly Higher Thursday Dow Jones gains 0.64% Published:4/4/2019 5:37:48 PM
[Markets] Market Extra: A 6-month drought for the Dow Jones Industrial Average nears an end — but key hurdles remain Is it time to break out the Dow 27,000 hats that were summarily shelved back in October?
Published:4/4/2019 4:05:27 PM
[Markets] Stocks end mostly higher Thursday with Dow leading the way Stocks end mostly higher Thursday with Dow leading the way Published:4/4/2019 3:35:26 PM
[Markets] Dow logs triple-digit gain as trade talks remain in spotlight U.S. stocks mostly finished higher Thursday amid expectations for the U.S. and China to make progress towards ending their longstanding trade spat. The S&P 500 was up 0.2% to finish near 2,879. The Dow Jones Industrial Average advanced 166 points, or 0.6%, to end near 26,385, based on preliminary numbers. The Nasdaq Composite was down less than 0.1% to end around 7,892. On Thursday, China's lead trade envoy, Vice Premier Liu He, met with President Donald Trump, who tweeted that talks "are moving along nicely." Investors are also gearing up for the March jobs report on Friday, which is expected to reveal the U.S. economy had added 175,000 jobs. In company news, shares of Tesla Inc. plunged 8.1% after the electric-car maker delivered fewer vehicles in the first quarter than analysts had expected. Published:4/4/2019 3:05:19 PM
[Markets] Boeing, Dow and Disney lead way as blue chips gain 125 points Boeing, Dow and Disney lead way as blue chips gain 125 points Published:4/4/2019 9:36:31 AM
[Markets] Stocks open mixed as spotlight stays on U.S.-China trade talks U.S. stocks struggled for direction on Thursday as traders eyed trade developments as a Chinese delegation holds talks with U.S. negotiators in Washington. The S&P 500 was up less than 0.1% to around 2,874. The Dow Jones Industrial Average was down 5 points to around 26,212. The Nasdaq Composite was up by less than 0.1% to 7,901. Much of the stock-markets gains this year have been attributed to optimism that U.S.-China trade tensions will abate, lifting a heavy weight off the global economy. The Wall Street Journal reported that President Donald Trump will announce plans to meet China's President Xi Jinping on Thursday. In company news, shares of Office Depot Inc. slumped 13% after the office-supplies retailer reported its preliminary first-quarter results. Published:4/4/2019 8:37:26 AM
[Markets] Global Markets Flatline Ahead Of He-Trump Meeting, US Jobs Report

One day after a global "trade optimism"-inspired rally fizzled at the closing minute of US cash trading, European and Asian shares eased back from eight-month highs while bonds, the dollar and gold rallied as investors took money off the table amid, what else, "fresh concerns" about U.S.-China trade talks while dismal data from Germany signaled trouble for Europe as investors awaited further news from U.S.-China trade negotiations and tomorrow's US jobs report.

US index futures were flat, while Asian markets and Europe's Stoxx 600 index fell, led by declines in oil companies and miners.

The biggest economic news of the day was Germany’s latest industrial orders which tumbled at the fastest rate in over five years in February, driven largely by a collapse in foreign demand.

The report compounded fears that Europe’s largest economy, which yesterday slashed its GDP forecast by more than half from 1.9% to 0.8%, has had a feeble start to the year and left the euro stuck at $1.12, sent German Bund yields back below zero in the bond market and ended a four-day run of gains for share traders. Eslewhere, Italian shares and bonds also dropped after Bloomberg reported the country is set to slash this year’s growth forecast and raise the projected budget deficit.

In key company-related news, in the preliminary Ethiopian crash report of the Boeing 737 MAX, anti-stall software is not explicitly mentioned; Chief investigator says they cannot yet say if there is a structural problem with Max 8's. Meanwhile, Tesla is tumbling after the company's Q1 vehicle deliveries tumbled and missed badly, with just 63.0k deliveries vs. 90.7k previously.

Earlier in the session, the MSCI Asia index also lost 0.4% overnight after five straight days of gains had taken it to the highest level since late August. Losses were led by Australia and New Zealand while Hong Kong, the Philippines and Indian markets were also in red. The trend was bucked by Shanghai as Chinese shares rose 0.6% while Japan’s Nikkei paused near a recent one-month top.

Emerging-market stocks and currencies also lost momentum on Thursday after recent gains as investors awaited fresh good (or perhaps bad) data for signs the global economy is regaining a firmer footing (or else that central banks will ease more). The MSCI index of developing-market equities fell for a first day in six: the Indian rupee led declines among currencies following a rate cut and dovish outlook from the nation’s central bank. South Africa’s rand weakened after failing to strengthen beyond a key technical level, while the Indonesian rupiah rose after its monetary authority said it would allow further appreciation.

Analysts pointed to investor fatigue and a lack of fresh headlines on the Sino-U.S. trade talks for Thursday’s sell-off while disappointing U.S. economic data this week also weighed on sentiment. “We are expecting quite a constructive agreement between the U.S. and China when it comes to trade,” said AllianceBernstein China Portfolio Manager John Lin. He added it was probably now a consensus view among major investors and if it proved right, would raise other questions such as whether China’s government would “keep its foot on the (stimulus) pedal or ease off a bit.”

Risk sentiment has been supported by constant signs of progress in Sino-U.S. trade talks. White House economic adviser Larry Kudlow said on Wednesday the two sides aimed to bridge differences during talks, while Bloomberg reported that the US would grant China until 2025 to meet trade pledges.  The plan would see China committing to buy more U.S. commodities, including soybeans and energy products, and allow full foreign ownership for U.S. companies operating in China as a binding pledge.  Investors are also looking if ongoing talks lead to an earlier-than-anticipated meeting between U.S. President Donald Trump and his Chinese counterpart Xi Jinping to sign an accord.

At 2pm all eyes will be on the White House, where President Trump will meet Chinese Vice Premier Liu He as trade deal negotiations enter what could be the final stages.

While investors have become more optimistic that a trade deal will be signed, Bloomberg quotes Nick Twidale, chief operating officer at Rakuten Securities Australia, who said it “may just be another step in the process." The implementation of any deal “will most probably provide obstacles in the process and may weigh on sentiment further down the track.”

“Also an important question would be whether an agreement would be sufficient to revive business sentiment and the global trade cycle,” J.P. Morgan Asset Management Asia Pacific Chief Market Strategist Tai Hui added. “We believe on the margin it would help, but practically all investors we’ve spoken to in Asia in the past six months believe friction will still flare up from time to time.

In FX, overnight moves were muted after bigger swings overnight when all major currencies gained against the safe-haven yen. The dollar gained broadly with Treasuries while Sterling dipped after U.K. lawmakers moved to block a no-deal Brexit; the euro largely shrugged off soft German data, and was waiting for the minutes of the European Central Bank’s last meeting, when it pushed back rate hike expectations. Euro-area bonds edged higher, and the yen and equities traded with a defensive tone

In commodities, oil prices slipped a second day, with Brent edging down further from the $70 mark after weekly U.S. oil data showed a surprise build up in crude inventories and record production; Global benchmark Brent has gained nearly 30 percent this year, while WTI has gained nearly 40 percent. Prices have been underpinned by tightening global supplies and signs of demand picking up. “There is a clear bias to the upside with the supply restrictions,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney, pointing to supply cuts by OPEC and others, along with sanctions on Iran.

Spot gold traded lacklustre as markets were tentative ahead of the ECB minutes, US-China trade talks and payrolls, with investors pulling money out of gold ETFs with around $153MM removed out of the $10BN VanEck Vectors Gold Miners ETF over the last five days. Meanwhile, copper (-0.3%) succumbs to the cautious risk tone but remains above its 100 WMA of just under $2.90/lb. Finally, Dalian iron ore futures saw its best day in seven-weeks, extending its record-breaking rally, as supply-side woes (largely from cyclones in Western Australia) and a pick-up in demand (steel mills replenishing stocks) boosted the base metal to a new peak of USD 103.49/tonne.

On today's docket, initial jobless claims are due, while companies reporting earnings include Constellation Brands and RPM International.

Market Snapshot

  • S&P 500 futures down 0.1% to 2,876.25
  • STOXX Europe 600 down 0.4% to 387.49
  • MXAP down 0.2% to 162.37
  • MXAPJ down 0.4% to 538.98
  • Nikkei up 0.05% to 21,724.95
  • Topix down 0.1% to 1,620.05
  • Hang Seng Index down 0.2% to 29,936.32
  • Shanghai Composite up 0.9% to 3,246.57
  • Sensex down 0.3% to 38,761.75
  • Australia S&P/ASX 200 down 0.8% to 6,232.80
  • Kospi up 0.2% to 2,206.53
  • German 10Y yield fell 0.9 bps to -0.001%
  • Euro up 0.04% to $1.1237
  • Brent Futures down 0.6% to $68.88/bbl
  • Italian 10Y yield rose 1.5 bps to 2.186%
  • Spanish 10Y yield fell 0.7 bps to 1.134%
  • Brent Futures down 0.4% to $69.05/bbl
  • Gold spot up 0.1% to $1,291.33
  • U.S. Dollar Index unchanged at 97.10

Top Overnight News from Bloomberg

  • U.S. President Donald Trump will meet Chinese Vice Premier Liu He at the White House on Thursday as speculation grows that negotiations over a trade deal are entering their final stages
  • Britain took a decisive step away from a damaging no-deal Brexit as members of Parliament and political leaders backed efforts to prevent a disorderly departure from the EU
  • Though the U.K. is better prepared for a no-deal Brexit than it was a number of months ago, it would still cause a large economic shock, the Times reports, citing Bank of England governor Mark Carney
  • European Union increasingly sees a long Brexit delay as the most likely outcome of an emergency leaders’ summit next week, according to EU officials
  • Trade deal that the U.S. and China are crafting would give Beijing until 2025 to meet commitments on commodity purchases and allow American companies to wholly own enterprises in the Asian nation, according to people familiar with the talks
  • Bank of Japan is likely to unveil its lowest two-year inflation forecast under Haruhiko Kuroda’s governorship at a meeting later this month, according to a former chief economist of the central bank
  • Trump administration is examining options for shutting entry points to the U.S. from Mexico in case the president follows through with his threat to close the border, a White House official said
  • Nomura will fire about 100 workers at its troubled European business as Japan’s biggest brokerage embarks on its latest attempt to achieve sustained profitability overseas; the job cuts in Europe will mostly target rates and credit traders in London, one of the people said, asking not to be identified as the numbers aren’t public
  • Italy is set to slash its growth forecast for this year and raise its projected budget deficit, according to two senior officials with knowledge of the draft outlook. Italy’s economy is set to grow just 0.1 percent this year, according to the draft, the officials said. The government’s previous forecast was for a 1 percent expansion
  • India’s central bank delivered a back-to-back interest rate cut on Thursday and fueled speculation of more policy easing after lowering inflation and economic growth forecasts

Asian equity markets traded cautiously with the region tentative ahead of looming risk events and after a positive lead from Wall St. where US-China trade optimism kept stocks afloat despite poor ISM & ADP data. ASX 200 (-0.8%) and Nikkei 225 (Unch.) were subdued with broad weakness seen across all sectors in Australia as the post-budget euphoria faded and profit-taking set in following a 7-day win streak, while the Japanese benchmark was indecisive amid a choppy currency. Chinese markets were mixed ahead of an extended weekend in which the Hang Seng (-0.2%) stalled after it briefly rose above 30k for the first time since June last year, while the Shanghai Comp. (+0.9%) was boosted on hopes US and China are nearing a trade deal and with reports also suggesting a Trump-Xi meeting date to sign off on a deal could be announced as early as today. Finally, 10yr JGBs were lower as prices tracked the recent weakness in T-notes and as Japanese stock markets held above water for most the session, while mixed results at the 30yr auction also failed to spur demand.

Top Asian News

  • India Central Bank Cuts Interest Rate to Boost Flagging Economy
  • Bank Indonesia Chief Says Rate Is on Hold Amid Global Risks
  • China Willing to Work With U.S. on Agreement Reached by Leaders
  • Japan Post Insurance to Sell $3.7 Billion Shares in Global Deal

A subdued start to the fourth European session of the week with stocks treading water thus far [Eurostoxx 50 U/C] following a mixed Asia-Pac session, ahead of key risk events including the ECB minutes and US-Sino trade talks. The FTSE 100 (-0.6%) marginally lags in the equity-space as a slew of ex-divs [Direct Line (-5.0%), St James’ Place (-3.4%) and DS Smith (-2.4%)] coupled with a firmer Pound pressure the index. Broad-based losses are seen across European sectors, although energy names are faring slightly worse amidst marginal downside in the oil complex. In terms of individual movers, Commerzbank (+2.4%) trades near the top of the Stoxx 600 amid reports that UniCredit (-1.4%) may bid on the German bank if a Deutsche Bank (-1.7%) deal fails. Meanwhile, Software AG (+3.0%) shares were bolstered by a broker upgrade at UBS. On the flip side, Maersk (-11.2%) shares declined following the separate listing of its drilling unit.

Top European News

  • Commerzbank Shares Rise on Report of Possible UniCredit Offer
  • ICG Said to Near $1.2 Billion Deal for Italy’s Doc Generici
  • German Institutes Slash 2019 Growth Forecast by More Than Half
  • Miners Fall as Iron Ore Rally Pauses on Anglo and GS Warnings

In FX, the Dollar index is holding around the 97.000 level within an extremely narrow 97.013-225 range, and symptomatic of the listless tone in the G10 currency markets overall after choppy trade from Monday through Wednesday amidst fluctuating risk on, off and on again sentiment. However, today and Friday offer some prospect of more decisive moves or at least price action if not clear direction, with the ECB Minutes, Fed speakers and NFP on the agenda.

  • GBP - The Pound remains underpinned as UK Parliament passed another motion to avoid a no deal Brexit and request that PM May go back to the EU seeking a further A 50 extension if no alternative is found to the WA by April 12 or May 22 (assuming no sudden change of heart and the current proposal with Brussels is accepted as the better of evils vs a CU). Cable has rebounded from yesterday’s sub or circa 1.3120 lows to retest 1.3200, but not quite as near the big figure this time as 21/30 DMA convergence around 1.3165 continues to exert some gravitational influence. Similarly, Eur/Gbp has retreated through 0.8550 towards 0.8500 again, though has not managed to get as close as it did on Wednesday.
  • JPY/EUR - Both firmer vs the Greenback, albeit fractionally given the relatively constrained trade noted above, with the Jpy inching higher within a 111.50-35 band and potentially capped by decent option expiry interest from 111.50-60 (1.3 bn) and the 200DMA (111.49). Meanwhile, the single currency continues to meet resistance around 1.1250 and has not been helped by abysmal German industrial orders data or confirmation that the country’s group of Economic Institutes has become the latest to slash the 2019 GDP to under 1%.
  • CHF/NZD/AUD/CAD – All underperforming, but again in context only marginally. Indeed, the Franc is meandering between 0.9987-72, Kiwi hovering from 0.6800 to 0.6773 and Aussie just keeping its head above 0.7100, and at this stage not looking likely to arouse expiry interest at 0.7140-50 in 1 bn. For choice, the Loonie is lagging against the backdrop of softer crude prices and back below 1.3350 ahead of Canada’s Ivey PMI.
  • EM - Literally no respite for the Lira it seems, as economic, fiscal and political issues continue to weigh on the currency and Turkish assets in general. Indeed, Usd/Try has nudged up to 5.6600 again after Wednesday’s mixed inflation data and another hike in swap limits, as investors eye next week’s Economic Program conscious of the fact that the CBRT may not be able to loosen its grip on the monetary policy reins given that headline CPI remains so high.

In commodities, the energy complex had consolidated following yesterdays advances and was edging lower for the majority of the session, though WTI & Brent futures have recently reverted much of this downside and are now just edging into positive territory for the day. Brent and WTI are currently trading around sesson highs of USD 69.34 and USD 62.50 respectively. Earlier in the session, Brent prices edged lower after hitting resistance at its 200 DMA around USD 69.60/bbl, meanwhile WTI remains north of its 200 DMA (USD 61.40/bbl). Elsewhere, spot gold (+0.1) trades lacklustre as markets are tentative ahead of the ECB minutes, US-China trade talks and NFP. It is also worth noting that investors are pulling money out of gold ETFs with around USD 153mln removed out of the USD 10bln VanEck Vectors Gold Miners ETF over the last five days. Meanwhile, copper (-0.3%) succumbs to the cautious risk tone but remains above its 100 WMA of just under USD 2.90/lb. Finally, Dalian iron ore futures saw its best day in seven-weeks, extending its record-breaking rally, as supply-side woes (largely from cyclones in Western Australia) and a pick-up in demand (steel mills replenishing stocks) boosted the base metal to a new peak of USD 103.49/tonne.

US Event Calendar

  • 7:30am: Challenger Job Cuts YoY, prior 117.2%
  • 8:30am: Initial Jobless Claims, est. 215,000, prior 211,000; Continuing Claims, est. 1.75m, prior 1.76m
  • 9:45am: Bloomberg Consumer Comfort, prior 60

DB's Jim Reid concludes the overnight wrap

After a pause on Tuesday, Monday’s risk rally on stronger manufacturing PMIs extended further yesterday on the previous night’s trade news and then a mostly positive global round of non-manufacturing PMIs. It was so good that 10 year bund yields now give you a positive yield again (0.008% - up +5.7bps yesterday). Hurry while stocks last. It makes me want to work out how much the average person would have to invest in them to give them their required retirement income given the 1bps yield! The move was helped by signs of hope from the services PMIs in Europe (more on that below) and Kudlow’s comments that US and China negotiators are “making good headway”. Later in the session, Bloomberg reported that the US requested a six-year timetable for China to implement changes to its import purchases and market access reforms, possibly an indication that a deal is being formalised. The FT reported that there are still a couple of sizeable outstanding issues; 1) what happens to existing US levies on Chinese goods, which Beijing wants to see removed, and 2) the terms of a US enforcement mechanism that ensures that China abides by the deal. Overnight, the White House has said that President Trump will meet Chinese Vice Premier Liu He today in the Oval Office at 16:30 ET (21:30 UK Time). It really feels like progress is being made even if tough work remains.

The tech sector really led the charge yesterday with the NASDAQ closing up +0.60%, albeit off its highs of +1.14%, which means it’s now closed up four days in a row – good for a +2.95% spurt during that time. The FANGs weren’t to be left out with the NYSE FANG index rallying +0.93% - the fifth consecutive daily gain - to put it at the highest level since early October. Amazingly the NASDAQ is also back to being just 2.64% off its all-time highs from late August again. Meanwhile the S&P 500 climbed +0.21% and DOW +0.15%. The latter’s underperformance was entirely driven by Boeing’s -1.54% drop. The Wall Street Journal reported that last month’s 737 Max crash in Ethiopia came despite the fact that pilots followed Boeing’s instructions on how to compensate for a software defect. Ethiopian authorities will release their report on the crash today, potentially opening Boeing up to legal liability.

European equities had a better session, with the Stoxx 600 advancing +1.01% to its highest level since August 9th last year. Bourses rallied across the continent, led by the DAX (+1.70%), the IBEX (+1.33%), and by banks (+1.61%). The only major laggard was the FTSE 100 (+0.37%), which was pressured by the stronger pound on perceived positive Brexit news as well as by the sharp rise in gilt yields, which rose +9.4bps for their biggest selloff in 13 months. Treasury yields rose as well, climbing +4.5bps while the 2s10s curve steepened another 1.0bps to 18.0bps. High yield spreads were also 5bps tighter in both Europe and the US. Oil prices traded flat, though US inventory data showed a surprisingly large 7.2 million barrel increase in stockpiles last week, taking some air out of the narrative of robust demand so far this year.

On Brexit, Prime Minister May and Labour Leader Corbyn held discussions yesterday on a cross-party proposal that both sides described as “constructive” even if Mr Corbyn said that there had not been "as much change as (he) had expected" in Mrs May’s stance.

Their teams will continue negotiations today, and the most likely date for another vote is Monday or Tuesday next week. Last night, Parliament voted 313-312 to pass the Cooper-Letwin amendment, which would try to force a long Article 50 extension. The bill will now move to the House of Lords today and, assuming it is passed cleanly, will take no-deal Brexit off the table - from the U.K. side at least. That has enraged the hard-Brexit supporting wing of May’s party, but it could still push them to back her deal next week if she ends up bringing it to a vote. Prior to the May and Corbyn meeting, European markets were mostly busy watching any Parliament reaction to May’s pivot and any reaction from the EU. On the former two MPs resigned however significantly neither were Cabinet ministers. Is this the calm before the storm in terms of resignations? It’s fair to say that there are a vast number of unhappy Tory MPs over the talks with Mr Corbyn. On the latter there wasn’t too much to highlight. The EU seem to be mostly watching for now. Elsewhere, the Sun has reported overnight that PM May is likely to request 9 month delay to Brexit during the EU summit.

In Asia this morning markets are trading mixed with the Shanghai Comp (+0.56%) and Kospi (+0.19%) up while the Hang Seng (-0.52%) is down and the Nikkei is trading flat. Elsewhere, futures on S&P 500 are trading flattish (-0.06%).

Back to the PMIs where the big talking point, and in contrast to the manufacturing data, was the 0.6pt upward revision to the March services reading for the Euro Area to 53.3, helping to lift the composite to 51.6 (vs. 51.3 flash). With the services sector more domestically orientated than the manufacturing sector it helps to boost the case that the domestic European economy is generally doing ok. The positive revision was helped by a boost from most countries. Germany and France were revised up 0.5pts to 55.4 and 0.4pts to 49.1, respectively, while Italy (53.1 vs. 50.8 expected) and Spain (56.8 vs. 55.0 expected) both came in ahead of expectations.

Staying with the PMIs, yesterday DB’s Peter Sidorov highlighted the fascinating stat that while Germany’s manufacturing PMI is in the deepest downturn outside of the Great Recession, Germany’s services PMI is in the top 25% of readings since the start of the euro area recovery in late 2013. In standardised terms, that is the largest underperformance of manufacturing vs services we have seen since the start of the data in 1997.

Overall the data should be welcomed by the ECB however it doesn’t hide the fact that any recovery back to trend growth still requires the manufacturing sector to lift out of the doldrums. On the subject of the ECB yesterday we got a fresh story from MNI under the title “ECB tiering more likely if rates cut further”. A word of warning that MNI hasn’t proved to be the most reliable of sources in recent times. The headline seemed to be a bit punchier than the actual story too, with the main message being that the tiering debate is still in its infancy right now with no clear outcome.

There’s a chance that we learn a bit more about the ECB’s thinking today with the minutes from last month’s confused policy meeting. Confused in the sense that it felt like the ECB sent out various contradicting messages. A reminder that in the end that they opted to announce the bare bones of the new TLTRO replacement facility but downgraded growth and inflation without suggesting any cohesive future policy implications.

In contrast to the data in Europe yesterday it wasn’t quite so good a day for US data. The March ADP print came in at 129k versus 175k expected, and in fact was the lowest reading since September 2017. We should however caveat that the ADP reading overstated NFPs by 163k in February, which isn’t the first time we’ve seen such a big divergence. So there is a bit of a question about the ADP survey being a reliable spot indicator of payrolls. More important though was the miss in the March ISM non-manufacturing (56.1 vs. 58.0 expected) and -3.6pt drop from February. New orders was the big driver of the decline (59.0 from 65.2), however, the employment component did nudge up +0.7pts to 55.9. The gap between the US and the RoW is closing through a slight dip in the former and a welcome rise in the latter.

To the day ahead now where shortly after this hits your emails we’ll get February factory orders data out of Germany, followed by the March construction PMI. In the US this afternoon the early data release is March challenger job cuts before we get the latest weekly initial jobless claims reading. We’ve also got the aforementioned ECB minutes due out at lunchtime while the Fed’s Mester and Harker are speaking this evening. Keep an eye on potential trade headlines too with China Vice Premier Liu He now in Washington.

Published:4/4/2019 6:35:35 AM
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[Markets] Acuity Brands stock rises after profit beats expectations, while sales miss Shares of Acuity Brands Inc. rose 1% in premarket trade Wednesday, after the lighting and building management company reported a fiscal second-quarter profit that beat expectations, although sales came up short. Net income for the quarter to Feb. 28 fell to $66.3 million, or $1.67 a share, from $96.9 million, or $2.33 a share, in the same period a year ago. Excluding non-recurring items, adjusted EPS rose to $1.99 from $1.89, beating the FactSet consensus of $1.78. Sales rose 2.7% to $854.4 million, but missed the FactSet consensus of $877.7 million, as an increase in volume was partially offset by a slight decline in product prices and mix of products sold. Acuity Chief Executive Vernon Nagel said he does not believe the demand outlook has meaningfully changed since last quarter. He said many customers still have "record backlogs," as they are concerned about the timing of releases for larger projects and the potential impact of tariffs and higher prices. The stock has gained 7.8% year to date, while the Dow Jones Industrial Average has advanced 12%. Published:4/3/2019 7:57:30 AM
[Markets] Futures Jump, World Stocks Hit 6 Month High On Trade Deal Optimism

US futures jumped and world stocks rallied to a six-month high following the latest dose of daily "trade deal optimism" when the FT reported what everyone already knows (but algos, who have a 10 millisecond memory, have forgotten), namely that the US and China have already resolved most of the easy issues standing in the way of a deal to end their long-running trade dispute but are still haggling over the difficult parts, namely how to implement and enforce the agreement.

That, coupled with some more reassuring economic data, helped S&P futures jump 14 points, fast approaching their Sept all time highs, pushed Germany’s 10-year bond yield back above zero percent, hit the dollar as the euro strengthened for the first time in seven sessions as oil neared the key $70 per barrel mark — a multi-month high — on supply concerns.

“We’re being told that we’re 90 percent of the way there which is obviously encouraging but the final 10 percent — which apparently includes the enforcement mechanism and the removal of tariffs — could take some time to iron out,” said Craig Erlam, senior market analyst at Oanda in London. “Investors are happy to be patient here in the hope that the two sides get this right and put an end to a trade war that has clearly taken its toll on markets.”

And since algos quickly calculated that 10% is less than 90% and ignored the actual politics behind the calculus, they promptly activated buy programs and U.S. equity-index futures rose and the Stoxx Europe 600 index jumped, led by miners, as the latest batch of Service PMI data from Italy to Germany also helped ease some of the concern over the euro area’s growth outlook.

Europe's Stoxx 600 index rose almost 0.8% to their highest since August. German stocks rose 1 percent to its highest level since October, while in Paris, French stocks scaled a similar high.

Europe's strong session followed overnight gains in Asia where MSCI’s broadest index of Asia-Pacific shares outside Japan climbed to a seven-month peak, buoyed by stronger-than-expected Chinese services data as China's Caixin Services PMI printed stronly in March, at 54.4 vs. Exp. 52.3 (Prev. 51.1), the highest since January 2018.

Hopes for a deal to end the trade war between the world’s two largest economies were also prompted by fresh comments from White House economic adviser Larry Kudlow that Washington expects “to make more headway” in talks this week. To be sure, analysts were giddy at the prospect of an imminent deal:

  • “What we’re seeing is that markets have climbed a world of worry but there is progress on trade, a recession is unlikely, central banks have made nods to more dovish policy,” said Chris Bailey, European Strategist at Raymond James. “If you put that into the mix I’m not surprised risk assets have moved up.”
  • “We are going to get a deal done in China and the U.S.,” said Luke Hickmore, senior investment manager at Aberdeen Standard Investments. “That, with the stimulus China has put in place, and a slightly calmer tone in the U.K. as well, I think is stoking a market that’s wanted to run hotter than it has done for a while.”

Not only have they moved up, but the MSCI World index is now just shy of a bull market from its December lows.

Generally strong world stocks and hopes of a softer Brexit sparked a sell-off in safe-haven government bonds, pushing yields off recent lows. U.S. 10-year Treasury yields rose almost 4 basis points to 2.52%. Germany’s benchmark 10-year German Bund yield rose back above 0, printing at 0.005%. A week ago it hit a 2-1/2 year low at around minus 0.09 percent on concern about the weak economic growth backdrop.

One fly in the Fed's "rate hike pause" ointment is that oil prices stood near multi-month highs amid concerns about supply. Brent crude rose to as high as $69.92 per barrel, its highest since November and near the psychologically important level of $70 per barrel. It was last up 0.6 percent at $69.80. U.S. West Texas Intermediate (WTI) crude rose 0.34% to $62.79 per barrel. As Reuters noted, news that the US is considering more sanctions against Iran, the fourth-largest producer of the Organization of the Petroleum Exporting Countries (OPEC), and the halting of production at a crude terminal in Venezuela threatened to squeeze supply and pushed oil prices up on Tuesday.

As oil prices surge, the Fed will be hard pressed to explain why it is ignoring what is arguably the biggest cause of consumer anger aimed at higher prices and instead focusing solely on boosting stock rices.

Elsewhere, as the Brexit chaos continues, UK Tory Lawmaker Letwin said the process of seeking an Article 50 extension will go ahead as planned, adding that we can work with the government now; adds that Labour leader Corbyn is 'someone we can do business with' regarding Brexit. If negotiations with Labor collapse, PM May is said to consider asking lawmakers to rank Brexit outcomes. Separately, the EU is preparing to offer PM May a long Brexit extension with strict conditions including taking part in European Parliament elections and a possible “gentleman’s agreement” regarding Britain's conduct (e.g. potentially abstaining from taking part in important decisions over the EU’s future), according to FT. Finally, French President Macron has led other EU leaders in warning that UK PM May's apparent move to take no-deal Brexit off the table offers no guarantees UK will not crash out of the EU on April 12th. In any case, this shitshow isn't ending any time soon, and certainly won't end by fulfilling the will of the majority as May will do everything in her power to prevent or delay an actual Brexit.

In FX, the dollar was pressured as risk sentiment improved amid fresh hope for progress in U.S.-China trade talks and better-than-expected services PMI data in all four of the euro-area’s largest economies. The euro rose as stops were triggered. Sterling extended its gains after British Prime Minister Theresa May said late on Tuesday she would seek another Brexit delay to agree an EU divorce deal with the opposition Labour Party leader, raising hopes of a “softer” Brexit.  The Australian dollar led a risk-on rally, boosted by expectations for a U.S.-China trade deal; New Zealand dollar and Scandinavian currencies followed suit while the allure of traditional havens, such as Treasuries and the yen, faded.

Bitcoin, which inexplicably surged 18.7 percent on Tuesday following a major order by an anonymous buyer, extended its gains by another 1.6 percent to $4,977.48. Spot gold dipped 0.08 percent to trade at $1,291.31 per ounce.

On the macro side, data includes ADP employment change as well as Markit services and composite PMIs.

Market Snapshot

  • S&P 500 futures up 0.5% to 2,882.25
  • STOXX Europe 600 up 0.7% to 387.70
  • MXAP up 0.8% to 162.76
  • MXAPJ up 1% to 541.18
  • Nikkei up 1% to 21,713.21
  • Topix up 0.6% to 1,621.77
  • Hang Seng Index up 1.2% to 29,986.39
  • Shanghai Composite up 1.2% to 3,216.30
  • Sensex up 0.3% to 39,170.16
  • Australia S&P/ASX 200 up 0.7% to 6,285.05
  • Kospi up 1.2% to 2,203.27
  • German 10Y yield rose 4.5 bps to -0.004%
  • Euro up 0.3% to $1.1235
  • Brent Futures up 0.7% to $69.84/bbl
  • Italian 10Y yield rose 1.8 bps to 2.171%
  • Spanish 10Y yield rose 1.8 bps to 1.134%
  • Brent Futures up 0.7% to $69.84/bbl
  • Gold spot down 0.06% to $1,291.66
  • U.S. Dollar Index down 0.3% to 97.10

Top Overnight News from Bloomberg

  • U.S. and China officials have resolved most of the issues surrounding the deal though they have yet to agree on what happens to existing U.S. duties on Chinese goods and the terms of an enforcement mechanism to ensure China keeps to the trade deal, Financial Times said, citing people briefed on the talks
  • China’s Vice Premier Liu He will resume negotiations with his U.S. counterparts in Washington Wednesday as both governments push towards an agreement to end their trade dispute
  • A woman carrying two Chinese passports illegally entered President Trump’s Mar-a-Lago resort in Palm Beach, Florida, Saturday and lied to a Secret Service agent, according to court documents filed in West Palm Beach
  • Larry Kudlow said the president stands by his choice of Stephen Moore for an open seat on the Fed Board despite recent reports about the possible nominee’s failure to fully pay taxes and alimony
  • U.K. Prime Minister Theresa May on Tuesday abandoned her strategy of making Brexit a project of her Conservative Party and Democratic Unionists and asked Jeremy Corbyn, leader of the opposition Labour Party, to rescue her
  • Crude advanced to the highest this year after a further reduction in supply from OPEC signaled that global markets are tightening
  • Prime Minister Scott Morrison’s government pledged sweeping tax cuts and forecast Australia’s first surplus in more than a decade in a budget aimed at engineering a come-from- behind election victory
  • China is drafting rules for overseas investments to be considered part of President Xi Jinping’s Belt and Road Initiative, according to people familiar with the matter, marking the first attempt to better define his signature policy
  • Attorney General William Barr hasn’t discussed any part of Mueller’s report with the White House, according to a Justice Department official, but plans to rely instead on his own judgment in deciding whether some details in the report should be withheld under executive privilege
  • Cryptocurrency traders may not know what caused the abrupt surge in Bitcoin on Tuesday, but they’re going along for the ride anyway; the virtual currency climbed to a fresh 2019 high on Wednesday, building on a spike yesterday that many market participants struggled to explain

Asian equity markets were mostly higher as trade optimism and Chinese PMI data helped the region shrug-off the indecisive lead from the US, where the global stock rally had stalled amid thin volumes, weak durable goods data and ahead of upcoming risk events. ASX 200 (+0.6%) and Nikkei 225 (+1.0%) were positive with Australia led by miners amid strength in iron ore prices which hit record levels in China and as participants also digested the budget which included an upward revision to the first projected surplus in over a decade and proposed AUD 158bln in tax cuts. Japanese stocks were lifted as risk appetite was stimulated by reports US and China are nearing a final trade agreement with most issues resolved but continue to haggle on enforcement and implementation. Hang Seng (+1.2%) and Shanghai Comp. (+1.2%) also benefitted from the trade hopes and after further encouraging data from China in which Caixin Services PMI topped estimates and printed its highest since January 2018. However, the performance of the mainland was somewhat fatigued after its recent bullish streak and with Bank of Communications underperforming on reports China National Council for Social Security Fund plans to sell 1.49bln of Bocom’s A-shares. Finally, 10yr JGBs were lower as trade hopes ensured a lack of safe-haven demand and with selling exacerbated as prices ran through stops at 153.00. SMBC also suggested the BoJ may reduce its purchases today, although this failed to materialize as the BoJ maintained its Rinban amounts which totalled JPY 1.23tln in 1yr-10yr JGBs and which helped alleviate some of the pressure.

Top Asian News

  • RBI Has Scope to Cut India Rate by 50Bps on Thursday: Quantum
  • Brookfield Said to Consider $2 Billion China Property Deal
  • Trio of Troubles Has Malaysia’s IHH Losing $800 Million in Value
  • Pound Volatility Curve Retains Inversion Before May-Corbyn Talks

Major European indices are firmer [Euro Stoxx 50 +0.7%] as the positivity continues from overnight where sentiment was driven by US-China trade optimism and positive Chinese PMI data, although the FTSE 100 (Unch) is the exception to this with the index weighed on by the Brexit-related Sterling strength. Sector wise, material names (sector +1.5%) lead the gains as copper and iron prices are bolstered by the seemingly positive trade news alongside supply-side woes. On the flip side, healthcare names lag (sector -0.8%) with heavyweights Novartis (-1.0%) and Roche (-0.9%) weighed on by Walgreen’s cut in guidance yesterday. Elsewhere, the tech sector (+1.3%) is supported by advances in AMD yesterday (+3% pre-market) alongside Taiwan Semiconductor stating that they expect chip orders to pick up.

Top European News

  • Lira Drop Helps Dubai Bank Save $400 Million in Turkey Deal
  • Euro Extends Advance on Italy PMI Data, Renewed Trade Optimism
  • Euro- Area Services Resilience Softens Manufacturing Blow for Now
  • Istanbul Vote Recount Outcome ‘Must Be Accepted by All’: Guven
  • Suddenly Inflation Isn’t Turkish Central Bank’s Only Worry

In FX, this week’s risk roller-coaster continues, and the latest turn of the ride has lifted stocks and high beta currencies to the detriment of so-called safe havens, like the Dollar and core bonds. Hence, the Greenback has handed back gains made on Tuesday vs most G10 counterparts and EMs, with the index retreating towards 97.000 again from just over 97.500. The catalysts, another strong Chinese PMI and similar beats across the Eurozone/Europe, bar the UK, reports that the US and China are getting close to a trade agreement and Brexit developments raising prospects of some kind of deal as opposed to no deal.

  • AUD/NZD - The Aussie and Kiwi have benefited most from the resurgence in broad risk appetite, with the former also deriving independent impetus from data in the form of retail sales and trade overnight. Aud/Usd has recovered from near 2019 lows to 0.7100+, but may be hampered by more hefty option expiry interest as 1.6 bn runs off between 0.7100-10 at the NY cut. Meanwhile, Nzd/Usd is hovering just below 0.6800 compared to sub-0.6750 at worst as the Aud/Nzd cross holds close to the upper end of a 1.0495-50 range.
  • EUR/GBP/CAD/CHF - All firmer vs the Usd following underperformance yesterday, with the single currency boosted by better than expected Eurozone services PMIs across the board and marginally topping Tuesday’s 1.1250 peak, but capped by layered off said to be sitting up to 1.1270. Cable tested the water and resistance into 1.3200 on the back of the aforementioned Brexit manoeuvres aimed at reaching a pact to trigger an extension from April 12 that could lead to a softer withdrawal agreement or terms. However, the Pound was derailed to a degree by a significantly weaker than forecast UK services PMI as the headline recoiled below 50 and IHS predicted this means Q1 GDP stagnation before a downturn in H2. The Loonie continues to recoup losses vs its US peer post-contrasting manufacturing PMIs/ISM on Monday with the aid of firmer crude prices and the overall rebound in risk sentiment to probe over 1.3300, while the Franc is back up around 0.9960 from parity at one stage on Tuesday, but softer vs the Eur within 1.1177-1.1208 trading parameters after more dovish/intervention talk from the SNB.
  • SEK/NOK - The Scandi Crowns are still tracking broader swings in risk, along with technical and fundamental impulses, as Eur/Sek and Eur/Nok retreat towards recent lows and chart support levels circa 10.4100 and 9.6000 respectively.
  • EM - The Lira remains embroiled in political uncertainty as the main parties wrangle over regional election results against the backdrop of renewed diplomatic angst between Turkey and the US, while latest inflation data has piled more pressure on the Try and CBRT given a firmer than forecast CPI rate. Unsurprisingly, Usd/Try is holding above 5.6100 vs other Usd/regional pairings that are reversing recent rallies, and even the Rand in wake of a weak SA services PMI.

In commodities, prices are on the front foot amidst the overall risk appetite couple with a falling buck. WTI (+0.1%) and Brent (+0.6%) futures have been grinding higher since last night, shrugging off the surprise build in API crude stocks (+3.0mln vs. Exp. -0.4mln) with the former residing just above USD 62.60/bbl having hit resistance at USD 63.00/bbl. The support the oil complex has seen has mostly been due to supply disruptions rather than demand improvement. Traders will be eyeing the DoE release today, although price action may be muted as Iranian and Venezuelan supply woes/ market risk appetite hold onto the spotlight. Elsewhere, metals across the board are benefiting from the easing buck with spot gold (+0.1%) remaining below USD 1300/oz (for now), whilst copper (+1.2%) surges on trade optimism after reports that US and China are inching closer to a deal, with the Chinese trade delegation heading to Washington today for another round of talks. Furthermore, Barclays noted that copper supply-side disruptions have the potential to boost the red metal to USD 7000/tonne. Finally, Dalian iron ore prices were bolstered to record highs, also hit by supply issues, as damage is calculated from the cyclones in Western Australia. Barclays also raised its 2019 iron ore price forecast to USD 75/tonne (Prev. USD 69/tonne).

US Event Calendar

  • 7am: MBA Mortgage Applications, prior 8.9%
  • 8:15am: ADP Employment Change, est. 175,000, prior 183,000
  • 9:45am: Markit US Services PMI, est. 54.8, prior 54.8; Markit US Composite PMI, prior 54.3
  • 10am: ISM Non-Manufacturing Index, est. 58, prior 59.7

DB's Jim Reid concludes the overnight wrap

I visited our new house last night to see how it was progressing with less than three weeks to go of a 9-month renovation project. To say I was blown away was an understatement….. blown away by how much work was needed to be done in 2 and a half weeks! I would say there’s more chance of a Brexit plan being agreed by all parties than it being ready on time but as you’ll see below hopes have been raised on that front last night. Back to the house and the builder told me not to worry and said that it all “usually” comes together at the last minute. Between you and me, the thing I’m most looking forward to is our greatest extravagance. A hot tub? a sauna room? aircon? A wrapping room? No we have none of those... instead the luxury is having designed the kitchen so as to have two dishwashers! Who needs extra cupboard space! Since we’ve had three kids I’ve done more washing up than the rest of my time on this planet. I don’t understand how they can need so many eating and cooking implements and how messy it can get. Life is too short for this so I’m looking forward to opening both doors and shovelling it all in and heading down the golf course instead!

So what will come first, Brexit or me moving in? The chances of the former went up last night as PM May’s press conference after Europe closed was more constructive than expected. Following her marathon cabinet session, May said that she will seek another short Article 50 extension from the EU, will engage with Jeremy Corbyn on an alternative Brexit solution, and will agree to implement whatever solution Parliament passes if these talks break down. This is huge news. She is seemingly now prepared to back down on her prior red lines and also prepared to let Parliament decide on the outcome if she and Mr Corbyn can’t. Recall that the customs union option came within 3 votes of passage on Monday. If parliament could muster the votes to pass that plan or an even softer outcome, PM May has now, for the first time, implied that she would negotiate that with the EU without calling for elections. The removal of that risk and that of hopes of a compromise supported the pound as it rallied +0.88% off its intraday lows after her words. In theory this is very positive news for the pound assuming the Conservative government survives the shrapnel from the internal party in-fighting that this will bring.

In total, the main risks now hinge on the reaction from Labour, the ERG within her own party, from May’s coalition partners the DUP, and from the EU. On the first, opposition leader Corbyn said that he is “very happy” to meet with May, so that’s a positive start. On the ERG, there have been a number of negative comments from members of the group but the worst is probably to come. In a statement, the DUP criticised May’s “lamentable handling” of the negotiations, but said that they will continue to “judge all Brexit outcomes against our clear unionist principles”. That at least leaves open the possibility that the DUP would accept a solution that avoids a border between Northern Ireland and the rest of the UK. Finally, the EU may be unwilling to grant another extension without forcing the UK to participate in EU elections, though we may learn more when Juncker speaks to the European Parliament later today. Donald Tusk seemed to be encouraging patience from his own side.

Prior to last night we learned that there would be no indicative votes today and instead we’re supposed to see MPs debate the new Cooper/Letwin bill, which is designed to prevent a no-deal Brexit next week. We will see if that still occurs given the latest developments. We have until next Wednesday before the emergency EU summit.

Over in markets, it hasn’t quite been so one way in the last 24 hours as it was on Monday with a bit of a lull in newsflow to blame although the Asia session has seen new news. In addition, today’s global non-manufacturing PMIs, tomorrow’s ECB minutes and Friday’s payrolls will also provide us with fresh impetus. We’d expect trade headlines to pick up as China Vice Premier Liu He is scheduled to travel to Washington today to lead a delegation of trade negotiators.

Indeed overnight, the FT has reported that the US and Chinese officials have resolved most of the issues surrounding the deal. The only issues which are yet to be agreed on are what happens to the existing US duties on Chinese goods and the terms of an enforcement mechanism to ensure China keeps to the trade deal. This news, along with better than expected Chinese March Caixin services (at 54.4 vs. 52.3 expected - the highest since January 2018) and composite (52.9 vs. 50.7 last month, highest since June 2018) PMIs, sent Asian markets higher. The Nikkei (+0.83%), Hang Seng (+0.86%), Shanghai Comp (+0.23%) and Kospi (+0.52%) are all up. China’s onshore yuan is up +0.17% to 6.7119. Elsewhere, futures on the S&P 500 are up +0.42%. We also saw Japan’s March services and composite PMIs overnight at 52.0 (vs. 52.3 last month) and 50.4 (vs. 50.7 last month), respectively.

Back to yesterday and after European equity markets marched higher, with the STOXX 600 (+0.35%) closing at its highest level since late September, US equities traded in a bit more of a holding pattern yesterday following the decent three-day run prior to this. The S&P 500 was flat and the DOW -0.30% - the latter hurt by a profit warning from Walgreens Boots, which saw shares fall -12.81%. The NASDAQ (+0.25%) outperformed a bit, mostly thanks to a strong session by Facebook (+3.26%). DB’s Lloyd Walmsley published a bullish report on the stock early yesterday morning (link here ).

Over in rates, Treasuries partially retraced Monday’s steep rise, with 10y yields back down -3.2bps to 2.469% after Monday’s +9.6bps rise. The 2s10s curve steepened slightly to 17bps as two-year yields slid -3.4bps. That came despite a +3.2bps rise in 2y inflation breakevens, partially driven by the oil rally (more below), as the move was driven solely by declining real yields. This morning, yields on 2-year and 10-year treasuries are up 2.1bps and 2.7bps, respectively, thereby further steepening the 2s10s curve to 17.8bps. EM currencies retraced a bit of Monday’s rally as well, with an EM FX index down -0.10%. The Turkish lira remains the most volatile currency in EM space, weakening -1.93% yesterday to within 3% of its 6-month lows.

Bunds also fell -2.2bps and are back down to -0.052% again while Gilts fell -4.3bps in tandem with the Sterling move. BTPs (+2bps) underperformed after Juncker warned that the Italian economy “hasn’t stopped regressing”. In credit, HY spreads were -9bps tighter in Europe but +3bps wider in the US, while WTI oil rose +1.64% following the latest OPEC estimates, which suggested production was down in March. Plus, a regulatory filing by Saudi Aramco showed that the Ghawar oil field – the world’s largest – can pump an estimated 3.8mn barrels per day, notably less than prior estimates of almost 6mn. Oil prices are now up to their highest levels in 5 months, with WTI at $62.60 per barrel and Brent at $69.43.

Moving on. Yesterday’s data in the US proved to be mostly a non-event. Headline durable goods orders in February declined less than expected (-1.6% mom vs. -1.8% expected), however, these were offset by a downward revision to January. The opposite was true for core capex orders, which were down -0.1% mom (vs. +0.1% expected) but offset by an upward revision to January. So net-net a bit of a wash. Last night we also got the March vehicle sales data from several major carmakers. For Fiat Chrysler, Toyota, Honda, and Nissan in aggregate, sales fell -5.5% yoy, modestly better than the -6.2% yoy expected, but still consistent with a slight deceleration in economic activity this year compared to last year. GM reported its Q1 aggregate figures and also showed a drop yoy, while Ford will report tomorrow.

Finally to the day ahead where the data highlight is likely to be the remaining services and composite PMI revisions for March in Europe this morning. We’ll also get February retail sales data for the Euro Area while in the US this afternoon we kick off with the March ADP employment change print (175k expected), followed then by the PMIs and March ISM non-manufacturing (58.0 expected). We’ve also got Fed speakers scheduled with Bostic, George and Barkin speaking in the afternoon at an ABA event (I wanted to put an extra “B” in) while Kashkari then speaks this evening. China Vice Premier Liu He is also scheduled to travel to Washington to lead a delegation of trade negotiators while NATO foreign ministers are due to gather in Washington.

Published:4/3/2019 6:57:26 AM
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