Syria Returns To The Spotlight But Risk So Far Unperturbed
The equity futures euphoria carryover from this weekend, buoyed by sentiment that the Syrian war is postponed if not cancelled, carried over into Tuesday morning despite news that Israel had launched a missile test, which looked at from almost any angle was an attempt at provoking a response from its adversaries. Also the Chinese boost driven by a solid beat in the country's two manufacturing PMIs persisted despite a drop in the August Non-manufacturing PMI reported last night. So once again we have returned to a state where good news is good news and bad news can be ignored. This, even with the Taper announcement just two weeks away. Of note also is that overnight Nokia shares surged 40% after Microsoft announced that it is to buy Nokia mobile business. In tandem, other EU based related names such as STM and Ericsson also gained ground, trading up 3% and 4.5% respectively. Nokia shares traded sharply higher today after Microsoft said it will pay €3.79bln to purchase substantially all of Nokia's devices & services business and will also pay €1.65bln to license Nokia's patents. A fitting farewell present from Steve Ballmer perhaps. Once again, keep an eye on Syria as the president begins his congressional consultations to take the escalation to the next level, with or without provocations from Israel.
The full market recap from RanSquawk:
Equities retreated this morning, as market participants booked profits following yesterday’s gains and also positioned for key risk events this week, which not only features the latest jobs report from the BLS, but also monetary policy meetings by the ECB and the BOE. So much so that even the positive sentiment which dominated the session overnight, where the Nikkei 225 settled up almost 3% failed to have a meaningful impact on investor sentiment. Of note, even though China’s non-manufacturing PMI reading for the month of August fell marginally to 53.9 from 54.1, demand for riskier assets was buoyed by a bullish note by analysts at Goldman Sachs, who raised China 2013 GDP growth estimate to 7.6% from 7.4%.
Tech sector outperformed its peers this morning, with Nokia shares surging 40% after Microsoft announced that it is to buy Nokia mobile business. In tandem, other EU based related names such as STM and Ericsson also gained ground, trading up 3% and 4.5% respectively.
On the geopolitical front, it was reported that Russia’s early warning radars have detected the launch of two ballistic rockets in the eastern Mediterranean. The launch reportedly took place at 06:16 GMT Tuesday.
Separately, President Assad warned that the Syrian military would retaliate if France takes part in foreign strikes on his forces. Assad added that so far, France and the US have been incapable of providing evidence that his forces used chemical weapons and it would have made no sense to use chemical weapons in an area where his troops were also fighting. Going forward, aside from the manufacturing ISM, market participants will also get to digest the release of the latest construction spending and IBD/TIPP economic optimism survey.
China Non-Manufacturing PMI (Aug) M/M 53.9 (Prev. 54.1)
Goldman Sachs raised its China 2013 GDP growth estimate to 7.6% from 7.4% and raised its China 2013 CPI estimate to 2.5% from 2.4%.
EU & UK Headlines
OECD says the ECB must maintain supportive monetary policy and that the ECB has scope for monetary easing if needed.
Lifts UK 2013 growth forecast to 1.5% from 0.8%, lifts French 2013 GDP forecast to 0.3% growth and lifts German 2013 growth forecasts to 0.7% from 0.4%.
Eurozone PPI (Aug) M/M 0.3% vs. Exp. 0.1% (Prev. 0.0%)
Eurozone PPI (Aug) Y/Y 0.2% vs. Exp. 0.1% (Prev. 0.3%)
UK Construction PMI (Aug) M/M 59.1 vs. Exp. 56.8 (Prev. 57.0) - Highest since September 2007.
UK DMO sells GBP 1.5bln 0.125% I/L 2024, b/c 1.87 (Prev. 1.95) and yield -0.159% (Prev. -0.758%)
- Cheapness relative to neighboring lines, especially give the real yields are close to the one year highs, was expected to prove supportive of demand.
- Also of note, the NCR for next week is negative, with around GBP 10.4bln in coupon related flows.
A senior administration official said Monday that the White House was "open to working with Congress" on changes to language proposed for the authorization to use military force in Syria, as lawmakers on both sides of the aisle suggested changes were necessary to garner their votes.
Equities retreated this morning, as market participants booked profits following yesterday’s gains and also positioned for key risk events this week. Tech sector outperformed its peers this morning, with Nokia shares surging 40% after Microsoft announced that it is to buy Nokia mobile business. In tandem, other EU based related names such as STM and Ericsson also gained ground, trading up 3% and 4.5% respectively.
Nokia shares traded sharply higher today after Microsoft said it will pay EUR 3.79bln to purchase substantially all of Nokia's devices & services business and will also pay EUR 1.65bln to license Nokia's patents.
GBP outperformed its peers, with EUR/GBP falling to its lowest level since mid-May following the release of better than expected UK Construction PMI data, which rose to its highest level since September 2007. The latest leg lower also resulted in shorter dated implieds rising to its highest since mid-July and 25-delta R/R falling to -0.3500, lowest since late July 2012. At the same time, the major pair advanced back above the 21DMA line at 1.5547.
EUR/USD traded marginally lower this morning, falling below the 50DMA line at 1.3186 in the process, with the next key technical support level noted at the 200DMA line at 1.3144. Much of the attention going forward will be on the looming ECB policy meeting, where Draghi may seek to downplay recent rise in money market rates and therefore is expected to lead to curve flattening.
Australian RBA Cash Target (Sep 3) 2.50% vs. Exp. 2.50% (Prev. 2.50%) - The RBA said that Australian institutions have ample access to funding markets and that further effects of easing are expected over time. The RBA added it expects inflation within target even after AUD drop and that inflation is consistent with medium-term target. SNB's Danthine reiterates that the ceiling on the CHF will stay in place as long as it is needed.
Russia’s early warning radars have detected the launch of two ballistic rockets in the eastern Mediterranean, Russia’s Defense Ministry stated. The launch reportedly took place at 06:16 GMT Tuesday.
- Israeli Military spokeswoman says not aware of any missile launch in Eastern Mediterranean .
- French Military unaware of any missile launch according to a spokesman.
- Russian embassy in Syria says no sign of missile attack or explosions in Damascus after ballistic launch detected.
French PM Jean-Marc Ayrault said France will only act against Syria within 'coalition' and Syrian chemical attack can't remain without response. Said French parliament won't vote on any Syria attack.
- UN said the inspectors' Syria samples are to reach labs in and that secretary general Ban Ki-moon is to brief 10 security council members tomorrow.
Libya oil output 240,00 bpd according to the NOC. This comes after yesterdays reports that Libya is pumping less than 300,000bpd of crude, but now exporting a normal quantity of oil from Brega and Mellitah terminals, whilst talks with striking oil workers are reportedly going well.
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The full overnight recap from DB's Jim Reid
We have an eventful week ahead to help kick off what promises to be a fascinating month for markets. September has been marked by many as the beginning of the end of a period of ultra-easy liquidity for markets and DB’s economics view is that unless data disappoints materially, we are on course for a tapering of the current bond purchase program at the 17-18 September FOMC meeting.
On that note this Friday’s non-farm payrolls is clearly a key release as it will offer policymakers the final major labor market data before the upcoming Fed meeting. But ahead of payrolls, we’ll also have the ISM manufacturing on tomorrow, trade balance and Beige Book on Wednesday and the ADP employment and non-Manufacturing ISM on Thursday. If that wasn’t enough, we also have the two-day G20 Summit in St. Petersburg starting this Thursday, various central bank meetings around the globe (ECB, BoE, RBA), some key Eurozone data (PMI, Q2 GDP), and the lingering (but seemingly receding) uncertainties around Syria to contend with. So despite a Labour Day shortened week in the US, it is shaping up to be anything but a dull one for markets. We’ll offer a more detailed preview of the week ahead below.
As we say goodbye to what has been a fairly rough month for markets, we’ve also updated our monthly performance review for August in today’s EMR. Full charts and tables are included in the PDF as usual but generally speaking tapering fears, the EM sell-off and the Syrian crisis have all had a negative impact on various asset classes. Interestingly Chinese equities emerged as one of the standout performers in August alongside a broad-based rally in commodities, with the former perhaps benefitting from the stabilization/improvement in the recent Chinese data.
On that note the official Chinese PMI manufacturing data for August came in at 51.0 (highest since April 2012) over the weekend. This compares with a consensus forecast of 50.6 and a 50.3 print in July. Jun Ma noted that the PMI reading shows an improvement in the underlying trend of industrial activities and the improvement in raw material inventory and raw material prices suggest that inventory restocking is underway. It wasn’t all cheers for EM Asia though as on late Friday we learnt that India’s economy slowed again to 4.4% yoy in the April-June quarter to mark its third successive quarter of sub- 5% growth (weakest phase in a decade). We’ve seen a ‘flight to quality’ trend in Asia in recent weeks where north-east Asian countries are perceived to be less risky by investors than the likes of India and Indonesia. If anything, these latest Asian data points continue to validate that trend.
Over the weekend, US President Obama announced that he will seek Congressional approval for military action in Syria. However, in seeking a vote on military action yesterday, Obama didn’t say he was giving Congress veto power over the decision and left open the possibility that he would go ahead without lawmakers. The commentary from various news outlets suggest a high probability that the vote will occur on the week of September 9th when Congress returns to session and commentary from various congressional members suggest that a Syria resolution may only be approved with important amendments and include restrictions such as time limits or relating to the use of ground forces. Either way it seems likely that the current developments will be dragged out for at least another week and there’s no guarantee that Congress will vote in favour of military intervention. Nonetheless, Secretary of State John Kerry laid down further arguments for military action against Assad after announcing that tests conducted on gas attacks in Syria had proved positive for the nerve agent Sarin. Mr Kerry urged Congress to consider the security of US allies Israel and Jordan in the vote next week over whether to authorise force against Syria.
With the US decision on Syria moving to the diplomatic stage, markets seem to be welcoming the delay in military action as evidenced by the price action in risk assets overnight. Asian equities are mostly higher overnight led by strength in the Hang Seng (+1.8%) and Nikkei (+1.4%). The tone was certainly helped by a better-than-expected PMI manufacturing report over the weekend – although the Shanghai Composite (-0.1%) is modestly lower as we type. The S&P 500 futures are currently trading 0.6% higher. After strong outperformance in the first half of last week, Brent and WTI are both down by more than a 1% overnight as Syrian fears recede, and gold (-0.4%) is on track for its third consecutive loss.
In terms of today, we should be able to expect a fairly quiet trading session given the Labour Day holiday in the US. Market activity should pick up from tomorrow onwards though as today usually marks the end of the summer holiday season for the Northern Hemisphere. In Europe, the Eurozone PMI manufacturing (Aug) will be the notable data for today.
For the rest of the week we have the RBA meeting, Eurozone PPI, Chinese non-manufacturing PMI, and the ISM manufacturing tomorrow. Data aside we’ll see if there’s anything interesting in OECD’s interim economic assessment for the G7 and China tomorrow. On Wednesday, US trade balance, the Fed’s Beige Book, Australia’s Q2 GDP, and Euro area Q2 GDP (second revision) will be the main data points. This then brings us to Thursday which for one marks the beginning of the G20 leaders summit in St. Petersburg. We can perhaps expect the Syrian crisis and measures to simulate global growth to be some of the key items discussed at the two-day summit. Away from Russia, we’ll also hear from the BoJ, ECB and the BoE following their monthly monetary policy meetings. Data wise, the ADP employment report, the ISM non manufacturing report, jobless claims, and factory orders are the main releases on Thursday before the all important payrolls number on Friday.
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