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Syria, China Define Overnight Sentiment For Second Consecutive Day
For the second day in a row, better than expected Chinese "data" set sentiment across the board when following an improvement in its trade data (even as crude oil imports dropped to an 11 month low), last night China reported a better than expected August Industrial Production print of 10.4%, compared to 9.7% for July, and higher than the 9.9% expected. This was driven by a pick up in Chinese M2, which rose from 14.5% to 14.7% Y/Y, as the PBOC has once again resuming what it does best, injecting liquidity into the system, even if said liquidity no longer makes its way into the proper channels, as new CNY loans missed the expected CNY730bn, rising to 711.3bn for August. Elsewhere, not all was good on the Industrial Production front, following a French miss of -0.6% on expectations of a rebound to +0.5%, as well as a miss in mfg production of -0.7%, down from -0.4% and below the expected 0.7%. This, in parallel with Moscovici once again saying the 2013 deficit will be "slightly higher than 3.7%" means that just like in 2012, and with German economic metrics continuing to contract, as the periphery stages a modest rebound it is the core that threatens Europe's stability once again. Finally, and since in Europe everything is ultimately funded by current account positive Germany either directly or via TARGET2, the recent Italian economic strength, which also means a bounce in imports, meant that Italian TARGET2 liabilities (through which Germany indirectly funds Italy's current account deficit) are once again back at a 4 month high. And so the cycle repeats.
However, all of the above is largely moot: what defined macro sentiment overnight was a sense of difusion over Syrian tensions, with the market once again hopeful that following some ambivalent rhetoric out of Obama, and a potential Senate vote delay, that a strike may be avoided, helped by a proposed UN resolution by France and Russia to disarm the Syrian chemical arsenal, resulting in a slide in Brent to just over $113 and a drop in the price of gold to $1372. This has also pushed Euro Stoxx 600 to a 3 month high, and US equity futures well bid for the duration of the overnight session.
And while equities are as usual oblivious of other assets classes, keep an eye on the 10 Year which is once again back to a few basis point away from 3.00%.
There will be little macro news today, with a sale of $31 billion in 3 year notes on the docket, as well as a $1.00-$1.50 POMO, the weekly API data release, and the Apple WWDC release at 1pm when the NSA's favorite "zombie" creator will unveil two new iPhone models and the new iOs siftward. Finally Obama will take to the podium later tonight to address the nation on the latest Syrian developments.
RanSquawk's Market Re-Cap
Stocks traded higher throughout the session this morning, with basic materials outperforming following the release of better than expected macroeconomic data from China and also an upbeat update by Glencore who raised Xstrata merger synergies estimate to USD 2bln for 2014. The risk on sentiment was also driven by lower energy prices as market participants scaled back expectations of a military intervention in Syria after US President Obama said he wouldn't say he is confident that Congress will vote to authorize use of force in Syria. This in turn resulted in oil & gas related stocks to under perform on the sector breakdown, while airlines (consumer services sector) benefited from the reduced risk premium.
Looking elsewhere, combination of supply, together with an encouraging set of macroeconomic data from China saw USTs and Bunds remain under pressure throughout the session, with consequent interest rate differential flows ensuring that USD/JPY reclaims the key 100.00 level. The pair was also supported by comments made by Japanese Economy Minister Amari who said that he has been instructed by PM Abe to compile economic package by the end of Sept but the PM did not indicate the size of the economic package. Going forward, apart from digesting the sale of USD 31bln in 3y notes, market participants will also await the release of the latest OPEC report, as well as the weekly API data after the closing bell on Wall Street. Also, traders will be looking ahead to Apple’s WWDC release at 1200CDT/1800BST with the expected release of the new iOS software and two new iPhone models.
Overnight headline news bulletin from Bloomberg and Ran:
- Treasuries decline for first time in three days, 10Y yields close to YTD highs, before week’s auctions begin with $31b 3Y notes, yield 0.915% in WI trading; stoput at that level would be highest since May 2011.
- China’s industrial production rose 10.4% in August, more than forecast, while the broadest measure of new credit almost doubled
- A Russian bid to get Syria to surrender its chemical weapons shifted the debate as Obama prepared to make his case for U.S. military strikes in a nationally televised address tonight
- France welcomed a Russian-backed plan and said it will “nail down” the idea by submitting it to the United Nations
- Italy’s 10Y yield rose above Spain’s for first time since March 2012 as an Italian Senate panel delayed a vote on whether to expel Berlusconi
- Japan will prepare a stimulus package this month to counter the blow to the world’s third biggest economy from a planned sales-tax increase
- U.K. regulators would retain a role in the oversight of Libor as the EU considers backing away from a plan to shift supervision of the benchmark to an EU agency in Paris
- A U.K. house-price gauge rose to the highest in almost seven years in August, the Royal Institution of Chartered Surveyors said
- Verizon plans to sell $benchmark debt in eight parts, may price tomorrow; may be larger than Apple Inc.’s record $17b sale in April
- Sovereign yields rise, EU peripheral spreads narrow. Nikkei gains 1.5% as Asian equity markets gain. European stocks, U.S. equity index-futures higher. WTI crude, gold, copper fall
- US President Obama said he wouldn't say he is confident that Congress will vote to authorize use of force in Syria and that he has not decided whether to use military force on Syria if Congress votes 'no' to plan and will evaluate after the vote.
- Apple’s WWDC release due at 1200CDT/1800BST with the expected release of the new iOS software and two new iPhone models.
Asian Headlines
Chinese Industrial Production (Aug) Y/Y 10.4% vs. Exp. 9.9% (Prev. 9.7%)
- Industrial Production YTD (Aug) Y/Y 9.5% vs. Exp. 9.4% (Prev. 9.4%)
- Retail Sales (Aug) Y/Y 13.4% vs. Exp. 13.3% (Prev. 13.2%)
- Retail Sales YTD (Aug) Y/Y 12.8% vs. Exp. 12.9% (Prev. 12.8%)
BoJ Minutes from the August 7th-8th meeting stated members said huge JGBs buying keeping yields low even as economy recovers and that credibility of fiscal management must be restored to keep interest rates stable.
EU & UK Headlines
Analysts at Goldman Sachs expect the BoE to raise interest rates later than market pricing implies, pointing to UK unemployment which they believe will only reach 7% in H1 2016.
German economy minister says German economic growth to normalise in H2 after strong pick-up in Q2.
Italian GDP WDA (Q2 F) Q/Q -0.3% vs. Exp. -0.2% (Prev. -0.2%)
Italian GDP WDA (Q2 F) Y/Y -2.1% vs. Exp. -2.0% (Prev. -2.0%)
In terms of supply this morning: UK DMO sold GBP 2.75bln 3.25% 2044, b/c 1.46 (Prev. 1.65) and tail 0.4bps (Prev.0.4bps). Separately, Germany sold EUR0.91bln in 0.1% I/L 2023, b/c 1.6 (Prev. 1.6) and avg. yield 0.36% (Prev. 0.06%) and the Dutch DSTA sold EUR 2.00bln 1.75% 2023, avg. yield 2.412% vs. Prev. 2.061%.
US Headlines
US President Obama said he wouldn't say he is confident that Congress will vote to authorize use of force in Syria and that he has not decided whether to use military force on Syria if Congress votes 'no' to plan and will evaluate after the vote.
Equities
Stocks traded higher throughout the session this morning, with basic materials outperforming following the release of better than expected macroeconomic data from China and also an upbeat update by Glencore who raised Xstrata merger synergies estimate to USD 2bln for 2014. The risk on sentiment was also driven by lower energy prices as market participants scaled back expectations of a military intervention in Syria after US President Obama said he wouldn't say he is confident that Congress will vote to authorize use of force in Syria. This in turn resulted in oil & gas related stocks to under perform on the sector breakdown, while airlines (consumer services sector) benefited from the reduced risk premium. Market participants will also be looking ahead to Apple’s WWDC release at 1200CDT/1800BST with the expected release of the new iOS software and two new iPhone models.
FX
Combination of supply, together with an encouraging set of macroeconomic data from China saw USTs and Bunds remain under pressure throughout the session, with consequent interest rate differential flows ensuring that USD/JPY reclaims the key 100.00 level. The pair was also supported by comments made by Japanese Economy Minister Amari who said that he has been instructed by PM Abe to compile economic package by the end of Sept but the PM did not indicate the size of the economic package.
Consequent USD strength weighed on EUR/USD and GBP/USD in early trade, though the release of lower than expected Q2 GDP data from Italy saw EUR/GBP resume the downward bias, which in turn resulted in GBP/USD moving back into positive territory.
Commodities
US President Obama said he wouldn't say he is confident that Congress will vote to authorize use of force in Syria and that he has not decided whether to use military force on Syria if Congress votes 'no' to plan and will evaluate after the vote.
- Separately, US Senator Reid backed off plans to schedule a US Senate vote on Wednesday concerning military strikes against Syria and gave no indication of when Senate will start Syria vote.
- While Syria welcomed Russia's proposal which urged them to put chemical weapons under international control for destruction.
In the Atlantic region Tropical Cyclone Gabrielle has sustained winds of 35 knots and is heading in a northern direction according to the NHC. The NHC also reports that the area is exposed to Tropical Storm Humberto with maximum sustained winds of 50 knots.
As an update Iraqi crude pumping to Turkish port in Ceyhan has still not resumed following yesterdays halting of flows. Citigroup raises 2013 palladium estimate to USD 734 from USD 717 and 2014 platinum estimate to USD 1500 from USD 1475.
India April-Aug. steel imports fall 28% Y/Y to 2.4m tons and steel exports fall 2.8% to 1.87m tons, output rises 4.9% to 33.34m tons.
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