Following last week's last two day panic buying driven not by data (since in the US it has been delayed until late October and November, and elsewhere in the world it is just getting worse) but by the catalyst that the US isn't going to default (yes, that's all that is needed to push the S&P to all time highs) and just hopes that the tapering - that horrifying prospect of the Fed reducing its monthly monetization by $15 billion from $85 to $70 billion in line with the decline in the US deficit - will be delayed until March or June 2014 because, you see, the Fed isn't sure how the economy is doing, it makes no sense to even comment on the market. Squeezes, momentum ignitions, rumors about what Messers Bernanke and Yellen had for breakfast, Goldman's 2015 S&P forecast of 2100: that's the lunacy that passes for market moving factors. News, and reality, have long since been put in the dust. Just keep an eye on flashing read headlines, and try to buy (remember: anyone caught selling by the NSA is guaranteed a lifetime of annual IRS audits) ahead of the algos. That's what Bernanke's centrally-planned "market" has devolved to.
Overnight news bulletin from BBG and Ran:
- With the government now reopen, attention will turn to the numerous data releases that were delayed but will now take place over the next two weeks, including the jobs report which is due on Tuesday.
- Fed's Evans (voter, dove) said there has not been enough positive information to taper this month.
- As a guide, of the 80 S&P 500 companies that have reported Q3 results so far, 70% of those have topped analysts’ EPS expectations whilst only 53% of those have beaten sales forecasts.
- Treasuries steady, 10Y yield holding near July lows; Sept. nonfarm payrolls due tomorrow (est. 180k, unemployment rate 7.3%) as U.S. eco reports resume with government reopening.
- Japan’s exports rose 11.5% in Sept., less than forecast, imports rose 16.5% to leave trade deficit at JPY932.1b, a 15th straight shortfall in data back to 1979
- Draghi challenged rules that would bar banks from accessing public aid unless they forced losses on junior bondholders, a central building block of EU protocols for handling struggling banks
- London house prices rose at an unsustainable rate in October as demand from overseas investors added pressure to a market with an already small supply of properties, according to Rightmove Plc
- BOE’s Ben Broadbent said officials will only consider an interest-rate increase once the recovery is secure, with inflation unlikely to prompt monetary tightening earlier than they have signaled
- FHFA is seeking at least $6b from Bank of America Corp. to settle civil claims the firm sold faulty mortgage bonds to Fannie Mae and Freddie Mac, according to a person with direct knowledge of the discussions
- JPMorgan reached a tentative agreement to pay a record $13b to end civil claims over its sales of mortgage bonds, a deal that won’t absolve the bank of potential criminal liability
- Germany’s Social Democrats ratified their leaders’ decision to enter negotiations on joining Merkel as junior partners in a “grand coalition” between the country’s two largest parties
- The Obama administration, admitting the health insurance exchange has failed to meet expectations, is asking a group of the “best and brightest,” including U.S. technology chief Todd Y. Park, to bring the site up to speed
Sovereign yields mostly higher, EU peripheral spreads narrow. Nikkei gains 0.9%, leading Asian markets higher, European stocks mixed; S&P 500 futures gain. WTI crude falls; copper and gold gain
Market Re-Cap from RanSquawk
Stocks got off to a cautious start this week as market participants positioned for the release of the delayed jobs report from the BLS for the month of September on Tuesday. As a result, stocks traded broadly lower in Europe, with credit spreads widening and financials under performing. Despite the lacklustre performance by stocks, which came in spite of consensus beating earnings releases by Philips and SAP, Bunds traded steady, with money
market rates also little changed compared to Friday’s levels. At the same time, both EUR/CHF and USD/JPY remained bid, underpinning the view that uncertainty over the looming macroeconomic risk events was the main driver behind the cautious sentiment. Apart from digesting a slew of macroeconomic releases, market participants will keenly awaiting further earnings updates from the likes of McDonald’s, Microsoft, Caterpillar, Amazon this week.
Japanese Trade Balance (JPY) (Sep) M/M -932.1bln vs. Exp. -918.6bln (Prev. -960.3bln, Rev. -962.8bln)
Japan has posted a trade deficit for the 15th month in a row in September as a weak JPY pushed up import costs. Of note,
Japan's imports have grown at a faster rate than its exports in all but one of the past 11 months.
China's State Council says that China Q3 growth is stable and the annual growth target can be met.
EU & UK Headlines
The German finance ministry said the German economy is likely to grow above potential in H2 and that German companies are likely to expand production capacity.
German Chancellor Angela Merkel is considering a change to European Union treaties that could give the Brussels-based European Commission more rights over economic and fiscal policies BoE's Broadbent said the BoE has room to raise interest rates as they would not hit borrowers and the primary objective is still inflation.
The outgoing deputy governor of the Bank of England, Paul Tucker, has said the UK’s economic recovery is evidence that quantitative easing is finally working. Although Tucker said it was still too early to say whether the economy had reached “escape velocity”
Fed's Evans (voter, dove) said there has not been enough positive information to taper this month. Evans said raising rates when weak economy needs low rates could itself foster financial instability and low rates are needed until economy on a more stable path.
Stocks fell in Europe as market participants positioned for the looming risk events, with the highlight being the delayed jobs report from the BLS for the month of September. Financials underperformed in Europe, with credit spreads widening, as market participants remained cautious ahead of the looming jobs report from the US and also reacted to comments made by ECB President Draghi who warned the European Commission that imposing losses on banks' bondholders in order to plug capital shortfalls could be destabilizing for many Eurozone economies. As a guide, of the 80 S&P 500 companies that have reported Q3 results so far, 70% of those have topped analysts’ EPS expectations whilst only 53% of those have beaten sales forecasts Of note, JP Morgan has reached a USD 13bln deal with US regulators to settle claims that it mis-sold bundles of toxic mortgage debt to investors in the build up to the financial crisis.
Despite the cautious sentiment as evidenced across the equity space in Europe, both USD/JPY and EUR/CHF traded higher, with 1m implied vol for USD/JPY also bid after falling to its lowest level since early Jan on Friday. Looking elsewhere, EUR/USD and GBP/USD traded steady, with EUR/GBP trading just below the 50DMA line.
Heading into the North American open, both WTI and Brent crude futures are seen lower, with WTI crude futures below the psychologically important USD 100 mark for the first time since July on the back of a firmer Greenback.
OPEC's Badri says OECD oil inventories levels are healthy and that there is little impact from North Africa oilsupply halts. He also added that oil at USD 100-110 is acceptable for producers and users. Market watchdog Sebi has allowed Mutual Funds to hold gold certificates issued by banks in the physical forms as well, in addition to the ones in demat form, for investments made in Gold Deposit Schemes.
Deutsche Bank rounds up the overnight event summary
After all the political noise of the past month, this week looks set to see macro and fundamental drivers come back with a bang as we (finally) have September's non-farm payrolls on Tuesday. We also see more than a quarter of S&P500 companies report earnings whilst European earnings season gathers pace. On that note we provide our earnings season review at the end of today’s note. After last week's impressive rallies it will be interesting to see how markets manage this change of focus and the persistent data flow. On top of this each data point will be analysed with an eye not only to what they mean for underlying economic strength but also for what each implies for the time schedule of Fed tapering. Before we look at the week ahead, we begin with the weekend news flow.
A court in Milan has banned Silvio Berlusconi from holding a public office for two years following his conviction for tax fraud. This isn’t quite the end of the matter however as the ban must be approved by parliament for it to take effect. This vote is expected within the next few weeks. If it is upheld Berlusconi would also lose his parliamentary immunity from prosecution in a host of other criminal cases as well as having to spend a year under house arrest or serving community service. Over in the US there are reports (FT) that JPMorgan has reached a tentative deal to pay $13bn to resolve investigations into its misselling of MBS according to people familiar with the matter. Whilst the deal is still being finalized it looks set to be a record amount for a single company however it is also hoped the deal (which resolves not only all federal but also civil mortgage litigation against the bank) will draw a line under the issue. Now onto the week ahead! On the macro data front the stand out release is Payroll Tuesday, with September’s delayed Non-Farm Payrolls. In terms of data accuracy the figure is expected to have been relatively unaffected by the government shutdown. Bloomberg consensus on the payroll change currently sits at +180K whilst DB is forecasting +170K. The unemployment rate is expected to remain unchanged at 7.3%. The October Payrolls data release has also been delayed to November 8th. The BLS has a fully updated data release schedule available at http://www.bls.gov/bls/updated_release_schedule.htm.
Other key data in the US this week includes existing home sales today, Richmond Fed manufacturing survey on Tuesday (in addition to the aforementioned payrolls data), Markit’s flash US manufacturing PMI on Thursday and Friday will see the final release of UoM consumer confidence (October). At the time of writing the BEA and Census haven’t yet posted an updated release schedule to account for a back log of data ranging from construction spending and factory orders to wholesale and business inventories (for August) and retail sales and housing starts/permits (for September). Also it is not yet known whether new home sales or September durable goods orders will be released. They are currently scheduled for Thursday and Friday respectively. After last week’s strong rally on the back of easing US political tensions it will be interesting to see how the market copes\as the focus turns back to the underlying macro picture.
The big data release in Europe this week will be the flash PMI’s on Thursday with consensus forecasts showing a slight improvement on the previous month’s data. Bloomberg survey expectations for manufacturing PMI’s are 50.1, 51.5 and 51.4 For France, Germany and the Eurozone respectively. The Eurozone PMI composite is expected to rise marginally to 52.4. Thursday will also see the release of China’s flash manufacturing PMI (expectations at 50.4). Beyond the flash PMI’s we have Q3 GDP for the UK (with expectations of a 1.5% YoY growth rate) and the German Ifo survey on Friday. Outside of data releases Thursday will see the beginning of a two day EU leaders summit in Brussels.
Overnight in Asia, markets continued where the US left off on Friday, opening strongly and generally adding to the open as trading went on. The Nikkei gaining almost +1% before dropping back a bit to sit around +0.5% as we type, with the Hang Seng up +0.59% and Shanghai composite up +1.1% with markets supported by growing expectations that Fed tapering will be delayed until next year.