For those curious what Bernanke's market may do today, we flash back to yesterday's AM summary as follows: "Just as it is easy being a weatherman in San Diego ("the weather will be... nice. Back to you"), so the same inductive analysis can be applied to another week of stocks in Bernanke's centrally planned market: "stocks will be... up." Add to this yesterday's revelations in which "JPM Sees "Most Extreme Ever Excess Liquidity" Bubble After $3 Trillion "Created" In First 9 Months Of 2013" and the full picture is clear. So while yesterday's overnight meltup has yet to take place, there is lots of time before the 3:30 pm ramp (although today's modest POMO of $1.25-$1.75 billion may dent the frothiness). Especially once the market recalls that the NOctaper FOMC 2-day meeting starts today.
Looking at the key overnight events, China's most recent tapering experiment, in which the PBOC refused to provide liquidity via reverse repos, ended last night after a two week drought when The People’s Bank of China conducted 13 billion yuan of 7-day reverse repurchase agreements at a yield of 4.1%, which initially resulted in a 1.4% pop in the Shanghai Composite spurred by the fresh liquidity, which however afterward dropped -1.1% and closed -0.2%, while the ChiNext index of smaller cos. -4.7%, headed for biggest drop since June 24. "We were rising in the morning because of the reverse repo, but after pricing that in, we have to note the market is still in a weak mode,’’ says Zhang Haidong, analyst at Tebon Securities in Shanghai. Still, interbank liquidity markets eased with China’s one-month Shibor falling 32 bps, most since Sept. 26, to 6.1620%, while the three-month Shibor decreases to 4.6966% from 4.6975% yesterday. Even so, both overnight and 1Week SHIBOR rose by 1.2 bps and 5.3 bps respectively.
Elsewhere, in Japan, attention has been drawn to the earnings calendar where results from a number of large industrials including Hitachi, Hino Motors and the domestic railway companies are due to be announced as we go to print. Overnight, the Reserve Bank of India has decided to hike its repo rate by 25bp. Finally, Europe has had a quiet session, where the key event was French Industry Minister once again saying the Euro is too strong, pushing the EURUSD pair lower, as well as very disappointing results from Deutsche Bank and UBS due to a surge in litigation reserves, pushing the financial sector lower.
Today's US event docket:
- Two day Fed Reserve FOMC meeting begins
- PPI (m/m), cons 0.2%
- Retail sales advance m/m 0.0%
- Consumer confidence, cons 75.0
- Case Shiller comp-20 city m/m, 12.40%
- For sale: $45bn 4w bills & $35bn 5y notes
Market Recap from RanSquawk
Stocks in Europe have recovered from a lower open, with Bunds also moving into positive territory on the back of month-end, as well as coupon/redemption related flow. As a guide, the NCR for the week is positive with around EUR 44bln in coupon/redemptions coming from Italy and Spain later on this week. The move higher in stocks was led by oil & gas sector, with BP trading up around 6% following earnings, however consumer services and financials underperformed after Deutsche Bank and UBS failed to meet analyst expectations.
Nevertheless, despite less than impressive earnings from heavy weight financials, together with reports that European banks' non-performing loans have doubled in four years to reach close to EUR 1trl and are expected to keep rising, has failed to translate into wider credit spreads. Also of note, Eurogroup head Dijsselbloem has proposed an adjustment to the stability pact, in which a country receives more time to correct excessive deficits on the condition that the country is bound to particular reforms within the time period in question.
Going forward, market participants will get to digest the release of the latest PPI, Retail Sales and also Consumer Confidence reports from the US, while the US Treasury will sell USD 35bln in 5y notes. On the corporate front, attention will turn to earnings from Pfizer and Gilead Sciences.
Overnight news bulletin via BBG and RanSquawk
- Eurogroup head Dijsselbloem has proposed an adjustment to the stability pact, in which a country receives more time to correct excessive deficits on the condition that the country is bound to particular reforms within the time period in question.
- UBS and Deutsche Bank failed to meet analyst expectations this morning, while BP shares gained over 5% following earnings.
- The PBoC relieved liquidity concerns overnight, injecting CNY 13bln via 7 day reverse repos; first injection in two weeks.
- The Senate hearing where Janet Yellen's nomination to head the Fed will be considered by the Senate Banking Committee is planned for Nov. 14, according to an aide.
- Treasuries gain before Fed’s two-day policy meeting begins in Washington and as week’s $96b note auctions continue with $35b 5Y notes.
- 5Y to be sold today yield 1.314% in WI trading; drew 1.436% in Sept. after 1.624% in August, highest in over two years. 2Y notes sold yesterday stopped through 1pm WI level by ~0.5bp, highest bid-to-cover since April
- Fed meeting concludes tomorrow, with policy statement at 2pm in Washington; for views on tapering
- Financial-market bubbles are proving a more pressing threat than inflation to Fed officials who’ve bought trillions of dollars in bonds and kept the target for short-term interest rates near zero since 2008
- U.K. mortgage approvals rose to 66,735 in September, the most since February 2008, compared with a revised 63,396 the previous month; gross mortgage lending was GBP15.6b, the highest since October 2008
- Australia’s central bank Governor Glenn Stevens said AUD’s level isn’t supported by costs and productivity in the economy and the nation’s terms of trade are more likely to fall than rise
- China’s money-market rates climbed to the highest levels since July as the central bank’s first injection of funds in two weeks failed to alleviate a cash squeeze
- The European Commission will take an extra month to decide on rules affecting how banks calculate their capital ratios after Scandinavia criticized existing plans that the region argues would unduly penalize its banks
- Japanese companies from Toyota Motor Corp. to Sony Corp. are poised to report earnings that will provide evidence on whether Abe’s policies are leading to a sustained economic recovery
- Sovereign yields mostly lower, EU peripheral spreads little changed. Nikkei -0.5%, Asian equities mixed; European stocks higher, U.S. equity-index futures mixed. WTI crude, gold lower; copper gains
The PBoC relieved liquidity concerns overnight, injecting CNY 13bln via 7 day reverse repos; first injection in two weeks. Reverse-repo was conducted at 4.1%, a higher interest rate than the previous 3.9% operation.
EU & UK Headlines
Eurogroup head Dijsselbloem has proposed an adjustment to the stability pact, in which a country receives more time to correct excessive deficits on the condition that the country is bound to particular reforms within the time period in question.
Analysts at Commerzbank believe that the ECB may make verbal intervention on declining excess liquidity and halt SMP sterilisation to boost liquidity.
Separately, concerns over bank deleveraging ahead of ECB's asset quality review could undermine European stocks according to analysts at Citigroup.
UK Mortgage Approvals (Sep) M/M 66.7k vs. Exp. 66.0k (Prev. 62.2k, Rev. 63.4k) - Highest since February 2008.
UK Money Supply M4 (Sep) M/M 0.6% vs. Exp. 0.5% (Prev. 0.7%)
UK Net Lending Sec. On Dwellings (Sep) M/M 1.0bln vs. Exp. 1.3bln (Prev. 1.0bln, Rev. 1.1bln)
Barclays month-end extension: Euro Agg +0.08y
Barclays month-end extension: Sterling Agg +0.02y
The Senate hearing where Janet Yellen's nomination to head the Fed will be considered by the Senate Banking Committee is planned for Nov. 14, according to an aide. Barclays month-end extension: Treasury +0.07y
Major European equity indices have recovered following a lacklustre open and moved into positive territory, led by oil & gas sector where BP gained around 5% following earnings. At the same time, financials and consumer related services under performed throughout the session, also driven by unimpressive earnings by UBS and Deutsche Bank.
European banks' non-performing loans have doubled in four years to reach close to EUR 1trl and are expected to keep rising, according to a PwC report. (FT-More)
After the closing bell on Wall Street yesterday, Apple reported Q4 EPS USD 8.26 vs. Exp. USD 7.93 and Q4 revenue USD 37.5bln vs. Exp. USD 36.84bln. Q4 gross margin 37% vs. Exp. 36.9%. Co. CEO said the board and management will consider wide range of capital return issues and announce any changes to current program in first part of new calendar year.
EUR/USD and GBP/USD traded sorter this morning, with GBP/USD falling below its 21DMA line amid amid a firmer USD as market participants positioned for a slew of risk events later on today and also the upcoming FOMC decision. Elsewhere, AUD/USD also traded lower, falling below the 21DMA line in the process, with spot gold under pressure in early European trading hours which resulted in prices moving below the 50DMA line.
Goldman Sachs cut its 2013 OPEC crude output forecast by 190,000bpd on Libya and maintained its USD 100/bbl near term Brent crude forecast.
Separately, JP Morgan have increased their Y/Y global oil demand forecast by 90,000bpd for 2013 and 140,000bpd for 2014 on the basis that the impact to supply from the government shutdown is to be relatively low and that Chinese demand will be able to offset the fall in demand seen in Europe and Japan.
Libya are to reopen the Al-Sharara oil field that suffered a shutdown due to industrial strike action, according to the country's oil minister.
According to Chinese state-backed research firm, China's consumption of refined copper is expected to grow more quickly in 2014, though not fast enough to boost imports significantly as production increases more quickly. Copper average price seen at USD 6800/t in 2014 by SocGen.
SocGen's macro team summarizes the main macro catalysts:
The start of the week has been subdued, with US 10y swaps moving in a tight 4bps range thanks to a wait-and-see mode ahead of the Federal Reserve's seminal two-day FOMC meeting, which kicks off today. The dollar index was last trading at 79.210, perilously close to the 2013 low of 78.918, set on 1 February 2013, emphasising that the FX markets have already priced in the likelihood of the Fed delaying tapering until late Q1 2014. So, any risks for the FX bets would probably be from a less-than-dovish tone from the Fed bringing early January 2014 tapering back into contention. In the extreme, increased asset purchases cannot be ruled out, but data, while softer, has not been woeful enough to suggest the pace of QE can be justifiably marked up.
Meanwhile, the worst storm in the UK of the past five years ensured that trading volumes remained on the low side in the UK markets yesterday, but that did not stop the pound from strengthening further towards the four-week high of 1.6260. A strong Q3 GDP figure last week, followed by yesterday's house price data showing a ninth monthly uptick in a row (+0.5% mom), has further intensified calls for an upside risk to the UK's growth estimates. In the UK today, we have the mortgage approval data, for which the consensus is quite upbeat at ~66k approvals and so are we at ~67k vs 62.2k previously. Will this lead cable higher or will the market await the FOMC outcome tomorrow?
In Japan, automobile sales proved that Abenomics is working thanks to the weaker yen, but this is drawing fresh criticism from corporate America. An ~11% yen depreciation in 2013 has helped the Japanese auto majors to incentivise customers by dropping prices on their popular models and consequently boosting sales. The latest quarterly sales report shows that Toyota has outsold Ford Motor Co. in the US for the first time in 15 quarters. Ford CEO Mullaly has been one of Japan's strongest critics, calling the country a “currency manipulator”.
On the agenda today, we have US consumer confidence (SG forecast 75.0), retail sales and the S&P Case-Shiller. Spanish retail sales and ECB member Nowotny's speech are due in the euro area. Hungary's central bank is expected to cut its benchmark rate by 20bps to 3.4%, as the sharp HUF appreciation of ~3.57% vs USD (1.72% vs EUR) since the beginning of the month gives it enough leeway to further reduce the already low benchmark rates.
Finally, DB's Jim Reid as usual provides the full overnight summary
Although yesterday’s industrial production headline print of +0.6% MoM beat expectations of +0.4%, the details were rather soft. The monthly increase was largely due to utilities (+4.4% vs. -0.9% previously), while manufacturing IP, the largest component of the report, was up only +0.1%. Furthermore, Manufacturing excluding autos and parts was unchanged on the month. On a similar note, the Dallas Fed manufacturing survey came in at only 3.6 versus expectations of 10.0. In terms of the market reaction, 10yr UST yields touched a session low of 2.498%, and gold touched a high of $1362/oz shortly after the data was released. But these moves were pared into the close and 10yr yields finished 1.5bp higher on the day at 2.52% while gold closed 0.15% higher. Equities were mostly rangebound yesterday – The S&P500 added 0.13% for its smallest up/down move in a week. But the poor US dataflow did little to stop the S&P 500 carving out another record high. After the NY closing bell, Apple reported a small beat in both its Q3 EPS ($8.26 vs $7.93) and revenues ($37.5 ve $36.8bn).
The stock traded down 3% or so in the aftermarket despite the earnings beat and despite selling almost 34 million iPhones in the quarter, a 26% increase in shipments over last year. There were concerns about its low guidance for sales in the upcoming holiday season.
Turning to the overnight markets, news that the PBoC has injected liquidity into the Chinese banking system via reverse repos helped Asian equities recover from early losses. The gains have been shortlived though, and most indices are trading back down at the overnight lows, led by Chinese A-shares (-1.1%) and the Nikkei (-1.1%). The PBOC’s reverse repos, which were only around RMB13bn, were the first liquidity injections in two weeks from the central bank, but it has brought little relief to the seven day repo rate which is up 44bp at 5.02% today coming into the volatile end of month period. Other short term rates are lower however, such as the 1month SHIBOR which is 31bp lower at 6.16%. In Japan, attention has been drawn to the earnings calendar where results from a number of large industrials including Hitachi, Hino Motors and the domestic railway companies are due to be announced as we go to print. Overnight, the Reserve Bank of India has decided to hike its repo rate by 25bp.
Turning to the day ahead, US economic releases will be garnering most of the attention again in what is a big week on the data docket. The most closely
watched of these will probably be September retail sales where the market consensus is looking for zero growth in the headline. In addition, the conference board consumer confidence report will make for interesting reading given it may show if sentiment was affected by the government shutdown.
Other US data to be released today include business inventories, PPI and Case-shiller house prices. US$35n in 5yr T-notes will be auctioned today. In Europe, lending data for the UK and Spanish retail sales are the major data releases. There are also Q3 results from a number of UK banks.