Post Payrolls Market Recap
With no major macro news on today's docket, it is a day of continuing reflection of Friday's abysmal jobs report, which for now has hammered the USDJPY carry first and foremost, a pair which is now down 170 pips from the 105 level seen on Friday, which in turn is putting pressure on global equities. As DB summarizes, everyone "knows" that Friday's US December employment report had a sizeable weather impact but no-one can quite grasp how much or why it didn't show up in other reports. Given that parts of the US were colder than Mars last week one would have to think a few people might have struggled to get to work this month too. So we could be in for another difficult to decipher report at the start of February. Will the Fed look through the distortions? It’s fair to say that equities just about saw the report as good news (S&P 500 +0.23%) probably due to it increasing the possibility in a pause in tapering at the end of the month. However if the equity market was content the bond market was ecstatic with 10 year USTs rallying 11bps. The price action suggests the market was looking for a pretty strong print.
Heading into the North American open, stocks in Europe are seen mixed, though financials remained the best performing sector following reports that global regulators have watered down controversial new rules aimed at reining in banks’ reliance on debt, following ferocious industry lobbying. Also providing support for the sector was a positive broker recommendation by analysts at Bank of America on UBS. Nonetheless, Bunds remained better bid and were in part supported by somewhat lacklustre demand for the latest round of Italian bond auctions, which also resulted in IT/GE 10y spread widening. The move higher by Bunds saw prices edge back above post NFP highs, with resistance now eyed at 140.59 (Dec 16th high). Looking elsewhere, GBP underperformed its peers, with real money selling against a basket of currencies (particularly AUD) touted behind the moves.
Going forward, there are no tier-1 macroeconomic releases, with only monthly budget statement from the US on tap at 1900GMT.
US economic docket:
- Monthly Budget Statement, Dec. est. +$44b (prior - $135.2b) - 2:00pm
- Fed’s Lockhart speaks in Atlanta - 12:40pm
- POMO: Fed to purchase $1b-$1.25b TIPS in 2018-2043 sector - 11:00am
- U.S. to sell $28b 3M bills, $26b 6M bills: 11:30am
Overnight new bulletin summary from Bloomberg and RanSquawk
- European equities are relatively mixed with financials being the outperformer amid reports that regulators are looking to water down new rules that would see a reining in of banks reliance on debt.
- Bunds remain better bid, partly supported by a somewhat lacklustre Italian bond auction.
- GBP is the underperforming currency following real money selling against various currencies, AUD in particular.
- Treasuries steady, 10Y yields holding near lowest since Dec. 23 after weaker-than-expected Dec. jobs data challenged expectations for Fed rate increases and tapering, despite effect of inclement weather on hiring.
- Global regulators diluted Basel III’s planned debt limit for banks amid warnings that the rule would penalize low-risk financial activities and curtail lending
- China Investment Corp., the country’s $575b sovereign wealth fund, favors European infrastructure and real estate as developed markets will drive the next phase of the global economic recovery
- UBS to increase bonuses by 20%, first boost “in years,” SonntagsZeitung reports, citing unidentified people informed of bank’s plans; CEO Sergio Ermotti said in BTV interview he won’t spin off investment bank
- The Fed is investigating whether traders at the world’s biggest banks rigged benchmark currency rates, raising the risk that firms will be penalized for lax controls as regulators look for wrongdoing
- Iran agreed to curtail its nuclear activities starting Jan. 20 under a deal with world powers, triggering the easing of some sanctions and the start of a six-to-12 month timetable to reach a permanent accord
- Sovereign yields mostly lower; EU peripheral spreads widen. Asian equity markets mixed; Nikkei closed, Shanghai -0.2%. European stocks gain, U.S. equity-index futures fall. WTI crude, gold and copper fall
Japanese markets closed for Coming of Age Day. (RANsquawk)
Fitch says on India that they will wait to see what shape next government will take, their policy strategies and will be important information for future outlook for rating. (RTRS)
EU & UK Headlines
Global regulators have watered down controversial new rules aimed at reining in banks’ reliance on debt, following ferocious industry lobbying. (FT)
The UK Treasury has assumed full responsibility for Britain's GBP 1.2trl debt stock in the event of Scottish independence. Gilt holders are worried about the impact on their investments but will no doubt be reassured by the Treasury's announcement today. (FT)
Portugal said it may sell bonds via auction before mid-May, according to Secretary of State for Treasury Castelo Branco. Branco also commented that Portugal is not under pressure to sell bonds and that the ability to sell debt in auction is a goal. (BBG)
When asked about any decision on Portugal, Moody's says the ratings calendar is only indicative for potential action and said they did not make any decision on Portugal on January 10 with the next date for potential action being May 9. (RTRS)
A Greek finance ministry official said Greece's aims remain on the issue of bonds, which would most likely be in H2 2014 for an amount that will not exceed EUR 3bln and that the maturity period of the new issue will be between 5-7 years. (EKathimerini)
Italy's Letta may reshuffle government following reports that Italian Finance Minister Saccomanni said he will not resign following criticism from politicians including Democratic Party leader Renzi. (Il Messaggero)
Newsflow from the US remains light with a lack of tier-1 data for the remainder of the session. (RANsquawk)
Weekend reports in the FT that global regulators have watered down controversial new rules aimed at reining in banks' reliance on debt, following ferocious industry lobbying has lead Financials to be the outperforming sector in European trade. With upward momentum for the financial sector was also exacerbated by positive broker recommendations by analysts at Bank of America on UBS. In terms of stock specific news, Sports Direct have acquired a 4.63% stake in Debenhams. without the prior knowledge of Debenhams and says they have the intention of being a supportive shareholder, which has seen Debenhams shares up just under 5%. Elsewhere, activist investors including Elliott Associates have built a stake in WM Morrison and are pushing for a radical shake-up of its property portfolio, which has seen their shares up just over 3.5%.
GBP underperformed its peers, with real money selling against a basket of currencies (particularly AUD) touted behind the moves. As a result, despite absence of apparent appetite for risk this morning, with commodities and metals also trading lower, AUD/USD traded higher. The price action saw the pair move above the 23.6% retracement of the October to December sell off, consequently taking out stops on the break of at 0.9050. Next resistance level now seen at the 50DMA line seen at 0.9094.
Iran and six world powers have cleared technical hurdles on how to implement an agreement to curb the Iranian nuclear programme in return for easing sanctions, according to EU and Iran officials. (BBG) The pact will take effect from Jan 20th 2014. (AFP) US President Obama said the US is to give ‘modest relief’ on sanctions if Iran fulfils commitments of deal and will increase sanctions if not. (RTRS)
Goldman Sachs forecasts stable oil and lower gold and copper prices. (BBG)
Iran sees no change in oil price in 2014 and is to ask OPEC to cut output if prices fall sharply, according to Iranian Oil Minister. (BBG)
UBS says its possible gold may rise to USD 1,300/oz in short term. (BBG)
China Jan-Nov gold output at 392.141 tonnes, up 7.01% from year ago, according to Chinese Gold Association. (RTRS)
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We conclude with the traditional overnight recap from DB's Jim Reid
Everyone knows that Friday's US December employment report had a sizeable weather impact but no-one can quite grasp how much or why it didn't show up in other reports. Given that parts of the US were colder than Mars last week one would have to think a few people might have struggled to get to work this month too. So we could be in for another difficult to decipher report at the start of February. Will the Fed look through the distortions? It’s fair to say that equities just about saw the report as good news (S&P 500 +0.23%) probably due to it increasing the possibility in a pause in tapering at the end of the month. However if the equity market was content the bond market was ecstatic with 10 year USTs rallying 11bps. The price action suggests the market was looking for a pretty strong print.
The overnight Asian session has generally seen a follow-through of some of the main post-payroll themes on Friday. The US dollar is down against most major currencies (dollar index –0.2%) and Asian equity bourses are generally on a firmer footing to start the week. USDJPY (-0.8%) has hit a one-month low and EURUSD is up 0.1%. Japan is closed for a public holiday today so treasury markets are largely closed during the Asian timezone. On the equities side, resources stocks in Asia are outperforming, boosted by a number of Nickel miner’s shares after the Indonesian government announced restrictions on the export of unprocessed nickel ore. The circa 1.8% jump in gold prices following Friday’s payrolls is also providing much needed relief to gold stocks. Thailand’s SE index (-0.5%) is lagging its regional peers on political concerns as anti-government protestors begin a blockade in the capital.
There were a number of headlines over the weekend which are worth reviewing. Firstly, the Basel Committee for Banking Supervision yesterday released details on how it plans to define a bank’s leverage ratio (a measurement of a bank’s equity capital to its total assets). The revised definition includes a number of important concessions for banks including the ability to exclude some off-balance sheet exposures from the definition of assets, the ability to net repo and reverse repo assets against liabilities and the ability to net exposures involving central counterparties (Wall Street Journal). Banks will have to report their leverage ratios from 2015 onward, and regulators intend to force them to have a ratio of at least 3% starting in 2018, which is unchanged from previous proposals. A number of commentators were expecting a softening in the definition of leverage in order to address concerns that banks would be forced to reduce lending or raise additional capital, but it remains to be seen whether last night’s announcement has an impact on banking stocks today. In the UK, the Sunday Times wrote that UK GDP growth could hit 4% for one or two quarters this year driven by a sharp pickup in business investment. Staying in the UK, the weekend papers were suggesting that Chancellor Osborne will advocate in a major speech this week that Britain should remain in a reformed EU and push for the liberalisation of regulations to promote growth (Telegraph).
Looking at the week ahead, we’ve generally got a slow start to the week though there are some expectations that a number of investors will be wading back into the market for the first time in 2014 after waiting for last Friday’s payrolls to pass. Of the data releases this week, we should highlight that the CPI numbers around the globe will provide a good guide to the latest inflation trends at a point where many hope we’re around the trough in inflation. If the signs are that we're not, then it could start to have major implications for central banks activity in 2014. The UK, Italian and French CPI numbers are released tomorrow, Spain on Wednesday, followed by the US, Germany and Euroarea on Thursday. In the EM space, inflation data for India, Romania (today), Poland and Hungary (Wed) will be released this week.
After last week’s lackluster start to US earnings season courtesy of Alcoa, the attention will shift to this week’s earnings flow from the major US banks. The FT thinks that a number of large US broker dealers will report a marked increase in earnings coming from equities businesses as rebounding DM equities and subdued fixed income trading levels force a rebalancing of divisional revenues. The commentary from the major commercial banks will also be watched closely particularly given the backdrop of rising rates in Q4 last year. US financials reporting this week include JPM and Wells Fargo tomorrow, BofA on Wednesday, GS and Citi on Thursday, BoNY and MS on Friday. Industrial bellwethers Intel (Thurs) and General Electric (Fri) are also on this week’s earnings docket.
In Washington DC, reports in Politico are suggesting that House-Senate negotiators have narrowed their differences over how to allocate $1.1trn from the government’s budget. Last year's year-end Murray-Ryan agreement set overall spending levels for the government. The stopgap continuing resolution, which has kept agencies operating thus far, is due to expire Wednesday. To prevent any threat of a shutdown, a three-day extension through Saturday will be taken up by the House, possibly on Tuesday. In terms of Fed speakers, Chairman Bernanke speaks on the topic “Challenges Facing Central Banks” on Thursday at an event hosted by the Brookings Institute. The Fed’s Lockhart, Fisher, Plosser, Evans and Lacker are also scheduled to speak throughout the week.
Outside of the CPI updates across the globe, there are a number of other important data releases starting with tomorrow’s US retail sales and Euroarea industrial production, Japanese machine tool orders, US PPI and German GDP on Wednesday, the Philly Fed on Thursday and US JOLTs/consumer confidence/building permits/housing starts data on Friday. In China, the money supply and new loan stats for the month of December are expected by Wednesday at the latest.
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