Overnight Futures Track USDJPY Tick For Tick, As Usual

Tyler Durden's picture

This was one of the all too real Bloomberg headlines posted overnight: "Asian Shares Rally as U.S. Manufacturing Data Beats Estimates." Odd: are they refering to the crashing Philly Fed, or the just as crashing Empire Fed data? Wait, it was the C-grade MarkIt PMI that nobody ever looks at, except to confirm that where everyone else sees snow, the PMI saw sunshine and growth. Remember: if the data is weak, it's the snow; if it's strong, it's the recovery. Odder still: one would think Asian shares care about manufacturing data of, say, China. Which happens to be in Asia, and which two nights ago crashed to the lowest in months. Or maybe that only impact the SHCOMP which dropped 1.2% while all other regional markets simply do what the US and Japan do - follow the USDJPY, which at one point overnight rose as high as 102.600, and brought futures to within inches of their all time closing high. Sadly, it is this that passes for "fundamental" analysis in this broken market new normal...

In other news,, heading into the North American cross over stocks in Europe are seen somewhat mixed, with the FTSE-100 index outperforming amid touted reinvestment flows by passive fund managers related to Vodafone/Verizon M&A deal. Financials and basic materials underperformed this morning, weighed on by negative broker recommendation by JPM on Glencore and uncertainty surrounding the future on the OMT programme. Of note, expiring equity options throughout the day will likely lead to higher than avg. volatility both in Europe and the US.

Looking elsewhere, the cautious price action supported Bunds, which also benefited from touted short covering and month-end related flows, with USTs also better bid from better buying out of Asia. Going forward, market participants will get to digest the release of the latest inflation data from Canada and existing home sales data from the US.

Headline bulletin summary from Bloomberg and RanSquawk

  • Treasuries headed for third consecutive weekly loss amid gains in stocks and as investors attributed weaker-than-forecast economic data to snow and ice storms across the United States.
  • China’s stocks fell the most in six weeks, while the yuan headed for its biggest weekly slide since 2011 as a manufacturing slowdown fueled concerns the economic expansion is weakening
  • Ukrainian President Viktor Yanukovych agreed to a plan for resolving the political crisis that threatened to split the country after meeting through the night with  European officials
  • Yanukovych in statement on web site calls for early presidential elecion, forming government of “national trust”
  • U.K. retail sales fell more than economists forecast in January with the biggest drop in almost two years, led by lower demand at food and clothing stores
  • The Obama administration plans to propose new limits on multinational companies’ ability to take advantage of gaps between countries’ tax rules, an administration official said
  • Matteo Renzi, Italy’s prime minister-designate, plans to meet President Giorgio Napolitano today to accept the mandate to form a new government, an official in his Democratic Party said
  • Sovereign yields mostly lower. EU peripheral spreads tighter. Asian stocks mostly higher; Nikkei +2.88%, Shanghai -1.2%. European stocks mixed, U.S. stock-index futures rise. WTI crude, copper and gold

US Event Calendar

  • 10:00am: Existing Home Sales, Jan., est. 4.68m (prior 4.87m); m/m, Jan., est. -3.9% (prior 1%)
  • 1:10pm: Fed’s Bullard speaks on economy in St. Louis, Mo.
  • 1:45pm: Fed’s Fisher speaks in Austin, Texas Supply
  • 11:00am: POMO - Fed to purchase $1b-$1.25b in 2036-2044 sector

Asian Headlines

Bank of Japan minutes from January 21st-22nd meeting stated that many members called for a need to clearly explain that QE is not strictly limited to 2-year time frame. Members also agreed that the positive economic cycle is to remain in place after the sales tax hike and that inflation expectations are rising on the whole. (BBG/RTRS)

EU & UK Headlines

UK Retail Sales Ex Auto (Jan) M/M -1.5% vs Exp. -1.2% (Prev. 2.8%, Rev. 2.7%) - According to ONS, Jan. weakness due to supermarket sales, but strong sales of furniture, electricals and DIY goods.

UK Public Finances (PSNCR) (Jan) M/M -25.4bln vs. Exp. -31.0bln (Prev. 9.0bln, Rev. to 9.1bln)

Analysts at BNP Paribas believe that the ECB is to start QE with EUR 300-500bln worth of bond purchases in H2 2014 to combat deflation risks, adding that Euro government bond markets will probably start pricing in ECB QE from now on.

Fitch affirmed Austria at AAA; outlook stable, and affirmed Ireland at BBB+; outlook stable. (BBG) Moody's are due to issue their judgement on the Spanish sovereign rating today - they are currently rated Baa3; Outlook stable.

Barclays preliminary pan-Euro agg month-end extensions: (+0.07y) (12m avg. +0.07y)

Barclays preliminary Sterling month-end extensions:(+0.05y) (12m avg. +0.06y)

US Headlines

US Treasuries remain a major investment target for China's foreign exchange reserves, with China facing the problem that there is no better tool for investment than US bonds, according to unsourced reports. (People's Daily) This week's TIC flow data showed China sold USD 48bln of Treasuries in January - the most in one month for two years.

Barclays preliminary US Tsys month-end extensions:(+0.12y) (12m avg. +0.07y)

Equities

French listed Kering shares came under pressure following the release of somewhat less than impressive earnings, with particular focus on weak earnings by Gucci which posted slowest sales growth in four years. Elsewhere, RBS shares rose just over 2% following reports that the bank is to cut at least 30,000 jobs in next 3-5 years, including 18,500 jobs from

Citizens sale in US and 11,000 jobs in investment banking.

Hewlett-Packard shares traded up just over 2% in after-market hours yesterday after the company reported Q1 Adj. EPS USD 0.90 vs. Exp. USD 0.84. Q1 rev. USD 28.15bln vs. exp. USD 27.18bln.

FX

The release of weaker than expected UK retail sales was offset by better than expected public finances data, which in turn prevented a sustained move lower by GBP. At the same time, GBP remained supported by touted M&A related flow (Vodafone/Verizon). USD/JPY failed to hold onto gains made overnight, as out performance by Bunds during the first half of the European trading session buoyed demand for safe-haven assets.

Commodities

Iraq plans to cut Kirkuk March crude exports to 16 cargoes, plans to export 250,323bpd in March vs. 319,643bpd in February. (BBG)

Chinese January Iranian imports are at 564,536bpd, up 82% Y/Y and 11.2% M/M. (RTRS)

According to a senior US military officer, China has been training for a 'short, sharp war' against Japan in the East China Sea. (FT) The officer based the comments on war games conducted by Chinese forces in 2013, said to prepare the PLA for any seizure of the Senkaku Islands.

Brazil has temporarily reduced its Aluminium import tariff, to 2%, down from 6%, valid for 180 days. (MetalBulletin) China Jan. primary aluminium imports rose 214.7% Y/Y to 54,878 tonnes. (RTRS)

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We conclude with the traditional recap from Jim Reid of DB

With the weather still dominating discussion about the data, the key release yesterday was the better than expected US Markit PMI (56.7 vs 53.6 expected) which provided some hope that the recovery will survive the record cold patch recently seen in the US. Markets picked up after this and recovered losses from the earlier weak Chinese and slightly weak European data. There was also a poor US Philly Fed (-6.3 v 8.0) in what was the first negative print in 9 months, but the report did again cite weather as a factor. Elsewhere in the US, inflation remained tame with the latest January reading coming basically in line with expectations (+0.1% mom/+1.6%yoy).

Data aside some major M&A news in the Tech space also added to the bid tone. The S&P 500 (+0.60%) pretty much retraced all of Wednesday’s losses with all ten major sectors finishing higher on the day. Facebook’s US$19bn acquisition of mobile messaging application WhatsApp clearly dominated the corporate headlines. The news certainly created a lot of buzz but to put things in a little bit of context, WhatsApp’s US$19bn valuation is greater than the market caps of some major household names such as News Corp, Alcoa and Tiffany. In fact if WhatsApp was a stand-alone company in the S&P 500 index, it would be ranked somewhere around 228 out of 500 in terms of market cap. Asian markets overnight are following the US lead with majority of the regional bourses in the green. The Nikkei, KOSPI and the NIFTY are up +2.8%, +1.3% and +0.8% as we type. China is key exception with the Shanghai Composite (-1.4%) suffering its biggest one day drop since early January. The Chinese
weakness is also reflected in its currency with the CNY set for its biggest fall since September 2011 in offshore trading. The flash manufacturing PMI weakness is perhaps still influencing sentiment there.

Back to yesterday it was a relatively softer day for European assets (Stoxx600 -0.05%, DAX -0.43%) although they did recover from the morning lows. Much of this was perhaps due to the disappointing February euro-area flash PMI which was largely dragged down by France. At the composite level the index fell 0.2pts to 52.7 whilst the market was looking for a small increase to 53.1. Notably the fall on the manufacturing index (53.0 v 54.0 prev) appears consistent with the weakening trend we've seen from China. Indeed at the country level, the French composite index fell 1.3pts to 47.6, which more than offset a stronger reading in Germany (up 0.6pt to 56.1). The bigger than expected decline in the latest January French CPI (-0.6% mom v -0.4% mom consensus) was also a worry.

Moving on to the EM side, Ukraine yesterday saw violent clashes erupt once again in the capital city of Kiev yesterday while EU foreign ministers also approved sanctions against the country. The sanctions include asset freezes and visa bans for those deemed responsible for violence. The ministers also agreed to ban exports to Ukraine of equipment that could be used for internal repression, but a proposal to ban arms exports to the country was said to have been dropped. Away from Ukraine, the riots in Venezuela continued yesterday which saw six more dead with the hotspots largely concentrated in the western Andean states of Tachira and Merida, which have been especially volatile since hardline opposition leaders called supporters onto the streets in early February.

Looking ahead we have a relatively muted day as far as key economic data
is concerned. Existing home sales in the US and Germany PPI are perhaps
the notable releases. The Fed’s Fisher and Bullard are also scheduled
to speak at some point later today. The G20 finance ministers meeting in
Sydney this weekend will also be a key near term event in the region so
expect plenty of headlines.