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Futures Exuberance On China PMI Fades After Eurozone Composite Drops To 6 Month Lows

Tyler Durden's picture




 

Following last night's laughable (in light of the slow motion housing train wreck that is taking place, not to mention the concurrent capex spending halt and of course the unwinding rehypothecation scandal) Chinese PMI release by HSBC/Markit (one wonders how much of an allocation Beijing got in the Markit IPO) which obviously sent US equity futures surging to new record highs, it was almost inevitable that the subsequent manufacturing index, that of Europe, would be a disappointment around the board (since it would be less than "optical" to have a manufacturing slowdown everywhere in the world but the US). Sure enough, first France (Mfg PMI 47.8, Exp. 49.5, 49.6; and Services PMI 48.2, Exp. 49.4, Last 49.3) and then Germany (Mfg PMI 52.4, Exp. 52.5, Last 52.2; Services 54.8, Exp. 55.7, Last 56.0), missed soundly, leading to a broad decline in the Eurozone PMIs (Mfg 51.9, Exp. 52.2, Last 52.2; Services 52.8, 53.3, Last 53.2), which meant that the composite PMI tumbled from 53.2 to 52.8: the lowest in 6 months.

Mysteriously, this negative European data somehow led to a drop in European stocks, after 9th weekly gain in 10. Miners outperform, autos lead declines. US equities also somehow stuttered when algos decided that this bit of bad news wasn't bad enough to "buy the all time high."

After a relatively quiet end to the week on Friday, there were a number of interesting headlines over the weekend - most of them being central bank related. Mario Draghi was quoted in Netherland’s De Telegraaf that the ECB may look at QE if there was deterioration in inflation expectations over the medium term. However for the moment the ECB remains focused on the measures announced on 5th June. Draghi reiterated that QE "is indeed possible within our mandate, namely if the purchases are aimed at ensuring price stability" and “can include not only government bonds, but also private sector loans”.

In the UK, the Sunday Times reported that the BoE’s Financial Policy Committee is ready to announce measures to restrict mortgage lending this week. The FPC publishes recommendations this Thursday after holding it quarterly meeting on June 17th. Meanwhile, MPC member David Miles, considered one of the more dovish members of the BoE, wrote in an opinion piece in the Telegraph on the weekend that policy normalization “starting at some point in my remaining year on the MPC will become appropriate”. This confirms comments which Miles made to the Times of London one week ago, suggesting that he would vote for a rate hike by May next year.

In emerging markets, Bloomberg is reporting that Argentina plans to “pay in full $1.3bn” to holdout creditors, citing newspaper La Nacion. After indications last week that that the government may be looking to negotiate, the article says that President Cristina Fernandez de Kirchner met with her economic advisers yesterday to discuss payment options. Fernandez will reportedly offer $300m-$400m to holdouts demanding full payment in court this year, and pay the rest in bonds starting next year, when a clause expires that forbids Argentina to voluntarily make a better offer to holdouts than to exchange bondholders.

In other asset news, oil rises as ISIL seized more territory on Iraq’s borders with Jordan and Syria. Treasury yields and western European government bond yields fall. The dollar weakens against most peers, while the pound nears a five year high. Markit U.S. manufacturing PMI, Chicago Fed index, existing home sales due later.

Turning to day ahead, the macro focus will be on the rest of the global manufacturing and service PMIs. The other data highlight is US existing home sales. There are plenty of central bank speakers today including the ECB’s Constancio, Nuoy, Mersch and Nowotny. The BoJ’s Kuroda will be speaking to the Japan Association of Corporate Executives shortly after we go to print.

Market Wrap

  • S&P 500 futures little changed at 1953.2
  • Stoxx 600 down 0.6% to 346.2
  • US 10Yr yield little changed at 2.6%
  • German 10Yr yield down 1bps to 1.33%
  • MSCI Asia Pacific little changed at 144.7
  • Gold spot little changed at $1315.2/oz

EUROPE

  • 18 of 19 Stoxx 600 sectors fall, with autos leading the drop
  • 22.3% of Stoxx 600 members gain, 76.7% decline
  • Eurostoxx 50 -0.7%, FTSE 100 -0.4%, CAC 40 -0.7%, DAX -0.8%, IBEX -0.4%, FTSEMIB -1.4%, SMI -0.6%
  • Euro area June manufacturing PMI 51.9 vs est. 52.2, services PMI 52.8 vs est. 53.3
  • Germany June manufacturing PMI 52.4 vs est. 52.5

ASIA

  • Asia-Pacific stocks little changed, with Australian shares outperforming
  • MSCI Asia Pacific little changed at 144.7
  • Nikkei 225 up 0.1%, Hang Seng down 1.7%, Kospi up 0.3%, Shanghai Composite down 0.1%, ASX up 0.6%, Sensex down 0.6%
  • 4 out of 10 sectors rise; materials outperform while telcos underperform

Bulletin Headline Digest From RanSquawk and Bloomberg

  • Treasuries steady, 5/30 curve at 174bps after touching steepest since June 6 last week; week’s note auctions start tomorrow with $30b 2Y, yield 0.51% in WI trading vs. 0.392% drawn in May.
  • Euro-area manufacturing and services activity weakened in June, falling to 52.8 vs est. 53.4 amid a further slowdown in France’s economy
  • Mario Draghi indicated that interest rates will probably remain low for at least another 2 1/2 years as the ECB prolongs banks’ access to unlimited liquidity
  • A China preliminary PMI from HSBC and Markit Economics rose to 50.8 in June, a seven-month high, exceeding the 49.7 median est. and May’s 49.4
  • The Bank of England said mortgage demand increased significantly this quarter and lenders forecast it will rise further in the coming months
  • ISIL fighters seized more territory on Iraq’s borders with Jordan and Syria as U.S. Secretary of State John Kerry rrived in Baghdad to try to get political leaders to set aside sectarian divisions and confront the growing threat
  • Leaked recordings of a conversation purportedly between Polish foreign minister Radoslaw Sikorski and former Finance Minister Jacek Rostowski showed Sikorski allegedly saying Poland’s alliance with the U.S. is “worthless” because it fosters “a false sense of security,” breeds conflict with Germany and Russia
  • Cameron has overplayed the threat appointing Jean-Claude Juncker to lead the European Commission would pose to the U.K.’s EU membership and his bluff is about to be called, said the head of Germany’s foreign affairs committee
  • Israeli aircraft attacked Syrian military sites after a teenager became Israel’s first fatality from more than three years of Syrian conflict, drawing it deeper into its northern neighbor’s fighting
  • A special prosecutor should probe the loss of IRS e-mails that may contain facts about its scrutiny of Tea Party groups seeking tax-exempt status, the House Ways and Means Committee chairman said
  • Sovereign yields mostly lower. EU peripheral spreads little changed. Asian and European stocks mostly lower; U.S. stock futures mixed. WTI crude, copper higher, gold lower

US Event Calendar

  • 8:30am: Chicago Fed Nat Activity Index, May, est. 0.2 (prior -0.32)
  • 9:45am: Markit US Manufacturing PMI, June preliminary, est. 56.0 (prior 56.4)
  • 10:00am: Existing Home Sales, May, est. 4.74m (prior 4.65m); Existing Home Sales, May, est. 1.9% (prior 1.3%) Central Banks
  • 11:00am: Fed to purchase $1.5b-$2b in 2020-2021 sector
  • 11:00am: U.S. to announce plans for auction of 4W bills
  • 11:30am: U.S. to sell $25b 3M bills, $23b 6M bills

ASIAN HEADLINES

The Nikkei 225 closed up 0.13%, having pared back some advances seen following a strong Chinese PMI number PMI (Jun P M/M 50.8 vs. Exp. 49.7, Prev. 49.4) printing in expansionary territory for the first time in 6 months and thus failed to hold above the 15,400 level. Shanghai Comp closed down 0.1%, having retraced most of the post-PMI gains. Hang Seng underperformed (-1.7%) as the PMI reading was seen as more of a short-term measure while property concerns remain a more prominent long-term threat.

EUROPEAN AND UK

Fixed income products are seen higher across the board as negative sentiment stemming from weak Eurozone PMIs triggers global growth concerns and sees flows away from equities and into both European and US paper, leading Bunds to break back above the 146.00 handle.

ECB President Draghi and Nowotny both signalled that they see lower rates until 2016 with Draghi adding the ECB may turn to quantitative easing if mid-term inflation outlook deteriorates further. (De Telegraaf)

The BoE is poised to rein in mortgage lending this week, with officials expected to make it harder for borrowers to secure high-risk home loans. (Sunday Times) The FPC held its latest quarterly meeting last Tuesday and its decision will be announced on Thursday. This news has weighed upon the UK homebuilders listed in the FTSE 100 this morning.

US HEADLINES

US newsflow remains light as participants look ahead to US manufacturing PMI and existing home sales.

EQUITIES

European stocks trade softer amid global growth concerns following this morning’s disappointing plethora of Eurozone PMIs. European equities saw a particular bout of selling pressure after 22K contracts were traded in Sep Euro-Stoxx 50 futures at 0813BST/0213CDT. As such, European equities are seen lower (Euro Stoxx 50 -0.9%) across the board despite support for basic material names (-0.1%) after the better than expected Chinese PMI number. In stock specific news, the Alstom board has backed the General Electric offer for the Co,’s energy assets, with the board agreeing unanimously to positively recommend GE’s offer. Attention will also be placed on Shire who intend to hold an investor call today with management and a press release on the rejection of AbbVie’s bid at 1200BST/0600CDT.

FX

After opening softer, USD has undergone a mild recovery following last week’s FOMC inspired loses, with Eurozone PMIs assisting the US currency as EUR/USD broke below 1.3600 despite overnight AUD/USD strength weighing on USD. AUD was then provided with further support in the European session as basic materials were lifted while RANsquawk sources reported sovereign names on the offer in AUD/USD at 0.9450. Elsewhere, with the recent downtick in GBP/USD RANsquawk sources report hedge funds taking profit through-out the morning, consequently bringing the pair back towards the 1.700 handle.

COMMODITIES

Oil prices continue to remain elevated with geopolitical concerns in Iraq and Ukraine adding to the war premium. The latest reports out of Iraq suggest Iraqi Sunni insurgents have made further ground while Russian President Putin has offered qualified support for the peace plan put forward by his Ukrainian counterpart to quell an insurgency in the eastern regions of Ukraine. (FT) Despite a ceasefire being called in eastern Ukraine, Russian President Putin has stated artillery was used on Saturday night. (Rossiya 24) Elsewhere, basic materials have been provided support by the better than expected overnight Chinese PMI.

* * *

DB's bicycling enthusiast extraordinaire Jim Reid concludes the overnight recap

Today is global PMI day and China has gotten us off to a strong start with a HSBC manufacturing PMI of 50.8, which is 1.4pts above the reading in May and 1.1pts above Bloomberg consensus. The print of 50.8 beat even the highest analyst estimate of 50.4 and is also the first print above 50 in the last six months. In the details, the output sub-index rose to 51.8 (from 49.8 in May), the highest reading since November 2013, and the new order sub-index rose to the highest level since March 2013 (Bloomberg). The data is providing hope that recent stimulus measures from the government and PBoC are starting to work their way through the economy. In currencies, AUDUSD (+0.6%) is at seven-month highs of 0.945 while Chinese copper and iron ore futures are up 2.2% and 2.5% respectively this morning. Asian equity bourses have erased earlier losses and are trading between 25bp to 50bp higher today and Asian USD credit is generally trading a couple of basis points tighter across cash and CDS. Brent is up another 0.25% today, erasing the losses from Friday, and this is capping any meaningful gains in oil-exposed EM currencies such as the IDR (unch). S&P 500 futures have started the week up 0.2%.

After a relatively quiet end to the week on Friday, there were a number of interesting headlines over the weekend - most of them being central bank related. Mario Draghi was quoted in Netherland’s De Telegraaf that the ECB may look at QE if there was deterioration in inflation expectations over the medium term. However for the moment the ECB remains focused on the measures announced on 5th June. Draghi reiterated that QE "is indeed possible within our mandate, namely if the purchases are aimed at ensuring price stability" and “can include not only government bonds, but also private sector loans”.

In the UK, the Sunday Times reported that the BoE’s Financial Policy Committee is ready to announce measures to restrict mortgage lending this week. The FPC publishes recommendations this Thursday after holding it quarterly meeting on June 17th. Meanwhile, MPC member David Miles, considered one of the more dovish members of the BoE, wrote in an opinion piece in the Telegraph on the weekend that policy normalisation “starting at some point in my remaining year on the MPC will become appropriate”. This confirms comments which Miles made to the Times of London one week ago, suggesting that he would vote for a rate hike by May next year.

In emerging markets, Bloomberg is reporting that Argentina plans to “pay in full $1.3bn” to holdout creditors, citing newspaper La Nacion. After indications last week that that the government may be looking to negotiate, the article says that President Cristina Fernandez de Kirchner met with her economic advisers yesterday to discuss payment options. Fernandez will reportedly offer $300m-$400m to holdouts demanding full payment in court this year, and pay the rest in bonds starting next year, when a clause expires that forbids Argentina to voluntarily make a better offer to holdouts than to exchange bondholders.

In Ukraine, markets will be watching the outcome of a short-term ceasefire in eastern Ukraine announced by President Poroshenko. Despite the ceasefire, there were continued reports of violence in the east of the country over the weekend. The US said that Russia continues to build up arms near the Ukrainian border. In addition to that, Putin also ordered large-scale military exercises in central Russia that NATO criticised as likely to raise tensions. In Iraq, US secretary of State John Kerry starts a week-long tour of the middleeast this week to try and corral support for the creation of a new government that will attempt to bridge the sectarian violence in Iraq. The FT reports that Kerry will also be seeking political cover from allies in the Gulf for possible US military action against Sunni militants in northern Iraq. Over the weekend, it was reported that ISIS had secured a number of border crossings into Syria, and potentially Jordan, potentially allowing ISIS to bolster supply lines (Reuters).

On the micro front, the WSJ reports today that US prosecutors have agreed on broad terms of an agreement with BNP Paribas in which the bank will pay up to $9bn in fines as penalty in relation to violations of International Emergency Economic Powers Act sanctions. The article says that the bank will agree to a temporary ban, likely lasting a period of months, on the group’s ability to transact in US dollars (WSJ).

Turning to day ahead, the macro focus will be on the rest of the global manufacturing and service PMIs. The other data highlight is US existing home sales. There are plenty of central bank speakers today including the ECB’s Constancio, Nuoy, Mersch and Nowotny. The BoJ’s Kuroda will be speaking to the Japan Association of Corporate Executives shortly after we go to print.

Further out this week, on Tuesday, the US prints consumer confidence and new home sales data. The German IFO will be released on the same day. The BoE’s Carney, Bean. Miles and McCafferty testify on the central bank’s May inflation report at the Treasury select committee. Portugal’s government releases its year-to-date budget report.

On Wednesday, the US Commerce Department publishes its third estimate of Q1 GDP. A number of Street forecasters have revised their GDP estimates lower in recent weeks and consensus is looking for a -1.8% QoQ outcome. Elsewhere on Wednesday’s data docket, we’ll get the latest US durable goods report and the ECB’s Weidmann will be speaking in Germany.

The main focus on Thursday will be the policy recommendations from the BoE’s Financial Policy Committee which are widely expected to include measures to restrict mortgage lending. The latest US personal spending report will be released. Nike Inc reports earnings on the same day.

Moving onto Friday, Spain and Germany report June CPI which will be closely watched in light of recent ECB policy measures. EU leaders meet in Brussels to discuss candidates for the next European Commission president. Ukraine’s President Poroshenko is expected to sign a controversial free trade agreement with the EU. Japan reports national CPI for May, and the third estimate of UK GDP will be announced. The ONS is expected to revise its original 0.8% reading up to 0.9%, after recent construction data turned out better than expected.

 

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Mon, 06/23/2014 - 07:23 | 4884912 firstdivision
firstdivision's picture

The Bank of England said mortgage demand increased significantly this quarter and lenders forecast it will rise further in the coming months

Don't know what is more laughable, HSBC China report or BoE mortgage report.  I'm thinking the latter is more laughable as the former just falls inline of fake chinese numbers.

Mon, 06/23/2014 - 07:28 | 4884920 GetZeeGold
GetZeeGold's picture

 

 

Your exuberance has been rehypothecated.....to where I'm not really sure.

Mon, 06/23/2014 - 07:30 | 4884922 svayambhu108
svayambhu108's picture

If the market crashes it was for our own good they did everything in the world to avert the worst economic crisis

 

The 2008 Financial Collapse Was Worse Than 1929
http://www.forbes.com/sites/robertlenzner/2014/06/22/the-2008-financial-...

Mon, 06/23/2014 - 07:40 | 4884935 eclectic syncretist
eclectic syncretist's picture

Manufacturing Renaissance??!!  Just what in the hell are we manufacturing these days?   Bullshit economic reports?

http://business.time.com/2013/03/28/is-the-u-s-manufacturing-renaissance...

Mon, 06/23/2014 - 07:42 | 4884941 GetZeeGold
GetZeeGold's picture

 

 

Thankfully the only thing that is not too big to fail is our grandkids.

 

We'd better start pumping out more of thm.....cause we're gonna need the cash.

Mon, 06/23/2014 - 07:25 | 4884916 Squid Viscous
Squid Viscous's picture

get to work Mr. Draghi...

Mon, 06/23/2014 - 07:41 | 4884938 eclectic syncretist
eclectic syncretist's picture

He is working.  Just not for us.  In fact, he is paid to work against us whilst telling us he is working for us.

Mon, 06/23/2014 - 07:32 | 4884926 intric8
intric8's picture

the yellen put = stopping the exit of a massive turd by taking a huge dong up the butt, non lubing

Mon, 06/23/2014 - 07:40 | 4884937 ParkAveFlasher
ParkAveFlasher's picture

tmi

Mon, 06/23/2014 - 07:35 | 4884928 AdvancingTime
AdvancingTime's picture

Regardless of what you name it the "Federal Reserve Nightmare" or the "Yellen conundrum", the box Ben Bernanke made when he painted both himself and the Federal Reserve in a corner remains. Bernanke has by passing the chairmanship to Yellen escaped from the QE trap but left the rest of us fully in its grasp.

With a policy of loose and cheap money  and an inflation target of just 2% the Federal Reserve  continues to please those gambling that not fighting the Fed guarantees profits. As many Americans are forced to pay higher food, gasoline, and health insurance premiums, I wish someone would let the Fed know we are already there. Any thought that inflation is not higher has come from the false illusion brought from lower payments on things like auto loans and mortgages, this is a one off and will not continue. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/06/exit-strategy-from-qe-remains-elu...

Mon, 06/23/2014 - 07:47 | 4884946 eclectic syncretist
eclectic syncretist's picture

Yellin is singing "I'm pushing on a string" to the tune of "singing in the rain", while her Bankster masters pummel what remains of the middle class.

Here they are paying a visit to your neighbors....

http://www.dailymotion.com/video/x3x478_a-clockwork-orange-singin-in-the...

Mon, 06/23/2014 - 07:39 | 4884932 jubber
jubber's picture

Chinese banks and housing stocks in Hong Kong got slammed, and this was before the European PMI's came out, Hang Seng came off 750 points from the initial spike and has NOT recovered

Mon, 06/23/2014 - 08:06 | 4884977 tom a taxpayer
tom a taxpayer's picture

Mt. Dow Dispatch from bivouac at elevation 16,947 feet (2300 hr EST June22). Excited. Hard to sleep…we rise at 0930hr for historic attempt to reach Mt. Dow elevation 17,000 ft. Bitter cold wind slashing tent. Exhausted from last week's several attempts from Camp IV (elev. 16,800 ft) to reach elev. 17,000 ft. Tactical decision on Friday (1600 hr) to bivouac at 16,947 ft and not to return to Camp IV. Rest over weekend. On Monday only need to climb 53 feet, and we have 6 1/2 hrs to do it.  

Looks like we'll ascend to historic 17,000 ft elev. before the Mt. S&P expedition reaches its historic 2,000 ft elev.  It's all just friendly "competition". We're both part of the Federal Reserve Expeditions Incorporated with the best tools, equipment, oxygen, Sherpas, and monetary support…so there's never a danger of falling or failing to reach new heights. 

(cough, cough)  Air is thin…need a fix of my federal reserve oxygen…

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