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At The Halfway Point Of 2014, Futures Are Treading Water

Tyler Durden's picture




 

It is the last day of not only the month but also the quarter, not to mention the halfway point of 2014, which means that window dressing by hedge funds will be rampant, as they scramble to catch up some of the ground lost to the S&P 500 so far in 2014. Most likely this means that once again the most shorted names will ramp in everyone's face and the short side of the hedgie book will soar, further pushing hedged P&L into the red, because remember: in a market in which all the risk is borne by the Fed there is no need to hedge.

It is a busy, July 4 holiday-shortened week: the data docket starts off with the US Chicago PMI and pending home sales data later today. Ahead of the ECB meeting on Thursday, today’s advance Euroarea CPI print for June will be followed with interest and Bloomberg consensus is expecting no change from May’s 0.5% YoY run rates. In emerging markets Argentina’s dispute with holdout creditors comes to a head with a key payment on restructured bonds due today. Argentina indicated on Friday that it wanted to make payment but the transfer was effectively blocked by a US judge. So will Argentina default today or at least enter a grace period? Find out later today. Certainly a fresh Argentina default should be all this joke of a market needs for new all time highs (for those who still don't get it, please read the BIS' thoughts on the "market").  A full preview of the busy week will be posted shortly.

Weekend newsflow was rather thin, with the geopolitical developments in Iraq generating the bulk of the headlines. Weekend editorials (FT) suggested that Turkey was moving closer to welcoming an independent Kurdish state in northern Iraq, while ISIS itself declared large areas of captured Iraqi territory as part of an independent Islamic state encompassing Iraq and Syria. According to Reuters a spokesman for ISIS called for those living in the area under the group's control in both countries to swear allegiance to Baghdadi, who was declared head of state. Brent futures are down 0.3% to start the week and have now retraced about one-third of the June price spike.

The overnight price action in Asian equities has been largely positive though Japan (Nikkei +0.2%) is lagging amidst a rising yen (USDJPY down four straight days). A weaker than expected May industrial production report (+0.5% vs 0.9% expected) isn’t helping matters either. Also in Japan, prime minister Abe penned a commentary in the FT on Sunday in which he says that his “Third Arrow” of reforms will be enough to fell Japan’s economic demons. The measures he outlines in the commentary have been previously announced and there has been little reaction to the commentary this morning. Mr Abe outlines planned cuts to corporate taxes, changes to corporate governance codes and “forward-looking reforms” to the GPIF. Abe also writes that the recent post-sales tax dip in consumer spending will be temporary. On the subject of Japan’s economic demons, Japanese 10yr breakevens have fallen back down to 1.25%, the lowest rate since early April of this year. Elsewhere in Asia, it’s been a quiet session ahead of Chinese PMIs and a Hong Kong public holiday on Tuesday. Asia ex-Japan equity and credit markets are trading unchanged to better, following on from the tone in NY on Friday. Most Asian bourses are up 0.5% to 1%. S&P500 futures are unchanged as we type.

European shares remain little changed with the chemicals and food & beverage sectors outperforming and travel & leisure, banks underperforming. The Dutch and German markets are the best-performing larger bourses, Spanish the worst. The euro is little changed against the dollar. Portuguese 10yr bond yields rise; Spanish yields increase. Commodities decline, with corn, wheat underperforming and zinc outperforming. U.S. Chicago purchasing manager, Dallas Fed index, ISM Milwaukee, pending home sales due later.

Market Wrap

  • S&P 500 futures down 0.1%
  • Stoxx 600 up 0% to 342
  • US 10Yr yield down 1bps to 2.53%
  • German 10Yr yield down 1bps to 1.25%
  • MSCI Asia Pacific up 0.3% to 145.6
  • Gold spot down 0.2% to $1313.3/oz

EUROPE

  • 10 out of 19 Stoxx 600 sectors rise
  • 51.5% of Stoxx 600 members gain, 45.5% decline
  • Eurostoxx 50 +0.1%, FTSE 100 +0.1%, CAC 40 -0.1%, DAX +0.4%, IBEX -0.4%, FTSEMIB -0.3%, SMI +0.1%

ASIA

  • Asian stocks rise  with the Sensex outperforming and the ASX underperforming.
  • MSCI Asia Pacific up 0.3% to 145.6
  • Nikkei 225 up 0.4%, Hang Seng down 0.1%, Kospi up 0.7%, Shanghai Composite up 0.6%, ASX down 0.9%, Sensex up 1.3%
  • 7 out of 10 sectors rise with tech, consumer outperforming and telcos, materials underperforming

Bulletin Headline Summary from Bloomberg and RanSquawk

  • European equities (EuroStoxx +0.25%) and fixed income (Bunds +12 ticks) tread water with a lack of fundamental newsflow and in line Eurozone CPI (0.5%) failing to provide direction
  • Oil markets trade softer as Basra supply lines in Iraq are unaffected by ISIS declaring an independent Islamic state in the North of the country
  • Busy data week for the US starts with Chicago PMI and pending home sales this morning
  • Treasuries advance, paring monthly decline, as markets prepare for Yellen speech Wednesday, nonfarm payrolls and ECB rate decision/Draghi press conference on Thursday’s pre-holiday shortened session.
  • Central banks shouldn’t delay an exit from emergency policymeasures even as the path may be rough, the BIS said in itsannual report released yesterday
  • BIS also said that loose monetary policy makes it easyfor euro-area banks to keep bad debt on their books,potentially delaying the flushing out of sour loans andthat emerging market companies, which have borrowed morethan $2t since 2008, is leaving them vulnerable to asudden drop in funding
  • BNP Paribas SA won a reprieve during final talks to settle acriminal probe into U.S. sanctions violations, giving the bank six months to prepare for a ban on handling certaindollar transactions, according to a person with direct knowledge
  • The al-Qaeda breakaway group fighting in Syria and Iraq declared an Islamic caliphate in areas under its controls, from Aleppo in northern Syria to the eastern Iraqi  provinceof Diyala
  • Russian military advisers helped to prepare Iraq’s air force to use five newly delivered combat planes in its campaign to recapture areas of the country’s north that fell to an al-Qaeda breakaway
  • Obama will ask Congress for more funding and authority to stem a growing flood of undocumented immigrants from Central America, including children unaccompanied by adults at the southern border
  • The VA’s medical system is hobbled by management with little accountability and a “corrosive culture,” according to an interim White House report; Obama will name former PG CEO Bob McDonald to head to troubled agency
  • Merkel and French President Hollande, in a telephone call lasting more than two hours, stepped up pressure on Russia and Ukraine to resolve their territorial dispute
  • Four hundred Russian sailors arrived in France today to train on two warships the French government is selling to the Russian navy, a contract Hollande refused to cancel  
  • Abe’s growth strategy plan “may still be insufficient” to bridge gap between the Japanese economy’s track record and government’s “ambitious” growth prospects,   Fitch says in a report 
  • Sovereign yields mostly lower; EU peripheral spreads wider. Asian stocks gain, European stocks mixed. U.S. stock futures little changed. WTI crude unchanged, gold falls, copper rises

US Event Calendar

  • 9:00am: ISM Milwaukee, June (prior 63.49)
  • 9:45am: Chicago Purchasing Manager Index, June., est. 63 (prior 65.5)
  • 10:00am: Pending Home Sales m/m, May, est. 1.3% (prior 0.4%) Pending Home Sales y/y, May (prior -9.4%)
  • 10:30am: Dallas Fed Manufacturing Activity, June 8.0 (prior 8.0)
  • 11:00am POMO: Fed to purchase $850m-$1.1b in 2036-2044 sector

Central Banks

  • 1:10pm: Fed’s Williams speaks in Sun Valley, Idaho Supply
  • 11:00am: U.S. to announce plans for auction of 4W bills
  • 11:30am: U.S. to sell $25b 3M bills, $23b 6M bills
  • 3:00pm: New York Fed to issue QE schedule for July

 

ASIA

Asia-Pacific equity markets traded mostly in the green, with the Shanghai Composite benefitting from the market’s smooth launch of IPOs ahead of more scheduled later this year, and the Nikkei 225 rises on little newsflow ahead of the BoJ’s Tankan survey due tomorrow.

EUROPE

With a lack of notable newsflow from over the weekend or morning. Attention turned to today’s Eurozone CPI estimate which came in line with expectations (0.5% vs. Exp. 0.5%), with the slightly higher than expected Core number (0.8% vs. Exp. 0.7%) failing to provide European assets with much in the way of direction.

Elsewhere in Europe, Portuguese bonds sharply underperform, with 10yr yields up over 10bps as markets eschew Portuguese debt and banking stocks after last Friday’s reports of an investigation into Banco Espirito Santo’s holding companies.

Prelim Barclays month end extensions show Pan-Euro Agg at +0.09y (Prev. +0.04y)

US

Fed's Bullard (non-FOMC, soft hawk) reiterated that he prefers to end bond buying in October and that his own forecast of Q1 2015 rate hike is data dependent. (BBG)

Prelim Barclays month end extensions show US Treasury at +0.08y (Prev. +0.12y)

EQUITIES

European equities tread water, with volumes particularly light today. Positive broker moves have provided the main source of direction for European equities so far amid a lack of notable fundamental news flow. It’s also worth noting that today sees month, quarter and half-year end, therefore window-dressing is to be expected.

FX

USD/JPY has remained stubbornly below the heavily-watched 200DMA at 101.72, with a slew of option expiries at 101.45-50 (1.5bln) and 101.65-70 (400mln) keeping spot price in check. Elsewhere, NZD retreats from multi-year highs printed last week as the New Zealand Treasury warned that last week’s multi-decade high trade surplus cannot be maintained. The EUR has started the week strongly, with national central bank demand in EUR/GBP supporting the currency into the month’s end.

COMMODITIES

WTI and Brent crude futures are seen under continued selling pressure today, after the ISIS threats to southern Iraq continue to abate, and oil supply through Basra remains secured. Although, ISIS have declared a new caliphate (seized areas of Iraq and Syria) as a new Islamic state, autonomous to both Baghdad and Damascus, claiming victory over government forces.

* * *

DB's Jim Reid concludes the overnight summary

Unbelievably today marks the end of the first half of the year. Its been a generally positive first half for financial markets but one where volatility has been low. Indeed after what seems like months of very low volatility, perhaps a week featuring Euroarea CPI, global PMIs/ISMs, Yellen, an ECB meeting and non-farm payrolls - jammed into what effectively will be four days – will encourage some more interesting price action? We’ll preview the rest of the week ahead in more detail below, but first we’ll take a look at overnight markets and some of the weekend newsflow.

The overnight price action in Asian equities has been largely positive though Japan (Nikkei +0.2%) is lagging amidst a rising yen (USDJPY down four straight days). A weaker than expected May industrial production report (+0.5% vs 0.9% expected) isn’t helping matters either. Also in Japan, prime minister Abe penned a commentary in the FT on Sunday in which he says that his “Third Arrow” of reforms will be enough to fell Japan’s economic demons. The measures he outlines in the commentary have been previously announced and there has been little reaction to the commentary this morning. Mr Abe outlines planned cuts to corporate taxes, changes to corporate governance codes and “forward-looking reforms” to the GPIF. Abe also writes that the recent post-sales tax dip in consumer spending will be temporary. On the subject of Japan’s economic demons, Japanese 10yr breakevens have fallen back down to 1.25%, the lowest rate since early April of this year. Elsewhere in Asia, it’s been a quiet session ahead of Chinese PMIs and a Hong Kong public holiday on Tuesday. Asia ex-Japan equity and credit markets are trading unchanged to better, following on from the tone in NY on Friday. Most Asian bourses are up 0.5% to 1%. S&P500 futures are unchanged as we type.

Weekend newsflow was rather thin, with the geopolitical developments in Iraq generating the bulk of the headlines. Weekend editorials (FT) suggested that Turkey was moving closer to welcoming an independent Kurdish state in northern Iraq, while ISIS itself declared large areas of captured Iraqi territory as part of an independent Islamic state encompassing Iraq and Syria. According to Reuters a spokesman for ISIS called for those living in the area under the group's control in both countries to swear allegiance to Baghdadi, who was declared head of state. Brent futures are down 0.3% to start the week and have now retraced about one-third of the June price spike.

European banks were one of the key underperformers from a credit and equity point of view on Friday and much of this was due to the headlines surrounding BNP Paribas. Over the weekend the WSJ reported that a settlement between US authorities and the bank is expected to be agreed and settled on today. The article said that BNP is likely to pay a US$8.9bn fine and lose its capacity to perform certain dollar-clearing transactions. The restrictions on USD clearing only come into force from January next year, to allow the bank time to put in place alternative arrangements with clients who require USD clearing services. The WSJ says that the bank will also cut its dividend and issue bonds to preserve its balance sheet and meet the cash penalty.

Taking a closer look at this week’s calendar, the data docket starts off with the US Chicago PMI and pending home sales data later today. Ahead of the ECB meeting on Thursday, today’s advance Euroarea CPI print for June will be followed with interest and Bloomberg consensus is expecting no change from May’s 0.5% YoY run rates. In emerging markets, South Africa and Turkey report their latest trade data and Argentina’s dispute with holdout creditors comes to a head with a key payment on restructured bonds due today. Argentina indicated on Friday that it wanted to make payment but the transfer was effectively blocked by a US judge.

Tuesday will be all about the global manufacturing PMIs and US ISM with perhaps the greatest focus on the official Chinese PMI and the US ISM manufacturing for signs of a pickup in manufacturing activity. Japan reports Tankan business confidence and the Bank of England publishes its minutes from its last Financial Policy meeting in which it decided on new measures to take some of the heat out of mortgage lending. The RBA meets on Tuesday, but no change to policy is expected.

Yellen takes the stage with a lecture on financial stability at the IMF in Washington on Wednesday. Yellen had some fairly dovish words to say on financial stability at the last FOMC press conference, and one would expect a similar tone on Wednesday. The data docket features ADP employment, US factory orders and Brazil industrial production.

Thursday will be the key day this week with non-farm payrolls and the ECB meeting. The ECB is widely expected to stay put this month after the announcements at its June meeting, but as always Draghi’s press conference will be important. In terms of June’s payrolls, consensus is for a +215k gain in the headline and for unemployment to remain at 6.3%. The hawks will be watching for signs of wage growth but hourly earnings are expected to drop to a rate of 1.9% YoY from 2.1% in the previous month. Other data on Thursday’s calendar are US trade, jobless claims and the global non-manufacturing PMIs.

Turkey’s June CPI will be the key event to watch in EM. US markets shut early on Thursday for Independence Day.

Friday will be pretty quiet with the week’s major events out of the way and with US markets shut for holidays. German factory orders round off the week’s data docket. Finally Moody’s will publish the result of their review of Belgium and Netherland’s sovereign debt rating on Friday.

A busy week as we wave goodbye to June.

 

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Mon, 06/30/2014 - 07:09 | 4908992 GetZeeGold
GetZeeGold's picture

 

 

USA...land of the child refugee camps and the despot leader.

 

That should be uber bullish.

Mon, 06/30/2014 - 07:12 | 4908996 Top Gear
Top Gear's picture

Would Eddie Murphy suit you better? Probably not.

Mortimer Duke: Do you really believe I would have a *nigger* run our family business?

Mon, 06/30/2014 - 07:13 | 4909001 GetZeeGold
GetZeeGold's picture

 

 

Oh no.....I'll take Eddie Murphy running. Is he available?

Mon, 06/30/2014 - 07:24 | 4909009 Manthong
Manthong's picture

USA...land of the child refugee camps and the despot leader.”

Don’t forget the armored SS Police and Goebbels Statestream media outlets.

The SSM.. you heard it here first.

Mon, 06/30/2014 - 07:24 | 4909020 Headbanger
Headbanger's picture

I heard Jay-Z is running for office too.

And he want's the National Anthem changed to a rap version.

 

Mon, 06/30/2014 - 07:29 | 4909033 negative rates
negative rates's picture

The Fed, always wrong, but never in doubt.

Mon, 06/30/2014 - 07:33 | 4909036 Manthong
Manthong's picture

“and he want's the National Anthem changed to a rap version”

Well, Hendricks did it in a rock-ish style.

At least with Jay-Z we will get the profanities and bad attitude that is appropriate for what’s left of the United States.

Mon, 06/30/2014 - 07:57 | 4909060 Headbanger
Headbanger's picture

Hendrix should have been the first African American President of the United States!

 

Right Top Gear???

Mon, 06/30/2014 - 08:17 | 4909102 Top Gear
Top Gear's picture

Gots to keep the black man and the trailer trash down. Somebody has to wait tables. Not everybody can dine elegantly, else we have a "vicious cycle" of privilege seekers.  Let those who are worthy, like me, enjoy the privilege, not the unwashed masses. Because I'm superior.

"Privileges for the masses!  People of the lower classes, think of the vicious circle you are placing yourself in.  Privilege implies someone to profit from it and someone to pay for it.  We  can conceive of a privileged man or privileged class;  but we can we conceive of a whole nation of privileged people?  Is there another social stratum under you that you can make carry the load?"

~Frédéric Bastiat (Economic Harmonies, 1850)

 

Mon, 06/30/2014 - 08:30 | 4909115 Headbanger
Headbanger's picture

Don't forget to pick up your white sheet and pointy hat outfit at the cleaners today Top Gear.

Hendrix as President makes a LOT more sense than Obozo now that I think of it.

After all Hendrix had military experience (Airborne as I recall) along with genius musical and lyrical talents.

He sure would be a lot more popular than the clumsy doof we have in office now.

Mon, 06/30/2014 - 08:32 | 4909132 Top Gear
Top Gear's picture

Thanks for the reminder, before my League of The South meeting with the good ol' boys in Auburn.

Why Libertarians Will Never Shake Their Neo-Confederate Ties
http://thinkprogress.org/justice/2013/07/11/2285001/why-libertarians-wil...

http://en.wikipedia.org/wiki/Neo-Confederate#Neo-confederates_and_libert...

Mon, 06/30/2014 - 08:50 | 4909170 MFL8240
MFL8240's picture

Who is this jerk?  Just want attention?  

Mon, 06/30/2014 - 13:15 | 4910162 pakled
pakled's picture

Who, Over drive?

 

He's an errand boy, sent by webbots, to spread the disease of his master's propaganda

Mon, 06/30/2014 - 07:17 | 4909004 Quinvarius
Quinvarius's picture

The stock market is not allowed to go down on the 4th of July weekend.

Mon, 06/30/2014 - 07:21 | 4909014 Top Gear
Top Gear's picture

Being that markets are a side effect of the government provisioning the military, why should it?

Mon, 06/30/2014 - 07:39 | 4909043 Hindenburg...Oh Man
Hindenburg...Oh Man's picture

any weekend.

Mon, 06/30/2014 - 07:20 | 4909012 disabledvet
disabledvet's picture

"Grand Ayatollah Sistani orders Jihad." If that ain't news flow then you don't know what news is. Not calling Baghdad "a fine tourist destination" as a consequence...sure looks good if you like to fight and win wars though.

Nothing says "Middle East" more than lightening fast attacks...followed up by devastating counter blows. "The triangle of death" is every war fighters dream right now.

"Next up: the oil fields of Saudi Arabia."

Mon, 06/30/2014 - 07:30 | 4909034 Top Gear
Top Gear's picture

Turn 'em into Wyatt's Torch!  Allahu Galtbar!  God is Galt!

Remember, desolation is the goal of all true capitalists, to help ethnic cleanse the world of people who think the wrong way.

"The road is cleared," said Galt. "We are going back to the world." He raised his hand and over the desolate earth he traced in space the sign of the dollar. ~Ayn Rand, Atlas Shrugged

Mon, 06/30/2014 - 07:45 | 4909048 GetZeeGold
GetZeeGold's picture

 

 

“Right now I’m having amnesia and déjà vu at the same time. I think I’ve forgotten this before.” 
Steven Wright

Mon, 06/30/2014 - 07:56 | 4909057 Top Gear
Top Gear's picture

Let's get real. The intense energy of coal and oil is an anomoly in human history that replaced the primary energy source of capitalism: human slavery.

As fossil fuel gets more expensive, human muscles will once again tow the line, literally.

May as well be on top with the whip, I say, and be the Owner of people's labor.

The best way to get them to accept this is making people think of themselves as mere property.The best way to do this is the libertarian "self-ownership" principle which degrades humans into property, that is,  things to "consume, sell, rent, mortgage, transfer, exchange or destroy."

And, of course, I'll do the buying and consuming of the non-owner class (Mises' term), being in the Owner Class (Mises' term) of good capitalists.

That's why I support Zero Hedge, Mises Institute, Cato, etc. All get people to think of themselves as property. To be sold or rented. To me.

Mon, 06/30/2014 - 08:04 | 4909074 fonzannoon
fonzannoon's picture

"All get people to think of themselves as property. To be sold or rented. To me."

 

Lloyd Dobler: I don't want to sell anything, buy anything, or process anything as a career. I don't want to sell anything bought or processed, or buy anything sold or processed, or process anything sold, bought, or processed, or repair anything sold, bought, or processed. You know, as a career, I don't want to do that.

Mon, 06/30/2014 - 08:27 | 4909118 Top Gear
Top Gear's picture

Paying wages = renting (rent being a form of ownership) people.

"Rent is the price paid for the hire of unit services of a factor; the price for a durable factor in its entirety is (in the ERE) equal to the present discounted value of its future rents. In the ERE, only land and labor factors earn net rents. A wage is simply the hire price of a unit of labor service."
~Study Guide to Rothbard's Man, Economy, and State
mises.org/rothbard/mes/guidechap9.PDF

I like owning other people. Even if they get to go home and sleep at night, and I only own them during the best part of their days.

Being a capitalist employer is better than fapping to BDSM porn at Literotica.

"It is hard to have a southern overseer; it is worse to have a northern one..." ~Henry David Thoreau (Journal, 1845-47)

Mon, 06/30/2014 - 09:51 | 4909329 Oldwood
Oldwood's picture

I like it when people think they own me. It makes them weak and stupid.

Everyone seems to seek to control the choices of others. Employers want to control the labor market so they can set wages and conditions. Labor, especially through unions and political activism seek to do the same. The ideal circumstance is for both to think they have control while neither do. This would imply balance, which is the only sustainable model.

Mon, 06/30/2014 - 07:59 | 4909065 Dr. Engali
Dr. Engali's picture

What difference does it make?

~ some crusty old has been

Mon, 06/30/2014 - 08:15 | 4909096 Wahooo
Wahooo's picture

~ some crusty old has been with brain damage

Mon, 06/30/2014 - 07:49 | 4909056 IronShield
IronShield's picture

Hand up or hand out; which do you prefer?

Mon, 06/30/2014 - 08:09 | 4909082 buzzsaw99
buzzsaw99's picture

I'm alright Jack keep your hands off of my stack... [/pink floyd]

Mon, 06/30/2014 - 08:13 | 4909091 Wahooo
Wahooo's picture

And Mr. Market says he doesn't care about crucifixions
or beheadings, as long as the oil flows. Mr.Market enjoys his perpetual lube job and doesn't care who gives it to him.

Mon, 06/30/2014 - 08:04 | 4909072 buzzsaw99
buzzsaw99's picture

Yellen takes the stage with a lecture on financial stability...

we all know what that means. bailouts, backstops, subsidies, zirp-nirp, crony crapitalism, billionaire blow jobs, and all the rest.

Mon, 06/30/2014 - 08:21 | 4909109 Eyeroller
Eyeroller's picture

Followed by a rally.

Mon, 06/30/2014 - 09:37 | 4909299 Oldwood
Oldwood's picture

Treading water? I'm thinking sink or swim. Treading water seems to be the procrastination of drowning or waiting to be eaten.

Mon, 06/30/2014 - 10:12 | 4909382 kenezen
kenezen's picture

The Dollar's future contract even though it is primarily weighed against two previously soft currencies, the Euro and the Japanese Yen, can no longer carry the stupidity, whether by aim or accident, of our American President's actions too numerous to itemize and, too horrifically bad to understand as being by accident, will now in all probability go historically lower. It's norm through its life as a Commodity in the futures market has had a probable average around "85" I really haven't done the math. I do know its low is in the low to middle 70's. I will predict it will go to new lows in the not too distant future.   

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