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Futures Levitate As FOMC Begins Two-Day Meeting

Tyler Durden's picture




 

Overnight markets have been a continuation of the relative peace observed yesterday before the onslaught of key data later in the week, with the biggest mover standing out as the USDJPY, which briefly touched 102 before sliding lower then recouping losses. This sent the Nikkei 225 up 0.57% despite absolutely atrocious Japanese household spending data, coupled with a major deterioration in employment: at this rate if Abenomics doesn't fix the economy it just may destroy it. Aside from that the last 24 hours could be summed as having a lot of noise but not a lot of excitement. This was best illustrated by the S&P500’s (+0.03%) performance which was the second smallest gain YTD. And while the SHCOMP is starting to fade its recent euphoria and China was up only 0.24%, Europe continues to cower in the shade of Russian sanctions as both German Bund yields rose to record highs, and Portugal's BES tumbled by 10% once again to 1 week lows. Today Europe is expected to formally reveal its latest Russian sanctions, which should in turn push Europe's already teetering economy back over the edge.

Expect the DE Shaws to recalibrate the Spoos correlation algo from AUDJPY to USDJPY today following renewed calls from the street that the RBA will be forced to cut rates before the end of the year: the US stock market clearly can't have that overhang.

Stateside, the FOMC begins its two-day meeting today, but won’t release its policy statement until tomorrow. Consensus believes that the Fed will take a pass on saying anything that it thinks would move markets this week. Neither the overall economic activity picture nor the inflation data have been firm enough recently to move the Committee to signal that they are moving closer to lift-off. Employment growth has been stronger than expected in recent months. But wage inflation remains low, business and housing investment numbers have softened most recently, and core inflation has moved sideways. On balance, this is not a picture that will get a data-driven Fed excited. Even an upward surprise in the Q2 GDP release on Wednesday is unlikely to elicit any significant change in the wording of the FOMC statement. Of greater interest to the market (and the Fed) will be how the PCE and ECI inflation numbers, as well as the July employment report, come out later this week. These data, along with ensuing data reports ahead of the September FOMC meeting, will be important in shaping the potentially important message the Fed delivers at that time as it likely updates its exit guidance.

Turning to Asia, Chinese equities are consolidating their 2%+ gains from yesterday with HSCEI up 0.15% as we type. As we mentioned yesterday, Chinese A-shares are up around 20% from the YTD lows and this morning a number of commentators have suggested that we are in the midst of a Chinese equity bull market. The KOSPI and Nikkei are the outperformers today though, off the back of stronger corporate earnings from the likes of Kia, Hyundai and Nissan. In rates, most Asia-Pac bonds are trading slightly lower today, which is a spillover of the mild EM selloff seen in EMEA and LATAM yesterday (Brazil 10yr yield +8bp). The USD is down slightly against most major Asian currencies overnight. Asian stocks rise with the Hang Seng outperforming. MSCI Asia Pacific up 0.3% to 149.6; Nikkei 225 up 0.6%, Hang Seng up 0.9%, Kospi up 0.6%, Shanghai Composite up 0.2%, ASX up 0.2%; 8 out of 10 sectors rise with consumer, tech outperforming and energy, utilities underperforming

Heading into the North American open, stocks in Europe are seen broadly lower, with the Portuguese PSI-20 index underperforming amid fresh concerns over the troubled lender Banco Espirito Santo (-6.5%). On the sector breakdown, energy related stocks underperformed, with BP (-1.0%) shares reversing initial gains after the oil-giant posted a rise in second quarter profits, with the company also noting that further sanctions against Russia could affect its business as it posted a rise in second quarter profits. 11 out of 19 Stoxx 600 sectors rise; real estate, bank outperform, autos, oil & gas underperform. 58.7% of Stoxx 600 members gain, 38.5% decline. Eurostoxx 50 +0.2%, FTSE 100 +0.2%, CAC 40 +0.1%, DAX +0.1%, IBEX +0.3%, FTSEMIB +0.6%, SMI -0.2%

Looking at the day ahead, there is Spanish retail sales and UK mortgage approvals data this morning. US CaseShiller house prices (May) and the Conference Board’s consumer confidence numbers (July) follow thereafter. Its another big day for corporate earnings today, with European financials in focus, together with around 45 S&P500 companies including Wynn Resorts, Boston Properties and American Express. As mentioned above, it’s worth keeping an eye on potential EU sanctions headlines.

Market Wrap

  • S&P 500 futures up 0.01% to 1973
  • Stoxx 600 up 0.1% to 341.5
  • US 10Yr yield down 2bps to 2.47%
  • German 10Yr yield down 3bps to 1.12%
  • MSCI Asia Pacific up 0.3% to 149.6
  • Gold spot up 0.3% to $1307.8/oz

Bulletin Headline Summary from Bloomberg and RanSquawk

  • Both Germany and Spain print record low 10yr yields, as positive cash flow and fading optimism from European earnings lifts Bunds to contract highs
  • Treasury curves flatten, 5/30 at tightest since January 2009 as week’s auctions continue with $35b 5Y notes; yield 1.719% in WI, implying highest auction stop since May 2011.
  • Fed begins its two-day meeting in Washington; most expect Fed to taper by another $10b, see possibility of 1st rate increase sooner than many expect, based on published research
  • Israel intensified its attacks against Gaza after Netanyahu told his country to brace for an extended military campaign and said any truce must be based on disarming Hamas
  • Germany’s business and political leaders are lining up to upport a tougher stance on Russia, giving Chancellor Angela  Merkel critical backing as she pushes her EU counterparts to expand sanctions
  • Japan’s retail sales fell 0.6% in June, more than forecast, capping a weak quarter that challenges Abe’s bid to reflate the economy while heaping a heavier tax burden on consumers
  • Ebola, the killer of more than 670 people in four West African countries since February, has spread beyond Africa only once. That doesn’t mean it can’t happen now, infectious disease experts warn
  • China regulators opened an anti-monopoly investigation into Microsoft, seizing computers and documents from offices in four cities amid escalating tensions with U.S. technology companies
  • Obama will host more than 40 African leaders at a summit in Washington next week as the U.S. tries to challenge China’s status as Africa’s number one investor and trading partner
  • Sovereign yields mostly lower. Euro Stoxx Banks +0.3%. Asian stocks, European equities mostly higher, U.S. stock futures fall. WTI crude little changed, copper falls, gold higher
  • USD-index holds near a six-month high as AUD and NZD lag on policy cues and lower than expected milk prices for the current season

US Event Calendar

  • 9:00am: S&P/CS 20 City m/m, May, est. 0.3% (prior 0.19%)
  • S&P/CS Composite-20 y/y, May, est. 9.9% (prior 10.82%)
  • S&P/CaseShiller Home Price Index, May, est. 171.25 (prior 168.71)
  • 10:00am: Consumer Confidence Index, July, est. 85.4 (prior 85.2)
  • 11:00am POMO: Fed to buy $300m-$450m notes in 2024-2031 sector
  • 1:00pm: U.S. to sell $35b 5Y notes

 

FIXED INCOME

Month-end, as well as coupon/redemption related flow saw Bunds touch on a fresh contract high, also supported by the looming risk events such as FOMC, US GDP and the monthly jobs report. The gains in bonds are relatively broad-based, with Spanish 10yr yields also falling to historic lows. Bonds continue to benefit from the glut of liquidity provided by just shy of EUR 60bln in coupons and redemptions due from Spain, Italy and Portugal this week. At the same time, the upside was driven by the renewed uncertainty surrounding Banco Espirito Santo amid reports that the bank may need to raise capital, resulting in shares and also sub-2 bonds sliding since the get-go. As a result, PO/GE 10y spreads widened.

In terms of month-end revisions, Barclays Final Pan Euro Agg Month-end Extension +0.12y vs. Prelim. +0.11y (Prev. month 0.09y, 12m Avg. 0.08y) and Barclays Prelim Sterling Agg Month-end Extension +0.04y (Prev. month 0.03y).

EQUITIES

Heading into the North American open, stocks in Europe are seen broadly lower, with the Portuguese PSI-20 index underperforming amid fresh concerns over the troubled lender Banco Espirito Santo (-6.5%). On the sector breakdown, energy related stocks underperformed, with BP (-1.0%) shares reversing initial gains after the oil-giant posted a rise in second quarter profits, with the company also noting that further sanctions against Russia could affect its business as it posted a rise in second quarter profits.

FX

USD-index holds near its 6-month high ahead of this week’s key risk events incl. US GDP, NFP and tomorrow’s FOMC rate decision, which is consequently weighing on major USD pairs and crosses. AUD/USD broke below the 0.9400 handle despite S&P affirming Australia at 'AAA'; outlook stable as Goldman Sachs said RBA may be forced to cut the official cash rate before the end of the year. NZD/USD fell to fresh 1-month low after Fonterra revised lower their milk pay-out forecast by close to 15% (one of New Zealand’s largest GDP components). Analysts at Westpac see the drop in prices shaving 1.9ppts of GDP to collective income of dairy farmers.

COMMODITIES

After thin volumes overnight, gold moved above the USD 1310 level in early European trade benefiting from inflows into fixed income as global geo-political tensions remain on the boil. The yellow metal has since come off its best levels, yet remains supported above the USD 1300/oz mark. Brent crude futures are marginally outperforming WTI, which trades near a 2-week low ahead of the US API inventories, expected later today at 2135BST1535CDT.

* * *

The conclusion comes as usual from DB's Jim Reid

Markets enjoyed the relative peace yesterday before the onslaught of key data later in the week. Indeed the last 24 hours could be summed as having a lot of noise but not a lot of excitement. This was best illustrated by the S&P500’s (+0.03%) performance which was the second smallest gain YTD. Disappointing US pending home sales drew equities to an intra-day low early in the NY session, but in the end it was fresh M&A activity which helped equities recover from the opening lows. The M&A transactions announced yesterday takes year-to-date activity to $2.5 trillion, or an increase of 70% YoY, led by North America ($1.2 trillion, +83%) and Europe ($773bn, +85%).

Aside from the downpour of macro data to come this week, there is also the looming prospect of wider EU sanctions on Russian business interests hanging over markets. Reports continue to filter through suggesting that the EU is putting the finishing touches on sectorwide sanctions targeting Russia’s state-owned banks and restricting exports of sensitive technology used in oil production. According to the WSJ and Reuters, the EU's plans for economic sanctions could be announced as early as today, when EU ambassadors meet in Brussels, or tomorrow. Russia’s ITAR-TASS news agency writes that two decisions are to be taken today. Firstly, the EU ambassadors will either speak out in support of the whole package of sanctions or hand it over to the European Commission for finalization. Secondly, the ambassadors will decide on whether the sanctions can be introduced by a formal written procedure or whether this will require a new EU summit. If they choose the written option, the relevant measures can then be brought in as early as next week (ITAR-TASS). Speaking ahead of today’s meeting, UK PM David Cameron said he and fellow European leaders have agreed that "strong" economic sanctions should be imposed on Russia as soon as possible. Mr Cameron said he and his French, German and Italian counterparts had agreed on the need for further action against Moscow in a conference call with US president Barack Obama (BBC) that was held on Monday. Outside of the sanctions, the Kremlin came under further pressure yesterday when an international tribunal in The Hague ordered Russia to pay $50bn in damages to former shareholders of the Yukos oil company. The Ruble finished on a soft note yesterday, losing 1% against the USD, while the shares in Russian government affiliated banks such as Sberbank (-3.1%) declined. The Ruble is again approaching the March lows.

Turning to Asia, Chinese equities are consolidating their 2%+ gains from yesterday with HSCEI up 0.15% as we type. As we mentioned yesterday, Chinese A-shares are up around 20% from the YTD lows and this morning a number of commentators have suggested that we are in the midst of a Chinese equity bull market. The KOSPI (+0.6%) and Nikkei (+0.5%) are the outperformers today though, off the back of stronger corporate earnings from the likes of Kia, Hyundai and Nissan. In rates, most Asia-Pac bonds are trading slightly lower today, which is a spillover of the mild EM selloff seen in EMEA and LATAM yesterday (Brazil 10yr yield +8bp). The AUD is down a touch (-0.2%) following renewed calls from the street that the RBA will be forced to cut rates before the end of the year. The USD is down slightly against most major Asian currencies overnight.

Looking more closely at the data docket over the last 24 hours, pending home sales (-1.1% MoM vs +0.5% expected) hardly inspired confidence in the housing sector and follows the disappointing new home sales data from last Thursday. This put pressure on the S&P500 homebuilders index (-1.23%) as well as construction materials stocks (-1.32%). The fall in pending home sales was largely concentrated in the US northeast (-2.9%) and in the south (-2.4%) with all other regions either flat or slightly positive. In Europe, Spanish bonds at multi-century all time yield lows and Italian bonds not far behind helped keep a lid on any credit spread widening. Indeed, European Crossover (-1bp) and Main (unch) were both broadly unchanged on a day when the Stoxx600 (-0.18%) traded with a defensive tone. Elsewhere in the periphery, the Bank of Portugal commented late yesterday that Banco Espirito Santo is able to raise capital should it prove necessary. The central bank said that if solvency becomes an issue, there is sufficient interest shown by various entities in buying BES shares, and State aid will also be available as a last resort. BES reports its 1H14 earnings tomorrow, which will likely be one of the more interesting earnings reports of this reporting season.

The FOMC begins its two-day meeting today, but won’t release its policy statement until tomorrow. DB’s Peter Hooper thinks that the Fed will, with high probability, take a pass on saying anything that it thinks would move markets this week. Neither the overall economic activity picture nor the inflation data have been firm enough recently to move the Committee to signal that they are moving closer to lift-off. Employment growth has been stronger than expected in recent months. But wage inflation remains low, business and housing investment numbers have softened most recently, and core inflation has moved sideways. On balance, this is not a picture that will get a data-driven Fed excited. Even an upward surprise in the Q2 GDP release on Wednesday is unlikely to elicit any significant change in the wording of the FOMC statement. Of greater interest to the market (and the Fed) will be how the PCE and ECI inflation numbers, as well as the July employment report, come out later this week. These data, along with ensuing data reports ahead of the September FOMC meeting, will be important in shaping the potentially important message the Fed delivers at that time as it likely updates its exit guidance. While the hawks on the committee have become increasingly restless, Peter does not expect either Fisher or Plosser to dissent at this point. Rather, he expects they will save those dissents for when they might carry more force, alongside the release of a new exit manifesto and backed up by some firmer macro data.

Looking at the day ahead, there is Spanish retail sales and UK mortgage approvals data this morning. US CaseShiller house prices (May) and the Conference Board’s consumer confidence numbers (July) follow thereafter. Its another big day for corporate earnings today, with European financials in focus, together with around 45 S&P500 companies including Wynn Resorts, Boston Properties and American Express. As mentioned above, it’s worth keeping an eye on potential EU sanctions headlines.

 

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Tue, 07/29/2014 - 07:16 | 5016870 GetZeeGold
GetZeeGold's picture

 

 

 

which should in turn push Europe's already teetering economy back over the edge.

 

Which means DOW 18K is a freakin lock.

Tue, 07/29/2014 - 07:16 | 5016872 stocktivity
stocktivity's picture

It's all Bullshit!!!

Tue, 07/29/2014 - 07:38 | 5016908 Headbanger
Headbanger's picture

No. It's all fucking DOOOMED!

Tue, 07/29/2014 - 07:22 | 5016882 Baby Eating Dingo22
Baby Eating Dingo22's picture

BTFD at night
BTFD in the day
BTFD if you're straight
BTFD if you're gay
BTFD now
BTFD today
BTFD at work
BTFD at play
BTFD in your your sleep
BTFD in your Jeep
BTFD while you eat
BTFD while you drink
You don't need to pause
You don't need to think
Don't hesitate
though it's never too late
you're never too sly
but If you don't BTFD
you can always BTFATH

Tue, 07/29/2014 - 07:30 | 5016890 GetZeeGold
GetZeeGold's picture

 

 

Act now and we'll double it.....just pay shipping.

 

We'll even throw in an illegal alien Moses baby......maybe two! Be the first on your block to sport your very own minor league drug cartel basketball team.

Tue, 07/29/2014 - 07:55 | 5016946 negative rates
negative rates's picture

Brass monkey, that funky junkie.

Tue, 07/29/2014 - 07:28 | 5016888 PlusTic
PlusTic's picture

new day, let the fraud begin again!

Tue, 07/29/2014 - 07:32 | 5016894 buzzsaw99
buzzsaw99's picture

Fed begins its two-day meeting in Washington; most expect Fed to taper by another $10b, see possibility of 1st rate increase sooner than many expect...

so slowly, one at a time, the training wheels come off. big fat mama yellen hopes like hell little spoiled fussy baby market doesn't fall off and skin his widdle knee.

Tue, 07/29/2014 - 07:52 | 5016938 Eyeroller
Eyeroller's picture

EVERY time, just before the fed meets, we ALWAYS get "possible 1st rate increase sooner" headlines.

This is a complete SET UP for the rally that follows when that disgusting Ponzi Munchkin comes out and says there won't be a rate increase any time soon.

Wash, rinse, & repeat the fraud.

Tue, 07/29/2014 - 07:57 | 5016949 buzzsaw99
buzzsaw99's picture

cnbc laid out the timetable for the final taper, the first rate increase, then the fed sells assets. my ass. the taper won't last more than six months, much less a rate increase. selling assets is a pipe dream.

Tue, 07/29/2014 - 07:32 | 5016895 disabledvet
disabledvet's picture

"The Gobal Depression grinds on. It's depressing."

Tue, 07/29/2014 - 07:36 | 5016902 GetZeeGold
GetZeeGold's picture

 

 

Here lil fella.....have an EBT......it's free!

Tue, 07/29/2014 - 07:57 | 5016952 negative rates
negative rates's picture

Or a pillow, on me.

Tue, 07/29/2014 - 07:33 | 5016897 Baby Eating Dingo22
Baby Eating Dingo22's picture

It's the recovery, stupid!

 

Study: 35 percent in US facing debt collectors

July 29, 2014 7:07 AM ET

By By JOSH BOAK

WASHINGTON (AP) - More than 35 percent of Americans have debts and unpaid bills that have been reported to collection agencies, according to a study released Tuesday by the Urban Institute.

These consumers fall behind on credit cards or hospital bills. Their mortgages, auto loans or student debt pile up, unpaid. Even past-due gym membership fees or cellphone contracts can end up with a collection agency, potentially hurting credit scores and job prospects, said Caroline Ratcliffe, a senior fellow at the Washington-based think tank.

"Roughly, every third person you pass on the street is going to have debt in collections," Ratcliffe said. "It can tip employers' hiring decisions, or whether or not you get that apartment."

The study found that 35.1 percent of people with credit records had been reported to collections for debt that averaged $5,178, based on September 2013 records. The study points to a disturbing trend: The share of Americans in collections has remained relatively constant, even as the country as a whole has whittled down the size of its credit card debt since the official end of the Great Recession in the middle of 2009.

As a share of people's income, credit card debt has reached its lowest level in more than a decade, according to the American Bankers Association. People increasingly pay off balances each month. Just 2.44 percent of card accounts are overdue by 30 days or more, versus the 15-year average of 3.82 percent.

Yet roughly the same percentage of people are still getting reported for unpaid bills, according to the Urban Institute study performed in conjunction with researchers from the Consumer Credit Research Institute. Their figures nearly match the 36.5 percent of people in collections reported by a 2004 Federal Reserve analysis.

All of this has reshaped the economy. The collections industry employs 140,000 workers who recover $50 billion each year, according to a separate study published this year by the Federal Reserve's Philadelphia bank branch.

The delinquent debt is overwhelmingly concentrated in Southern and Western states. Texas cities have a large share of their populations being reported to collection agencies: Dallas (44.3 percent); El Paso (44.4 percent), Houston (43.7 percent), McAllen (51.7 percent) and San Antonio (44.5 percent).

Almost half of Las Vegas residents— many of whom bore the brunt of the housing bust that sparked the recession— have debt in collections. Other Southern cities have a disproportionate number of their people facing debt collectors, including Orlando and Jacksonville, Florida; Memphis, Tennessee; Columbia, South Carolina; and Jackson, Mississippi.

Other cities have populations that have largely managed to repay their bills on time. Just 20.1 percent of Minneapolis residents have debts in collection. Boston, Honolulu and San Jose, California, are similarly low.

Only about 20 percent of Americans with credit records have any debt at all. Yet high debt levels don't always lead to more delinquencies, since the debt largely comes from mortgages.

An average San Jose resident has $97,150 in total debt, with 84 percent of it tied to a mortgage. But because incomes and real estate values are higher in the technology hub, those residents are less likely to be delinquent.

By contrast, the average person in the Texas city of McAllen has only $23,546 in debt, yet more than half of the population has debt in collections, more than anywhere else in the United States.

The Urban Institute's Ratcliffe said that stagnant incomes are key to why some parts of the country are struggling to repay their debt.

Wages have barely kept up with inflation during the five-year recovery, according to Labor Department figures. And a separate measure by Wells Fargo found that after-tax income fell for the bottom 20 percent of earners during the same period.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Tue, 07/29/2014 - 08:00 | 5016961 negative rates
negative rates's picture

Okay Einstien, can you name the root of the problem in religious terms, have you heard of usury laws or er you a youngun?

Tue, 07/29/2014 - 07:48 | 5016927 overmedicatedun...
overmedicatedundersexed's picture

my bet yellen, cannot say anything that makes the market push higher...I have money on it, but timing is a bitch.

Tue, 07/29/2014 - 07:57 | 5016955 buzzsaw99
buzzsaw99's picture

a big fat bitch

Tue, 07/29/2014 - 08:02 | 5016963 negative rates
negative rates's picture

And all bitches die in the end, it's just the timing of it all.

Tue, 07/29/2014 - 07:48 | 5016929 Hindenburg...Oh Man
Hindenburg...Oh Man's picture

UPS misses big. bullish. 

Tue, 07/29/2014 - 07:59 | 5016956 GetZeeGold
GetZeeGold's picture

 

 

We're saved!

Tue, 07/29/2014 - 08:02 | 5016965 negative rates
negative rates's picture

Not really, they took tarp and are now an extention of the gvt.

Tue, 07/29/2014 - 08:07 | 5016969 GetZeeGold
GetZeeGold's picture

 

 

My grandma took tarp.....I think she's in Rome right now......hell, I never hear from her.

Tue, 07/29/2014 - 08:14 | 5016981 negative rates
negative rates's picture

That's a spunky grandma.

Tue, 07/29/2014 - 08:21 | 5016993 GetZeeGold
GetZeeGold's picture

 

 

Imagine my shock when I saw her picture on the Cougars Don't Play Games banner......as seen on Zerohedge.

Tue, 07/29/2014 - 08:28 | 5017016 AdvancingTime
AdvancingTime's picture

It never stops and the manipulated markets are again off to the races. It seems no suggestion of weakness no matter how subtle can exist because it may begin to unravel the already fragile consumer confidence. They don't want to enter the weekend or a holiday with a bad market. While I think the market is way to high and distorted it is difficult to time a top. More on the reason for bears to be cautious in the article below.

http://brucewilds.blogspot.com/2014/04/bears-have-little-reason-for-conf...

Tue, 07/29/2014 - 08:38 | 5017054 ekm1
ekm1's picture

Federal Reserve is becoming irrelevant every day goes by.

Soon, Military complex will take over monetary policy, in my view

 

The damage is too big.

Military has to take over, or USA is screwed.

Tue, 07/29/2014 - 10:17 | 5017477 Conax
Conax's picture

Another g damned FOMC meeting?

It's Groundhog Day again.

<click> They say we're young and we don't know
We won't find out until we grow
Well I don't know if all that's true...

Do NOT follow this link or you will be banned from the site!