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Futures Higher On Geopolitical Tensions Which Are Either Easing Or Looming

Tyler Durden's picture




 

Since there is nothing on today's data docket, it will be all about, you guessed it, geopolitical risks, where "consensus" is best summarized by these two Bloomberg headlines:

  • Stay USD Long as Geopolitical Risks Loom
  • USD is mixed and world stock markets rise as concerns over geopolitical risks ease

That pretty much covers it, although in addition to the Ukraine civil war one can now add an Iraq coup to the list of geopolitical fiascoes instigated by US foreign policy.

In any event, at least for now the algos have decided that the past of least momentum resistance is higher and sure enough, on the now traditional non-existent volume, US equity futures have begun their levitation up and to the right as usual by a ramp in the USDJPY carry, which magically continues to get out mileage out of the now perpetually stale story that the Japanese GPIF will buy stocks, when over the weekend the Nikkei "reported" that the pension fund would remove a cap on domestic stock investments. Ok, we get it already: Japan will burn pension money to keep the illusion of its stock market rising until it all crashes. However, can the algos please price it in already? It is getting embarrassing how long - about a year now - the same story can result in a market reaction.

In other news, European shares rise after 3 sessions of declines with the autos and travel & leisure sectors outperforming and telcos, utilities underperforming. The Italian and German markets are the best-performing larger bourses, U.K. the worst. The euro is weaker against the dollar. Japanese 10yr bond yields rise; Portuguese yields decline. Commodities little changed, with wheat, nickel underperforming and natural gas outperforming.

Asian equities are all higher across the board led by the Nikkei (+2.25), Hang Seng (+1.1%) and the Shanghai Composite (+1.05). Chinese CPI (+2.3% yoy) and PPI (-0.9% yoy) both came in as expected over the weekend. The bulls may argue that this creates some headroom for policy to remain loose. However a front page article by the China Securities Journal overnight said that monetary policy loosening in 2H may not be as strong as 1H though liquidity may still remain ‘relatively loose’ and lowering financing costs and preventing financial systemic risks are the PBOC’s two main goals. Turning to credit markets, Asian credit spreads have snapped tighter with the Asia IG index 4bp tighter and a 2-5bp rally seen across Asian sovereign CDS. Indonesia Dollar sovereigns are around three-eights of a point higher at the belly of the curve. Away from credit, Brent and Copper are firm at around 0.1% and 0.6% higher, respectively. Gold is a touch softer at US$1307/oz as it reverses some of the safe-haven bid seen last week. Likewise the 10yr UST yield is also a touch higher at 2.43% up from the lows of 2.35% last week.

There is nothing on today's economic data docket in the US, not even POMO.  Looking at the week ahead, we are off to a quiet start with no major data releases being scheduled for today. Data flow will pick up from tomorrow onwards with the German ZEW survey being a key focus for European watchers following a handful of disappointing data prints from Germany (factory orders and IP) lately. Away from Europe, the monthly budget and JOLTs jobs series are the notable US releases on Tuesday. On Wednesday the US focus will switch to retail sales and business inventories and in Europe we’ll get the IP data for the euro area, July’s CPI print for France, Germany, and Spain, as well as BoE’s quarterly inflation report. In Asia, we’ll get Japan’s Q2 GDP (which is expected to contract QoQ after the sales tax increase) as well as the monthly data dump from China (retail sales, IP, fixed asset investments). Thursday’s key focus will be on the flash GDP (Q2) for the euro area, Germany and France. We then switch our focus back to the US on Friday with the prelim UoM consumer sentiment, PPI, Industrial Production and Empire State Manufacturing Survey being the highlights.

Market Wrap

  • S&P 500 futures up 0.4% to 1932
  • Stoxx 600 up 1.1% to 328.5
  • US 10Yr yield up 1bps to 2.43%
  • German 10Yr yield up 1bps to 1.06%
  • MSCI Asia Pacific up 1.2% to 145.9
  • Gold spot down 0.3% to $1307.6/oz

Bulletin Headline Summary from Bloomberg and RanSquawk

  • US stock futures continue their rebound as geopolitical tensions appear to ease in both the Middle-east and Ukraine
  • China’s CPI release is alongside expectations, but leaves the door open for modest easing from the PBoC to hit the government’s inflation target of 3.5%
  • Today’s session remains particularly light ahead of risk events later in the week including the Bank of England’s Quarterly Inflation Report, Wal-Mart earnings as well as Chinese Industrial Production
  • Treasuries steady, 10Y yields hold near levels last seen in May as quarterly refunding auctions loom amid ongoing tensions in Middle East, Ukraine.
  • Before leaving for a vacation on Martha’s Vineyard over the weekend, Obama set the formation of a new government in Iraq as a condition for more extensive U.S. assistance in the fight against the Islamic State militants
  • Iraqi Prime Minister al-Maliki deployed troops and tanks on the streets of Baghdad as he resisted Obama’s push for a more inclusive government
  • The U.S. conducted new airstrikes against Islamic State militants in Iraq and Iraq’s parliament went home without ending a political deadlock that’s seen as adding to the turmoil
  • Israel and Gaza Strip militants began to observe another Egypt-brokered truce, giving negotiators time to craft a more enduring accord after a month of violence in the Hamas- ruled territory
  • As Israel seeks to sideline Hamas in any accord on the Gaza Strip’s future, it’s finding quiet support among Arab nations where antagonism toward the Islamist group eclipses their enmity toward the Jewish state
  • China’s refusal to refrain from “provocative” actions in the South China Sea is undermining U.S. efforts to ease territorial disputes and hampering the establishment of a code of conduct for one of the world’s busiest shipping lanes
  • China loosened monetary conditions last quarter at the fastest pace in almost two years, a Bloomberg LP gauge showed, testing the waning effectiveness of credit in supporting economic growth
  • Germany probably underperformed Spain last quarter for the first time in more than five years as the euro-area recovery almost ground to a halt
  • Many businesses in Germany’s Mittelstand, the thousands of small- and medium-sized companies that form the backbone of Europe’s largest economy, are already getting pinched as Russian customers put off purchases
  • The international response to the Ebola outbreak that has killed almost 1,000 Africans has been slow and inadequate, and the World Health Organization is at least partly to blame, said spokesmen for two key aid groups
  • Erdogan won Turkey’s first direct presidential election, extending his leadership through at least 2019 and empowering  him to act on pledges to hit back at foes and build a “new Turkey”
  • Hawaii Democratic Governor Neil Abercrombie, who is close to Obama, was defeated in his re-election bid, the first time in the state’s 55-year history the incumbent was ousted in a primary
  • Sovereign yields mostly higher. Euro Stoxx Banks +0.7%. Asian and European equities gain, U.S. stock futures rise. WTI crude and gold little changed, copper higher

US Docket:

  • Nothing

ASIAN HEADLINES

JGBs trade down 5 ticks at 142.11, as the Nikkei 225 (+2.4%) rebounded from its worst week since April amid JPY weakness and news the GPIF removed a cap on its domestic equity allocation. The Hang Seng (+1.3%) and Shanghai Composite (+1.4%) both advanced after Chinese CPI came in lower than the government’s target (2.3% vs. Exp. 2.3% (Prev. 2.3%)), leaving scope for more policy easing, with financial and real estate names also benefiting from more Chinese cities loosening property curbs.

FIXED INCOME

Gilts underperformed its EU counterpart as market participants positioned for the release of the upcoming Quarterly Inflation Report (QIR), with Bunds also trading lower, albeit coming off the worst levels on touted coupon/redemption related flow. At the same time, the aforementioned cash-payment flows meant that peripheral bond yield spreads traded tighter.

EQUITIES

Stocks traded higher since the get-go in Europe this morning, as market participants reacted positive to growing calls for a ceasefire in eastern Ukraine grow and as 72-hour truce was agreed in the Gaza Strip. The Italian FTSE-MIB index outperformed, where Banca Popolare di Milano shares rose over 3.0% following reports that the bank is to resume paying div. in 2014, while Banca Monte dei Paschi shares also advanced amid reports that the Paschi Fondazione may name chairman this week

FX

The USD index rebounded slightly this morning despite little fundamental drivers behind the flow. EUR/USD remained somewhat supported by talk of bids at around the 1.3375/80 level, but EU macro names selling in the pair kept EUR/USD underwater. Large expiries at both 1.3370 (296mln) and 1.3400 (532mln) will likely keep the pair relatively well anchored hereon. Elsewhere in USD/JPY, the pair was lifted by the strong performance of the Nikkei 225 on GPIF reform, however geopolitical hangovers have prevented the pair from moving within striking distance of USD 1.29bln worth of options expiring at 102.50 in USD/JPY

COMMODITIES

After overnight weakness in gold as Asian markets embraced risk, the safe-haven asset has moved away from its session lows yet remains in negative territory and above the USD 1300 handle as geo-political tensions linger in investor thinking. WTI has traded sideways as the varied headlines coming out of Iraq offer little in the way of direction, as supply is seen as secured despite US airstrikes against ISIS strongholds in the northern region.

* * *

Finally, we wrap as usual with Jim Reid's commentary of the most recent events

I hope those of you in the UK survived hurricane Bertha's tail yesterday and all of you around the globe survived a night of the super moon last night. It was 14% closer and 30% brighter than other full moons. I woke in the night and it was like someone was shining a torch through our curtains. I was dreading my wife waking up and saying we needed to buy new curtains as renovation costs are spiralling out of control at home. On Saturday I again broke new ground after 40 years, this time by making my debut in mattress shopping. I'm not sure how I've never done it before, I think I've just acquired them over the years. My mind was blown by the choice and so was my budget. This Sunday will mark my one year wedding anniversary and it feels like I've spent more in this year than the other 39 put together. So the question I ask my long-time married readers this morning is when does it end?

Moving on to markets, it seems the super moon has brought some joy to markets as the stronger US close on Friday has been followed by strength in Asia overnight. We’ll outline some of the market moves later but the broader risk tone has been supported by what seems to be a de-escalation of Ukraine/Russia tensions and a new truce in Gaza. Indeed news that Russia warplanes have ended drills in Ukraine was a key driver behind the US rally on Friday. Over the weekend, U.S. Secretary of State John Kerry warned his Russian counterpart that "Russia should not intervene in Ukraine under the guise of humanitarian convoys or any other pretext of 'peacekeeping? and urged ‚all parties to work through international organizations?. Away from Russia/Ukraine, a temporary truce in Gaza has seemingly been found after Israel and the Hamas militant group accepted an Egyptian 72-hour ceasefire proposal on Sunday. All these developments have perhaps helped ease some of the geopolitical concerns for now but it remains a very fluid situation.

Back to markets, Asian equities are all higher across the board led by the Nikkei (+2.25), Hang Seng (+1.1%) and the Shanghai Composite (+1.05). Chinese CPI (+2.3% yoy) and PPI (-0.9% yoy) both came in as expected over the weekend. The bulls may argue that this creates some headroom for policy to remain loose. However a front page article by the China Securities Journal overnight said that monetary policy loosening in 2H may not be as strong as 1H though liquidity may still remain ‘relatively loose’ and lowering financing costs and preventing financial systemic risks are the PBOC’s two main goals. Turning to credit markets, Asian credit spreads have snapped tighter with the Asia IG index 4bp tighter and a 2-5bp rally seen across Asian sovereign CDS. Indonesia Dollar sovereigns are around three-eights of a point higher at the belly of the curve. Away from credit, Brent and Copper are firm at around 0.1% and 0.6% higher, respectively. Gold is a touch softer at US$1307/oz as it reverses some of the safe-haven bid seen last week. Likewise the 10yr UST yield is also a touch higher at 2.43% up from the lows of 2.35% last week. The S&P 500 Futures (+0.2%) are extending the 1.15% rally on Friday. In reality we suspect a US$44bn buyout deal in the US oil and gas sector is also helping. Let’s see if European equities catch a bid today following the underperformance last week.

Moving on to HY, which is one of the biggest global focal points at the moment, the US cash bond market opened generally around a quarter point lower on Friday but finished the day on a firmer footing on the back of the broad based risk rally. This is also being reflected in the ETF market. The iShares iBoxx $ High Yield Corporate Bond ETF (+0.31%) rose for its third consecutive day and inflows of US$111m were seen on Friday. This marks the third consecutive day of inflows for the iBoxx ETF which has received a net total of $332.5million in inflows over the past week. Interestingly the iBoxx ETF also did not experience a single day of outflows last week. The SPDR Barclays High Yield Bond ETF (+0.42%) also finished higher on Friday despite its third consecutive day of outflows (US$20.3m).

In Europe the iShares Euro High Yield Corporate Bond ETF (-0.06%) finished a touch weaker although outflows moderated on Friday (EUR12m) versus a total of EUR317m over the past week. The iShares Euro HY Corporate Bond ETF is down 2.2% from June highs although still outperforming its US HY equivalent on a relative basis (-2.5% from June highs and as much as -3.5% before the recent bounce).

Looking at the week ahead, we are off to a quiet start with no major data releases being scheduled for today. Data flow will pick up from tomorrow onwards with the German ZEW survey being a key focus for European watchers following a handful of disappointing data prints from Germany (factory orders and IP) lately. Away from Europe, the monthly budget and JOLTs jobs series are the notable US releases on Tuesday. On Wednesday the US focus will switch to retail sales and business inventories and in Europe we’ll get the IP data for the euro area, July’s CPI print for France, Germany, and Spain, as well as BoE’s quarterly inflation report. In Asia, we’ll get Japan’s Q2 GDP (which is expected to contract QoQ after the sales tax increase) as well as the monthly data dump from China (retail sales, IP, fixed asset investments). Thursday’s key focus will be on the flash GDP (Q2) for the euro area, Germany and France. We then switch our focus back to the US on Friday with the prelim UoM consumer sentiment, PPI, Industrial Production and Empire State Manufacturing Survey being the highlights.

Finally today we update our weekly earnings tracker stats before we wrap up. With over 85% of the S&P 500 firms having reported their Q2 results so far the EPS beat:miss ratio is running at a pretty solid rate of 75%:24%. The ratio is lower for sales revenue with just short of two thirds of the firms exceeding consensus estimates. A weaker sales beat has been a fairly common feature in the post crisis world and perhaps raises some question marks around corporates’ pricing power in general. That said the US is still outperforming European firms on both fronts. For the Stoxx600 firms that have reported so far only just over half of them have beaten EPS estimates and around 56% of those have missed sales forecasts. Our usual weekly earnings tracker table updated in the PDF.

 

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Mon, 08/11/2014 - 07:05 | 5075443 wmbz
wmbz's picture

Our local radio news is reporting that PMSNBC sez con-sue-mer-con-fee-dunce is way up. Along with rebounding retail sales, due to back to school excitement!

As the how-much-a-month crowd sez....

It's all good, just say charge it!

Mon, 08/11/2014 - 07:14 | 5075447 Truthseeker2
Truthseeker2's picture

ZeroHedge, you have misspelled G E O P O L I T I C A L in the title of this post.

Mon, 08/11/2014 - 07:15 | 5075449 ParkAveFlasher
ParkAveFlasher's picture

I read it as GESTAPOLITICAL

Mon, 08/11/2014 - 07:25 | 5075466 El Hosel
El Hosel's picture

S O F U C K I N G W H A T

Mon, 08/11/2014 - 07:26 | 5075467 buzzsaw99
buzzsaw99's picture

the zh editor committed suicide years ago

Mon, 08/11/2014 - 07:29 | 5075474 Headbanger
Headbanger's picture

It's Monday.

Get over it.

Mon, 08/11/2014 - 07:30 | 5075476 codecode
codecode's picture

it wouldn't be ZeroHedge if they didn't having misspellings...

Mon, 08/11/2014 - 07:09 | 5075445 NDXTrader
NDXTrader's picture

All about the options expiring on Friday. Too many people went short last week. The stock market has become the derivative and not the other way around

Mon, 08/11/2014 - 08:04 | 5075529 stocktivity
stocktivity's picture

No...It's all Bullshit!!!

Mon, 08/11/2014 - 07:17 | 5075452 Kina
Kina's picture

So US can't survive unless it has a bunch of wars going on around the planet.

Mon, 08/11/2014 - 07:21 | 5075460 negative rates
negative rates's picture

Old people in this country have always sent the young off to war to fight for their beliefs, no matter how foul his objective is.

Mon, 08/11/2014 - 07:24 | 5075464 Dr. Engali
Dr. Engali's picture

Ironic isn't it? Without moar wars, the empire crumbles., yet eventually wars end up breaking that very same over stretched empire.

Mon, 08/11/2014 - 07:31 | 5075477 Headbanger
Headbanger's picture

Yet it's always been wars which create great empires as well.

Live by the sword....

Mon, 08/11/2014 - 07:17 | 5075453 Dr. Engali
Dr. Engali's picture

Tyler, I believe you meant to say: Futures Higher Because We Have a Manipulated Market and Old Yeller is Sticking it to the Shorts.

Mon, 08/11/2014 - 07:20 | 5075457 fonzannoon
fonzannoon's picture

U see this one Doc?

http://data.cnbc.com/quotes/kmp

I owned that sucker for years. Sold it when they started questioning their accounting methods. My fault for missing another btfd....

Mon, 08/11/2014 - 07:27 | 5075471 Dr. Engali
Dr. Engali's picture

That irritates the snot out of me when that happens. I've had that happen too many times on both sides of a trade shortly after I got off of it.

Mon, 08/11/2014 - 07:32 | 5075472 NoDebt
NoDebt's picture

"the super moon last night. It was 14% closer and 30% brighter than other full moons."

I think that explains it as well as anything else.

I woke up naked on the South 40 this morning, covered in blood, apparently not my own, and with an insatiable desire to buy stawks.

Mon, 08/11/2014 - 07:46 | 5075503 stant
stant's picture

No silver for you

Mon, 08/11/2014 - 07:28 | 5075455 Sudden Debt
Sudden Debt's picture

You would have thought that this Argentinian bond default would have had a effect by now...

 

so if that doesn't matter... what does matter?

it's actually become pretty useless to follow this kind of news anymore as there's simply no ripple effect anymore like it did half a decade ago.

The market has become like a face that it on it's 5th consecutive botox injection.

 

Mon, 08/11/2014 - 07:35 | 5075486 NoDebt
NoDebt's picture

What matters?  Same things that have mattered since 2008:

Good:  uninterrupted care and feeding of the liquidity trap

Bad:  the credible treat of systemic financial contagion

If it doesn't fit clearly into one of those two buckets, the market doesn't care.

Mon, 08/11/2014 - 07:19 | 5075456 MFL5591
MFL5591's picture

More risk meeans higher stocks lower gold?  What the fuck!

Mon, 08/11/2014 - 07:21 | 5075459 jmcadg
jmcadg's picture

No news, time for Gartman to admit he is bullish US equities

Mon, 08/11/2014 - 07:24 | 5075462 buzzsaw99
buzzsaw99's picture

hitlery has gotten huge!

http://www.dailymail.co.uk/femail/article-2720212/A-straw-visor-muumuu-H...

clintons = typical usa slobs. the perfect representative gubbermint! white trash with money. there's no shame anymore. if i looked like that i wouldn't even go out in public.

Mon, 08/11/2014 - 07:33 | 5075481 Dr. Engali
Dr. Engali's picture

A kankleasorous spotted at the Hampton's. They are trailer park trash that won the mega millions powerballl that's for certain. WTF do as Bill have on his feet and hanging on his side? It looks like he had some African decoration weaved into his hair.

Mon, 08/11/2014 - 07:40 | 5075490 Headbanger
Headbanger's picture

And WTF is that fat slob thinking she'll run for office!!??

Agggghhh...  Go the fuck away already !!

I doubt she would live out one year in office with her failing health.

No wonder the U.S. is such a joke for the rest of the world now.

Mon, 08/11/2014 - 07:41 | 5075493 schatzi
schatzi's picture

Meh, that's what age does to you. She's never been a pretty one, so it could only ever get worse. The older you get, the harder it is to maintain an ideal weight. OK that's it, I'm off for a run.

Mon, 08/11/2014 - 07:40 | 5075492 Squid Viscous
Squid Viscous's picture

WTF? $100,000 and they couldn't find the ocean beaches which are the ONLY reason to go to the hampsteins...

Mon, 08/11/2014 - 08:06 | 5075535 Da chief
Da chief's picture

Euro is ridiculously oversold here and looking for a solid bounce here regardless. Play it long EUR/USD for this next "bounce in risk".

More fantastic information from controversial forex trader Forex Kong here:

http://forexkong.com/2014/08/08/the-countdown-begins-greed-finds-its-end/

Mon, 08/11/2014 - 08:37 | 5075596 Eyeroller
Eyeroller's picture

Just lost all respect for Faber.

He was on CNBC saying we had a 'significant correction' and stocks are set for a rebound.

He's right about the rebound, but 3% is a significant correction?

With the narratives the lamestream has been pushing regarding the Russian tweet that all is well and 'tensions easing' in Iraq, if THE MARTIAN INVASION happened they would spin it as bullish. (And the sheeple would buy).

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