If the global equity "markets" were in need of a sharp "horrible news is great news" boost overnight, it came courtesy of Germany's ZEW investor confidence survey, which printed at a stunning 8.6, a plunge from the 27.1 in July and far below the 17.0 expected - the lowest print since December 2012 -largely suggesting that a European triple-dip is all but assured. And if that wasn't enough, strong language from John Kerry, assured to fan the flames of geopolitical instability, came hours ago when the US SecState said even more Russian sanctions may be coming. And just to make sure the NY Fed trading desk has to come up with a new narrative is the latest development in the Russian "humanitarian convoy" saga, which as we reported last night, has departed Russia but which Ukraine is now refusing to allow into its country. All in all, it's is setting up to be another super bullish day in the rigged markets for which all that matters is... Tuesday.
Asian markets have broadly taken the positive lead from the US close yesterday. Except for Greater China, where the latest stealth QE from the PBOC now appears to be priced in, most main bourses are trading firmer. Asian stocks rise with the Sensex outperforming and the Shanghai Composite underperforming. MSCI Asia Pacific up 0.4% to 146.5. Nikkei 225 up 0.2%, Hang Seng up 0.2%, Kospi up 0.1%, Shanghai Composite down 0.1%, ASX up 1.3%, Sensex up 1.4%. 9 out of 10 sectors rise with health care, energy outperforming and telcos, tech underperforming. Latest data shows that China trust assets in June were down 1.8% versus May which is the first mom decline since 2008. With Chinese equities trading near their YTD highs, the market is perhaps consolidating ahead of China’s monthly data dump tomorrow. Credit markets are also trading on a firmer tone overnight with benchmark Asian HY bonds 0.25-0.375 points higher across the board. Safe haven flows continue to unwind with Gold down for its third consecutive session.
Core European equities are modestly pulling back some of yesterday's sharp gains with the benchmark DAX still trading higher by over 1.5% on the week. Henkel (HEN3 GY) has taken some of the wind out of the sails today, with shares falling as much as 5% after a poor trading update pre-market. Italian and Spanish equities are somewhat bucking the trend, with the IBEX-35 and Italian FTSE-MIB up around 0.7% apiece as bank shares continue to rise after recent peripheral bank earnings have fared far better than expected. 14 out of 19 Stoxx 600 sectors rise; bank, insurance outperform, chemicals, health care underperform. 58.7% of Stoxx 600 members gain, 38% decline. Eurostoxx 50 +0.1%, FTSE 100 +0.2%, CAC 40 -0.1%, DAX -0.1%, IBEX +0.7%, FTSEMIB +0.8%, SMI +0.3%.
In terms of today we will get the monthly US budget and some retail sales figures in the UK but the miserable ZEW survey already reported and the US JOLTS data coming up shortly are the notable releases today. 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. The JOLTs data will then give us some information that Mr Chairmanwoman will also be watching carefully.
- S&P 500 futures up 0.3% to 1938.2
- Stoxx 600 up 0.2% to 330.2
- US 10Yr yield little changed at 2.43%
- German 10Yr yield little changed at 1.06%
- MSCI Asia Pacific up 0.4% to 146.5
- Gold spot up 0.1% to $1310.1/oz
Bulletin Headling Summary From RanSquawk and Bloomberg
- European indices mixed as the DAX (-0.3%) slides on the lowest ZEW Survey since December 2012
- EUR/USD approaches YTD lows at 1.3333 on the poor German data as well as stronger USD as geopolitical tensions linger in the background
- US data calendar remains light, as focus shifts to the 3-yr Note auction from the US Treasury (10-, 30-yr to follow) and the Russian humanitarian convoy heading to eastern Ukraine
- Treasuries steady before $67b quarterly refunding begins with $27b 3Y notes; yield 0.923% in WI trading after drawing 0.992% in July, highest since May 2011.
- German investor confidence declined for an eighth month, falling to 8.6 in August from 27.1 in July (est. 17) as the crisis in Ukraine and a sluggish euro-area recovery damp the outlook for Europe’s largest economy
- The political crisis in Baghdad escalated as embattled Iraqi Prime Minister al-Maliki rejected a transition to Haidar al- Abadi as his successor and increased the presence of troops and militias in the capital
- Obama, vacationing on Martha’s Vineyard, gave full U.S. support for Iraq president Fouad Masoum to form a new government hours after al-Maliki rejected stepping aside for a successor
- The U.K. ruled out joining U.S. air strikes on Islamic State militants in Iraq as it stepped up efforts to deliver humanitarian aid to refugees
- Russia sent 280 trucks to Ukraine hours after agreeing to provide humanitarian aid in a mission the U.S. and European Union warned may be used as a pretext for a military invasion
- Wide gaps remain between Israel and the Palestinians in reaching a long-term deal on the Gaza Strip, an Israeli official said, as Egypt pressed negotiators to extend a truce due to end midnight tomorrow
- IRS technicians made repeated futile efforts to save data on a malfunctioning computer hard drive used by Lois Lerner, the former agency official at the center of a dispute between Congress and the Obama administration over scrutiny of Tea Party groups, according to a court filing
- The U.S. doesn’t have to disclose the telecom companies helping it collect phone call records or turn over a secret surveillance court’s orders, a federal judge ruled, saying the information would reveal methods used in terrorism investigations
- Fed Vice Chairman Fischer said sluggish labor supply growth is a “source of concern” because it may contribute to a slowdown in longer-run output of the economy, which also faces a drag from housing and “broad based” slowing across emerging markets
- 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 Data Docket
- 7:30am: NFIB Small Business Optimism, July, est. 96 (prior 95)
- 10:00am: JOLTs Job Openings, June, est. 4.6m (prior 4.635m)
- 2:00pm: Monthly Budget Statement, July, est. -$96b (prior - $97.6b)
- 1:00pm: U.S. to sell $27b 3Y notes
- 11:00am POMO: Fed to purchase $950m-$1.15b notes in 2036-2044
Lacklustre performance by stocks and the release of much weaker than expected German ZEW survey which came in at its lowest level since December 2012 saw Bunds gradually recover and move into positive territory. ZEW noted that the decline is likely connected to on-going geopolitical tensions and that there are signs that the economic growth in Germany will be weaker than expected in 2014. Despite this, peripheral bond yield spreads remained tighter, supported by coupon/redemption related flow, with SP/GE and IT/GE 10y spreads tighter by 2bps.
PIMCO’s Gross cut Treasury and government debt holdings in July to 45% from 47% in June on speculation that the Fed could accelerate the pace at which interest rates are expected to be cut. (BBG)
Core European equities are modestly pulling back some of yesterday's sharp gains with the benchmark DAX still trading higher by over 1.5% on the week. Henkel (HEN3 GY) has taken some of the wind out of the sails today, with shares falling as much as 5% after a poor trading update pre-market. Italian and Spanish equities are somewhat bucking the trend, with the IBEX-35 and Italian FTSE-MIB up around 0.7% apiece as bank shares continue to rise after recent peripheral bank earnings have fared far better than expected. US stock futures trade in minor positive territory, indicating a modest positive open on Wall Street later today.
EUR underperformed GBP in Europe this morning, with EUR/GBP falling below the 50DMA line following the release of worse than expected ZEW survey. At the same time, ahead of the eagerly anticipated Quarterly Inflation Report (QIR), GBP/USD traded lower, albeit marginally, following the release of the latest BRC sales report which showed that spending on food declined again, marking its deepest 3-month average fall since records started in December 2008. AUD/USD recovered from earlier weakness following the release of better than expected House Price and Business Confidence data. NZD remained under pressure following a disappointing REINZ House Price Index which saw AUD/NZD break above 1.10 handle.
Geopolitical newsflow has remained relatively quiet, although signs of cracking are evident in the Middle East after Al Jazeera reported that rockets had fallen into the Gaza sea after being fired from an Israeli drone – signalling the first fire exchanged since the 72-hr ceasefire that began Sunday evening.
Spot gold and silver both trade in minor positive territory, benefiting from softer stocks in Europe and the poorer-than-expected ZEW Survey from Germany. Elsewhere, Brent and WTI crude futures sit in the red ahead of the NYMEX open, with WTI bouncing off the 200DMA at USD 97.15 in early European trade, with USD 96.55 (7th August low) seen as the next level of support.
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DB's Jim Reid summarizes the balance of overnight news
Asian markets have broadly taken the positive lead from the US close yesterday. Except for Greater China most main bourses are trading firmer as we type. The TOPIX, ASX 200 and the Sensex are +0.2%, +1.1% and +0.7% up on the day, respectively. The Shanghai Composite (-0.2$) and Hang Seng (-0.1%) indices are lower led by banks. Latest data shows that China trust assets in June were down 1.8% versus May which is the first mom decline since 2008. With Chinese equities trading near their YTD highs, the market is perhaps consolidating ahead of China’s monthly data dump tomorrow. Credit markets are also trading on a firmer tone overnight with benchmark Asian HY bonds 0.25-0.375 points higher across the board. Safe haven flows continue to unwind with Gold down for its third consecutive session.
Stanley Fischer’s speech at Stockholm received some coverage yesterday. He covered several topics in his prepared remarks but a key focus was on the extent to which cyclical demand or structural supply issues were driving the slow post recession growth. DB's Alan Ruskin noted that it does seem that the Fed vice chair is angling away from the view of a more permanent slowing in productivity with more belief in cyclical/demand side features accounting for slow growth. Indeed Alan noted that to the extent that it is weak demand (rather than supply related issues) that is driving weak growth, the less propensity there is for weak growth to be associated with higher inflation. This makes his speech on the dovish side. On policy tools he noted that interest rates for excess reverses should play a central role in normalising short term interest rates while overnight reverse repo could be useful in setting a floor for money market rates.
What we thought was interesting in his speech was when he highlighted the disappointing output performance and the repeated downward revisions to growth forecasts in the post-crisis world. Fischer said that this, in some respects, is consistent with works from Reinhart and Rogoff (among others) in that it usually takes a long time for output to return to pre-crisis level in the wake of a financial and banking crisis and we are possibly simply seeing a prolonged Reinhart-Rogoff cyclical episode. So the underperformance possibly reflects a more structural, longer term shift in the global economy, with less growth in underlying supply factors. This is consistent with our bias towards a structurally impaired world for growth that requires nominal and real rates to stay lower for longer.
In the absence of data and a seemingly easing backdrop in geopolitical volatility, US markets responded favourably to the dovish tone from Fischer. The S&P 500 (+0.28%) rose for the second consecutive day led by gains in Consumer Staples (+0.76%), Tech (+0.58%), Consumer Discretionary (+0.44%) and Industrials (+0.42%). HY cash bonds were well bid throughout the day with cash outperforming CDS for the first in quite some time. Indeed the iShares iBoxx $ High Yield Corporate Bond ETF (+0.47%) gained for its fourth consecutive day and is now 1.5% off its recent lows after having received US$148.5m of inflows yesterday. The SPDR Barclays High Yield Bond ETF was also up 0.49% on the day after having seen its first inflow (US$20.3m) in four days. The UST 10yr yield was stable closing just a smidgen higher at 2.43%.
Whilst geopolitics may seem to have taken a backseat for now events are still unfolding in Russia. Ukraine yesterday said that Russia has amassed 45,000 troops on its border with NATO saying that there was a ‘high probability’ of military intervention. Moscow yesterday announced that it was sending an aid convoy to eastern Ukraine despite warnings from the West that any attempt to send military personnel into Ukraine under the guise of humanitarian assistance would be seen as an invasion. In comparison the news flow from Gaza has slowed given the ongoing 72-hour truce agreed over the weekend.
In terms of today we will get the monthly US budget and some retail sales figures in the UK but as mentioned upfront the ZEW survey and the US JOLTS data are the notable releases today. 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. The JOLTs data will then give us some information that Mrs Yellen will also be watching carefully.