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US Equity Futures Levitate As Yen Fireworks Continue; All Attention Still On Scotland
While overnight US equity futures have done nothing notable, what everyone's attention has been fixed on, in addition to the GBP and the read-through to all things UK-ish ahead of the Scotland independence referendum, is the sudden flare up in USDJPY trading and volatility, which exploded by some 100 pips in the past 24 hours hitting fresh post-2008 highs, on what appears to be a major capital reallocation move (it surely is not driven by any news) and/or forced squeeze. What is more perplexing is the change in correlations signals, because while until recently the USDJPY was synonymous with the E-Mini, and thus the S&P, as of late the USDJPY pair has moved tick for tick with the 10Year yield: almost as if the NY Fed's favorite HFT trading shop was instructed to change its vast array of signal inputs away from the S&P and to force a gentle levitation in the 10Y.
That said, with little material news on today's radar, and with barely any newsflow even registering when it comes to discounting prices in centrally-planned markets, perhaps it is fitting that today's biggest event is the "prop" breaking news update of the iPhone 6 release. Supposedly a clip of the phone has been leaked and can be seen below. If this is indeed the end product, there may be disappointment for some.
It has been a quiet session over in Asia tool where stocks largely fell with the ASX outperforming and the Kospi underperforming. The Nikkei is +0.3% which has been helped by the USD hitting its highest level against the Yen since 2008 after rising another +0.2% overnight. Outside of Japan Chinese equity markets are broadly flat-to-down whilst broader Asian credit is marginally tighter. MSCI Asia Pacific down 0.3% to 147.8. Nikkei 225 up 0.3%, Hang Seng closed, Kospi closed, Shanghai Composite up 0%, ASX up 0.6%, Sensex down 0.2%. 1 out of 10 sectors rise with telcos, materials outperforming and staples, industrials underperforming
European shares remain little changed with the real estate and oil & gas sectors underperforming and basic resources, telco outperforming. U.K. industrial output rises more than forecast. The FTSE MIB is the notable out-performer, the only major index in the green, supported by positive M&A news for Finmeccanica (+3.1%) and Telecom Italia (+2.9%). The FTSE 100 (-0.2%) underperforms its peers as market weariness over Scottish independence leads investors to shrug off the better-than-expected UK Industrial Production numbers, which Y/Y rose the most since February. Also of note, the UK energy giant, Shell trades in negative territory as the price of Brent continues its decline, adding further pressure to the UK benchmark index. The Spanish and Swedish markets are the worst-performing larger bourses, the Swiss the best. The euro is little changed against the dollar. Spanish 10yr bond yields rise; German yields increase. 11 out of 19 Stoxx Europe 600 sectors rise; basic resources, telco outperform, real estate, oil & gas underperform. 37.5% of Stoxx 600 members gain, 59.5% decline. Eurostoxx 50 -0.2%, FTSE 100 -0.1%, CAC 40 -0.1%, DAX -0.1%, IBEX -0.6%, FTSEMIB +0%, SMI +0.2%
Commodities little changed, with zinc, nickel underperforming and WTI crude outperforming. U.S. small business optimism, JOLTS job openings due later.
Looking to the day ahead it looks set to be relatively quiet on the data front. In Europe, BoE Governor Mark Carney will address the Trade Union Congress at 11.45 (BST) and EU Defence Ministers will begin an informal meeting in Italy. Over in the US we will get the NFIB Small Business Optimism read (expected in at 96) and the July JOLTS Job Openings read (expected in at 4.7m). This read is important as “JOLTS are showing an overall mixed picture,” which is, “one reason why Yellen was hesitant to mark up her assessment of the labor market when she gave the keynote speech last month at the KC Fed’s Jackson Hole conference.” Finally for all those Apple product devotees, get ready for another launch of products today that you don't necessarily need but find yourself irresistibly drawn towards.
Market Wrap
- S&P 500 futures up 0.1% at 2001
- Stoxx 600 little changed at 346
- US 10Yr yield up 3bps to 2.50%
- German 10Yr yield up 4bps to 1%
- MSCI Asia Pacific down 0.3% to 147.8
- Gold spot up 0.1% to $1256.6/oz
Bulletin Headline Summary
- USD-index remains on track for the best 3-month period in six years as rising US yields and M&A flow pushes USD/JPY to the highest level since 2008
- Core fixed income markets trade softer as the market makes way for a glut of supply from the US, UK and various Eurozone states
- Today’s lack of tier 1 data will keep the focus on UK break-up concerns and central bank speakers, with both BoE’s Carney and Fed’s Tarullo on the slate
- Treasuries decline before week’s auctions begin with $35b 3Y notes; WI yield 1.056%, highest since April 2011.
- EU governments abruptly put on hold for at least a “few days” new sanctions against Russia, allowing more time to assess the viability of a cease-fire in Ukraine without risking further trade retaliation by the Kremlin
- Former British Prime Minister Gordon Brown stepped back into front-line politics to offer Scotland almost full power over its domestic affairs as the U.K.’s main parties raced to arrest surging support for independence
- Positioning in currency futures suggests the pound has further to fall versus the dollar before this month’s vote on Scottish independence, even after tumbling more than 6 percent from this year’s peak in July
- China’s yuan rose to a six-month high as the central bank raised its fixing by the most in almost four years following data showing a record trade surplus
- The Fed is planning risk-based capital standards for banks that are tougher than those developed by their international counterparts, Fed Governor Daniel Tarullo will tell lawmakers today
- U.K. industrial production rose 0.5% in July, more than expected
- Obama plans to seek a UN resolution requiring governments to craft regulations and laws to thwart the flow of foreign fighters to militant groups such as the Islamic State
- Palestinian President Mahmoud Abbas will urge the UN to take over from the U.S. as the Middle East’s peace broker when he addresses the world body this month, a senior aide said
- Single Americans make up more than half of the adult population for the first time since the government began compiling such statistics in 1976
- Sovereign yields higher. Asian stocks mixed; European stocks mostly lower, U.S. equity-index futures little changed. WTI crude and gold higher, copper falls
US Event Calendar
- 7:30am: NFIB Small Business Optimism, Aug., est. 96.0 (prior 95.7)
- 10:00am: JOLTs Job Openings, July, est. 4.7m (prior 4.671m) Central Banks
- 10:00am: Fed’s Tarullo testifies to Senate Banking Committee
- 9:30pm: Bank of Japan’s Iwata speaks in Kanazawa City Supply
- 1:00pm: U.S. to sell $27b 3Y notes
FIXED INCOME
Bund futures echoed the heavy trade in T-notes at the open, as core fixed income markets were weighed on by supply from the Netherlands, Austria, Germany as well as the UK, with the equivalent of circa 40,000 Bund futures contracts coming on to the market ahead of the USD 27bln 3yr Note sale from the US later today. Ahead of tomorrow’s new Bund line to be sold from Germany, today’s I/L auction went poorly, with the Bundesbank retaining 21.7% for secondary market operations resulting in the seventh technically uncovered German auction of the year.
EQUITIES
The FTSE MIB is the notable out-performer, the only major index in the green, supported by positive M&A news for Finmeccanica (+3.1%) and Telecom Italia (+2.9%). The FTSE 100 (-0.2%) underperforms its peers as market weariness over Scottish independence leads investors to shrug off the better-than-expected UK Industrial Production numbers, which Y/Y rose the most since February. Also of note, the UK energy giant, Shell trades in negative territory as the price of Brent continues its decline, adding further pressure to the UK benchmark index.
FX
The USD extended the recent march higher, with the USD now on track for its best 3-months in six years. Primarily, the flow was driven by USD/JPY which rose to the highest level since 2008 overnight, with traders watching Rakuten’s USD 1bln all-cash buyout of US-listed Ebates, with the currency change-up seen as positive for the pair. Separately, EUR continues to soften against most others as the German finance minister warns that governments other than Germany will need to undergo reform efforts in order to drive growth (seen as a veiled reference to France).
COMMODITIES
As the USD marches upwards the energy complex has held in the red, with Brent crude below the USD 100/bbl level and WTI well below the USD 94/bbl mark, despite reports of Saudi Arabia production cuts. The USD-index strength continues to weigh on gold (up USD 0.95), which after its poor performance yesterday has remained around 3-month lows reached overnight.
* * *
DB's Jim Reid concludes the balance of the overnight newsflow.
Scotland continues to be on investor’s minds at the moment ahead of next week's referendum. Scotland is also causing controversy in my home. My wife ran the Scottish Half Marathon on Saturday in Edinburgh and her sole aim seemed to be to beat my time for my only ever half marathon 10 years ago. However on the official timings she failed by about a minute which has distressed her deeply and amused me. The plot at this point thickens though as hundreds of runners claim the course was 13.4 miles (from their gps devises) and not 13.1 miles due to an error in laying out the course. The organisers are on my side (i.e. she didn't beat me) and are refusing to acknowledge any error or enter into any correspondence. On the other side my wife is now claiming that the 100s of disgruntled facebook posts from other runners are ample justification for my being demoted in the Reid household record books. She stopped her gps devise at 13.1 miles and the time was a minute inside mine. Alex Salmond or David Cameron may have to step in to say whether they will open an enquiry or not before I endorse either campaign.
On next Thursday's independence referendum, the YES movement has got further momentum overnight with the news that the latest TNS-BMRB poll has voting at 38%-39% (Yes-No) including 23% undecided voters. This polling company has been showing one of the largest leads for the 'NO' campaign with the previous poll at 32%-45% in favour of the 'NOs'. So more and more evidence is building suggesting Sunday's poll wasn't a one-off and that momentum is changing.
Before this second poll the shock of the YouGov weekend survey did have a noticeable impact on the obvious sensitive areas and stocks yesterday. Sterling was understandably weak down and -1.23% for its single biggest daily loss in over a year. UK bank equities were also weak and even bonds suffered. RBS and Lloyds were generally +5-10bps wider in the morning session before firming in the afternoon to close +3-5bps on day. In European equities we recovered from the morning lows but overall losses were led by the UK and peripheral euro area nations as the FTSE 100, IBEX 35 and FTSE MIB closed down -0.3%, -0.4% and -0.5% respectively. The broader Stoxx600 was down -0.4% on the day. European credit was also soft with iTraxx Main widening +0.7bps, Xover +5.3bps, Fin Sen +1.2bps and Fin Sub +2.6bps.
US markets were also slightly lower with the S&P 500 down -0.31% whilst CDX IG and HY widened +1bp and +4bps respectively. Government bonds also struggled a little in Europe and the US yesterday as 10yr US, German and UK paper edged up by +2bps, +3bps and +1bp respectively.
Overnight markets have fared slightly better with Japan leading the gains. The Nikkei is +0.47% which has been helped by the USD hitting its highest level against the Yen since 2008 after rising another +0.2% overnight. Outside of Japan Chinese equity markets are broadly flat-to-down whilst broader Asian credit is marginally tighter.
In other news, EU members have formally brought in new sanctions against Russia, including restrictions on large Russian state-owned oil companies raising capital in European financial markets, although these sanctions are said to come in, “in the next few days” and not immediately. The BBC reports that this vagueness around timing was to allow the EU members to assess how Friday’s ceasefire is holding up. On the ceasefire, yesterday the OSCE (which helped broker the deal) described it as, “shaky.” Staying with geopolitical news, Iraq’s parliament yesterday approved a new government. The US described the move as a, “major milestone” and the news comes as US Secretary of State John Kerry travels to the region to build, "the broadest possible coalition of partners around the globe to confront, degrade and ultimately defeat ISIL". (BBC).
Looking to the day ahead it looks set to be relatively quiet on the data front. In Europe, BoE Governor Mark Carney will address the Trade Union Congress at 11.45 (BST) and EU Defence Ministers will begin an informal meeting in Italy. Over in the US we will get the NFIB Small Business Optimism read (expected in at 96) and the July JOLTS Job Openings read (expected in at 4.7m). As our US economics team writes, this read is important as “JOLTS are showing an overall mixed picture,” which is, “one reason why Yellen was hesitant to mark up her assessment of the labor market when she gave the keynote speech last month at the KC Fed’s Jackson Hole conference.” Finally for all those Apple product devotees, get ready for another launch of products today that you don't necessarily need but find yourself irresistibly drawn towards. It might be best that I find somewhere to hide.
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This clock never seemed so alive.
We're green and good to go until the elections....place your bets.
I see Ian MacBernie has come out in favor of independence. He's Scotlands Poet Laurete.
"Coo yu len us a quid, for I got a postal money order what's comin on Toosday"
Aye. Attle mist yu up.
That'd be Ewan McTeagle then:
https://www.youtube.com/watch?v=4W9p_NFm6qk
Hongcha: Thanks for doing the legwork. For me, it was an ancient memory in the fog. Pleasure to watch it again.
Scotland will do quite well..... with its 20 billion bbl oil and gas...as for england ..... look for a muslim queen in the near future...
aapl invented the rounded corner bitchez
al gore created the internet bitchez
He also created Global WarmingTM.
He made a fortune by scaring people out of their beach front property.
- I sure as hell aint hitting the bid, and neither are the mom n pop investors i know of...
Scotland is the birthplace of golf and is of strategic importance to this Administration.
They need to find a new home, can't play but one month a year up there.
Paul Krugman urges Scotland to yote "NO" on referendum. That means "YES" is the logical choice:
Well, I have a message for the Scots: Be afraid, be very afraid. The risks of going it alone are huge. You may think that Scotland can become another Canada, but it’s all too likely that it would end up becoming Spain without the sunshine.
Welfare Talking Head Queen KrooKmaN is as welcome as Donald ( where's yer troosers ) Trump in Scotland.
USD and yuan both up? One because of trade surplus the other because it's the shinier of two turds (vs euro). Feels like something's up. Yeah, now's the time to buy individual investors. Right at three month surge, buy usd you chumps.
UK gov is panicking right now and desperately trying to save votes. Embarrassing to watch.
According to the Federal Reserve Bank of San Francisco:
http://www.frbsf.org/economic-research/publications/economic-letter/2014/september/assessing-expectations-monetary-policy/
Assessing Expectations of Monetary Policy
An ongoing concern has been that the public might misconstrue the Fed’s forward guidance about future monetary policy and underappreciate the extent to which short-term interest rates may vary with future news about the economy. Evidence based on surveys, market expectations, and model estimates show that the public seems to expect a more accommodative policy than Federal Open Market Committee participants. The public also may be less uncertain about these forecasts than policymakers.
Recently, subdued levels of volatility in financial markets have received some attention. For example, Federal Reserve Chair Janet Yellen (2014) noted that “indicators of expected volatility in some asset markets have fallen to low levels, suggesting that some investors may underappreciate the potential for losses and volatility going forward.” Prices of financial assets, such as stocks and bonds, are sensitive to unexpected changes in interest rates because their present values are determined by discounting future cash flows. Thus, the low volatility in asset markets could, in part, reflect market participants’ relative certainty about the future course of interest rates.
In this Letter, we assess the private sector’s views about future monetary policy in terms of both expected levels of the short-term interest rate and the uncertainty or disagreement in those expectations. Through its “forward guidance,” the Federal Reserve’s policymaking body, the Federal Open Market Committee (FOMC), provides an indication to the public about the stance of monetary policy expected to prevail in the future. Furthermore, since 2012, the FOMC participants’ projections of the appropriate target for the federal funds rate over the next several years and in the longer run have been included as part of their quarterly economic projections, which are released to the public. Research has shown that this communication of interest rate projections can better align the public’s and the central bank’s expectations, which could lead to improved macroeconomic performance (see, for example, Rudebusch and Williams 2008). However, an important concern is that the public might not give enough weight to how dependent the central bank’s guidance is on both current and incoming data. Thus, the public could underestimate the conditionality and uncertainty of interest rate projections.
We assess the public’s expectations about future monetary policy from three sources: (1) surveys of economic forecasters and primary dealers, (2) market prices of federal funds and Eurodollar futures, and (3) estimates from a financial-econometric model. We then compare these public expectations with the expectations reported in the June FOMC participants’ federal funds rate projections (Board of Governors 2014). Our analysis shows that, on balance, the public seems to expect more accommodative policy than FOMC participants. One measure of uncertainty also shows the range of the public’s forecasts is somewhat smaller than that among FOMC participants, suggesting the public also may be less uncertain about their projections.
Surveys of economic forecasters and primary dealers
We look at two surveys of private-sector professionals about their monetary policy outlook. One is the monthly Blue Chip Financial Forecast, based on a survey of about 50 professional economic forecasters on key financial variables, including the federal funds rate, up to five quarters in the future. For our analysis, we use the August 2014 Blue Chip forecast based on polling from July 23–24. The other is the Survey of Primary Dealers regularly collected by the Federal Reserve Bank of New York before each scheduled FOMC meeting. In the most recent survey dated July 21, 2014, 22 primary dealers—brokers or financial institutions that are able to purchase Treasury securities directly from the Fed—submitted forecasts of the target federal funds rate for the fourth quarter of 2014 through the first half of 2018, as well as their expected long-run value.
Figure 1 shows the expectations for the future federal funds rate from the two surveys, and the June FOMC participants’ funds rate projections, collected in the Summary of Economic Projections (SEP). The Blue Chip median forecast of the federal funds rate at a quarterly average of 0.80% in the fourth quarter of 2015 appears to be consistent with the median SEP projection of 1% at the end of 2015. The primary dealers’ median forecast of the most likely date for the first funds rate hike was the third quarter of 2015. Note that their median forecast for the end of 2015 and the end of 2016 were 0.75% and 2.13%, respectively. These median forecasts are lower than the median SEP projection of 1% at the end of 2015 and 2.5% at the end of 2016.
In addition to the median forecasts, Figure 1 also shows the 25th and 75th percentile forecasts from primary dealers and FOMC participants. For a certain date in the forecast, the 25th percentile is the point at which one-quarter of the respondents believe the fed funds rate will be lower, and the 75th percentile is the point at which one-quarter of the respondents believe it will be higher. The distance between the 25th and 75th percentiles measures the forecast dispersion, an indicator of uncertainty or disagreement among the forecasters. In the July survey, the dispersion of the primary dealers’ forecast was smaller than that of the SEP projection. This suggests that FOMC participants were more uncertain about the future course of monetary policy than primary dealers were.