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Futures In Fresh Record Territory As OECD Cuts Global Growth Projections Again
Just two months after the OECD cut its global growth outlook, overnight the Organisation for Economic Co-operation and Development cut it again, taking down its US, Chinese, Japanese but mostly, Eurozone forecasts. In the report it said: "The Economic Outlook draws attention to a global economy stuck in low gear, with growth in trade and investment under-performing historic averages and diverging demand patterns across countries and regions, both in advanced and emerging economies. “We are far from being on the road to a healthy recovery. There is a growing risk of stagnation in the euro zone that could have impacts worldwide, while Japan has fallen into a technical recession,” OECD Secretary-General Angel Gurria said. “Furthermore, diverging monetary policies could lead to greater financial volatility for emerging economies, many of which have accumulated high levels of debt.” And sure enough, the OECD's prescription: more Eurozone QE. As a result, futures in the US are in fresh all time high territory ignoring any potential spillover from last night's Ferguson protests, just 30 points from Goldman's latest 2015 S&P target, Stoxx is up 0.5%, while bond yields are lower as frontrunning of central bank bond purchases resumes. Oil is a fraction higher due to a note suggesting the Saudi's are preparing for a bigger supply cut than expected, although as the note says "it is unclear if the cut sticks."
RanSquawk's summary of key "market" drivers:
European equities once again trade firmly in the green, with little in the way of fresh fundamental macro newsflow on offer. Nonetheless, the DAX enters the North American open at its highest level in 2 months, with heightened expectations of an ECB QE programme continuing to bolster price action. This has been enhanced by recent comments from ECB’s Coeure who said he wants the ECB to have an asset buying discussion next week, adding to the recent rhetoric from Draghi and Constancio. Furthermore, RBS are the latest bank to offer their insight on the situation by saying that it would be an oversight for Dec sovereign QE purchases to be ruled out. As such, financials are the outperforming sector, with the periphery also seeing outperformance as peripheral banks would be set to benefit the most from such action by the ECB. Fixed income products were initially seen in the green from the offset in a similar fashion however, Bunds have since pared their earlier gains in what has been a relatively choppy session for prices. However, they were provided some support alongside a modest bout of softness in European stocks after the OECD cut their global, US, Chinese, Japanese and Eurozone growth forecasts while leaving the UK’s on hold.
European stocks rise for 3rd day led by banks and carmakers, extending a 2-month high. Miners, oil & gas stocks underperform. Asian shares gain; U.S. stock index futures advance ahead of U.S. 3Q GDP. Euro falls against the dollar. Commodities gain, with silver outperforming, wheat underperforming. Brent oil, WTI crude advance.
Looking at the day ahead the calendar starts to kick into gear in the US this afternoon with the second snapshot of Q3 GDP, along with FHFA house price data, Case-Shiller house price prints, November consumer confidence and the Richmond Fed PMI for November. In terms of GDP, the market consensus is going for a 3.3% print, which is 0.2ppts lower from the initial reading.
Market Wrap:
- S&P 500 futures up 0.1% to 2070.1
- Stoxx Europe 600 up 0.5% to 347.28
- US 10Y yield down 1bps to 2.29%
- German 10Y yield down 2bps to 0.77%
- MSCI Asia Pacific up 0.1% to 140.54
- Gold spot up 0.4% to $1201.73/oz
Bulletin Headline Summary
- European sentiment has been further bolstered by continuing expectations for an ECB sovereign QE programme
- OECD cuts their global, US, Chinese, Japanese and Eurozone growth forecasts while leaving the UK’s on hold
- Looking ahead, today sees the release of US GDP, core PCE and consumer confidence data
- Treasuries steady overnight as week’s auctions continue with $13b 2Y FRN and $35b 5Y notes; latter yield 1.610% in WI trading vs. 1.567% in October. Market activity may be quiet as U.S. Thanksgiving Day looms.
- 2Y notes sold yday stopped through by 1.1bps; 3.71 bid-to- cover ratio was highest since December
- Chaos erupted in Ferguson, Missouri, after a grand jury declined to indict a white police officer for the fatal shooting of an unarmed black teenager
- Germany’s GDP grew 0.1% in the three months through September, the Federal Statistics Office said today, confirming a Nov. 14 estimate. Private consumption climbed 0.7%, while capital investment sank 0.9%
- China’s banking regulator expanded a trial to allow more regions including Beijing to set up firms to buy bad loans from local financial institutions, government officials familiar with the matter said
- France ruled out delivery of a warship to Russia over the conflict in Ukraine and criticized the government in Kiev for saying it wants to join NATO
- The trade organization for the U.S. corporate loan market is asking a federal court to overturn new rules that would require investment firms that manage securities created from the debt to retain portions of those deals
- “There’s a substantial degree of uncertainty around the degree of spare capacity in the economy,” Bank of England Governor Mark Carney said in testimony to U.K. lawmakers; also said rate increases likely to be limited and gradual
- China’s benchmark money-market rate fell the most since September as the central bank cut the yield offered on 14- day repurchase agreements for the third time in as many months
- By joining Mario Draghi and Haruhiko Kuroda in the global stimulus camp, PBOC Governor Zhou Xiaochuan signaled deeper concern over China’s outlook and recognition that targeted measures alone weren’t going to be enough to revive growth
- Sovereign yields lower. Asian stocks mostly higher; European stocks and U.S. equity-index futures gain. Brent crude and gold rise, copper falls
FX
AUD/USD took out stops below Thursday's low before breaking below the Nov'14 low at 0.8541 to reach its lowest level in four years following comments from RBA’s Lowe who once again jawboned the AUD. From a UK perspective, this morning saw the BoE’s appearance in front of the Treasury Select Committee, although it failed to offer much in the way of market-moving comments as some had hoped for. Of note, BoE’s Forbes was relatively hawkish by suggesting that there could be less slack in the UK economy than originally estimated, however, GBP/USD was relatively unmoved by these comments. Overnight, JPY strengthened against its major peers which saw USD/JPY briefly break below 118.00, buffeted by selling from Japanese exporter names and long-position liquidations ahead of month-end. However, the JPY strength has since seen a modest pullback heading into the North American open.
COMMODITIES
In the commodity complex, WTI and Brent crude futures reside in modest positive territory in the build up to this week’s OPEC meeting, ahead of which the Iraqi Oil Minister said oil prices are not acceptable and something needs to be done, adding that all means are to be used to raise prices. In metals markets, precious metals trade in relatively neutral territory ahead of key upcoming risk events while copper was seen lower overnight as questions over the efficacy of the recent PBOC stimulus limit upside for the base metal.
* * *
DB's Jim Reid concludes the overnight summary
Markets continue to give thanks to the central banks as positivity continues to resonate after Friday's surprise rate cut in China and the extreme dovishness from Draghi. In the US the S&P extended its all-time highs to close +0.29% higher marking a third successive record close, although markets were somewhat more subdued ahead of a raft of macro releases today. As far as data was concerned yesterday, the preliminary US services PMI for November dropped to 56.3 from 57.1, although remains above the 55.9 level a year ago. As well as this, we had a modestly softer Chicago Fed Activity index (0.14 vs. 0.33 expected), although somewhat offset by a firmer Dallas Fed reading (10.5 vs. 9 expected). Treasuries ended the day fairly muted (the 10yr virtually unchanged at 2.306%), whilst the DXY closed 0.2% lower.
Before we round up the European price action yesterday, the tone in Asia remains largely constructive with Chinese equities leading the way. The Shanghai Composite and Shenzhen Composite are +0.60% and +0.86% as we type, respectively with the former reaching at a 3-year high. China's money market rates also fell overnight with its benchmark 14-day repo rate declining by the most since September (to 3.2% from 3.4%). Its 7-day repo rate also fell by 25bps. H-shares are a little weaker though with the Hang Seng and HSCEI indices down -0.21% and -0.67%, respectively. Away from China, bourses in Japan resumed trading after yesterday's holiday with a moderately positive tone (NKY +0.35%). Asian credit spreads are still generally tighter overnight with China property continuing to be the biggest beneficiary of the PBOC's easing announcement. Asian sovereign credit protection is also generally better offered across the board with higher beta names such as Indo (-3bp) outperforming the rest. Brent is trading below US$80/bbl again ahead of the OPEC meeting this Thursday, whilst Gold is flattish at around US$1197/oz as we type.
Turning back to Europe yesterday the Stoxx 600 closed +0.14%, paring back earlier gains as Energy stocks (-0.67%) weighed on the index later in the day with the weakness in Crude. Meanwhile yields in the periphery extended their rally with the 10 year benchmark in Italy, Portugal and Spain 3bps, 4bps and 4bps lower respectively – the latter closing at 1.966% and trading below 2% for the first time ever with our data going back over 200 years. Markets were initially buoyed by a better than expected IFO print out of Germany, with the index rising a surprising 1.5pts to 104.7 in November and fully reversing the October decline. Our European colleagues noted that regressions based on IFO and PMI suggest GDP growth of 0.2%-0.3% qoq in Q4, but point out that these regressions painted too positive a picture over the last couple of quarters and as a result continue to stick with expectations of a further slowdown from Q3 to stagnation in Q4.
While we think central bank liquidity has been, is and will continue to be the main driver of markets, yesterday reminded us that at least in Europe, the journey will be volatile en route to government QE. This was evidenced yesterday with ECB member Benoit Coeure quoted as saying (Bloomberg) that the ECB will not act hastily to add more stimulus and instead the decision will centre on incoming economic data – specifically mentioning that ‘there’s unanimous agreement in the Governing Council that there might be situations where we’d have to do more’. Coeure then went on to say that the central bank will not commit to any particular time line and instead any decision around sovereign QE will take place in December or later, giving the bank sufficient time to analyse the current success of the ABS and covered bond buying schemes.
In case this wasn’t enough, two further ECB members, perhaps at the more skeptical end of the scale added to proceedings. Firstly, Austria’s central bank governor Nowotny suggested that the ECB should be steady and that although there are always circumstances for more policy action, this is unlikely to happen as midterm inflation expectations are still anchored. Perhaps it was less of a surprise when later in the day the Bundesbank’s Weidmann commented that the focus on the asset purchase programme is distracting from the true problems around how the euro area should generate growth, and, when asked specifically on sovereign QE, he said that buying government debt ‘comes with legal obstacles and is no panacea for the region’.
Staying in Europe, for those looking for a potential big story for 2015, Greece continues to bubble up on the edges of the macro world. Yesterday our resident expert George Saravelos published his thoughts going into 2015 for the nation. With regards to near-term uncertainty, both the outcome of current negotiations and of the February presidential election remains highly fluid. In terms of the former, Greek officials meet with the Troika today and a Eurogroup Working Group is set to discuss progress this Thursday with the end date for which an agreement can last be reached being December 18th (closure of European national parliaments for holiday season). George points out however, that February’s political events and possible early elections remain the major source of event risk for Greece. On the Greece side, the pressure on the government will likely emanate from maturing debt and the damaging consequences of default, as well as pressure that may be placed on Greek banks’ access to ECB financing. On the other side of the coin, Greece’s official sector debt makes European governments much more directly exposed to Greek debt. However in contrast to 2010-2012, low levels of market stress increases the incentives to put pressure without risking broader contagion. All-in-all we may be left in a situation where both sides have an incentive to stall agreement until market pressure returns. We could be looking at 2015 marking a new phase of political- rather than financial – tension where the prevailing policy consensus is challenged by a government that has itself been born out of the aftermath of the crisis.
Looking at the day ahead the calendar starts to kick into gear in the US this afternoon with the second snapshot of Q3 GDP, along with FHFA house price data, Case-Shiller house price prints, November consumer confidence and the Richmond Fed PMI for November. In terms of GDP, the market consensus is going for a 3.3% print, which is 0.2ppts lower from the initial reading. DB’s Joe Lavorgna, however, expects the figures to be close to the initial print (+3.5% forecast). He points out that there will be another revision to Q3 next month and then a more comprehensive revision next July when the annual benchmark is conducted. Given the trending pattern of initial to ‘final’ readings on real GDP growth being revised up in 11 out of the last 13 quarters, he expects this print to eventually be revised higher (possibly above 4%). This morning we also have the Q3 GDP print from Germany to look forward to as well as French production, manufacturing and confidence reads. With regards to the former, the market is expecting a +0.1% print for the quarter, although as we’ve mentioned previously, our German economists are expecting GDP to stagnate through the next two quarters and haven’t ruled out the potential for a negative quarter. To wrap it up, the OECD will also release its latest economic forecasts today.
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Like it really matters.
When it looks like the forces want to equalize the imbalances the Federal Reserve will be there to force rates at zero and keep buying stocks.
QE 4 is pretty much a sure thing. The US is on the Japanese path. So we have time.
I think we're turning Japanese....I really think so.
http://www.youtube.com/watch?v=BvMgnH7sGI0
It's all Bullshit!!!
Nothing really matters anymore. It's full speed to the Cliffs
Even the Swiss gold vote is a dud. Unless the gold is liquid as in used in the currency, it's worthless.
America for example can say it has 50K tons of gold but if nobody may see it, is it there?
Suddenly all central banks say they'll buy gold but for what purpose? They'll hide is and won't use it.
So the reason the central banks buy it, if they actually do it, is to pull gold from the market/common people.
And than they'll say: there's no more because we all bought it but nobody may see it!
Gonna be moar like -1% Q3 GDP
And stop it with this stupid fucking QE 4 bullshit cause there's no collateral left to leverage it now!
Was there ever collateral to begin with?
Yes....it was called the gold standard.....it's been a while ago.
It's the crime Nixon should have been impeached for.
Yes, you for example are 1/360.000.000 of the collateral they promised to the Chinese.
Student loan backed securities, bitchez
package them, sell them AAA
ALL PART. OF THE WAR EFFORT! TRUST ME!
There's plenty of subprime auto loans to sell to the Fed now. Cash for Shit Stained Paper.
#Ferguson
Ferguson decision ignites protests in many cities
latest NEWS:
http://tersee.com/#!q=ferguson&t=text
The free shit army lobbies for the right to steal cigars at will.
Turns out the police acted rationally......boy did that tick everyone off!
No, no, no. They're looting and protesting a black man gunning down an off-duty officer and shooting 3 other random people. http://fox8.com/2014/11/18/man-accused-of-shooting-and-killing-akron-officer-pleads-not-guilty/
In this world where truth is lies and vice versa what comes out of this Dear Henry think tank (OECD) is the following:
1° EU is responsible for world economic stagnation. (Read Mutti's austerity mantra for world imminent financial collapse thru incurable insolvency).
2° But the future is bright (Read Oligarchy liquidity still Desperately Seeking Susan; anything to make a buck and not let WS superhyped asset tower of Babel get unstuck).
3° Oil is abundant and market fundamentals will prevail. (Read Oil is the dirtiest Oligarchy game and totally geo-politcally manipulated, and fossils dissemination now the bane of humanity as climate change and ocean acidity indicates.)
But all that is of NO consequence, as the world moves on a decision time horizon whose span is getting shorter and shorter.
As for EU sovereign program that should be an acid test to indicate if QE liquidity world-wide is the answer to Debt infested banksta/state insolvency doldrums.
Trips, cool.
Here's the rub , a slowdown in intra European trade is good for euro roboten as it returns purchasing back to them.
Why ?
The function of trade in the eurozone is to access scarce currency , not goods.
Is there any Bjork of Cork?
Keep us in the loop if you're at the pub and find yourself rocking out....
Definition of Insanity: keep doin' QE even though it has never worked and expecting Green Shoots
Surley the gotta allow a correct before pumping with QE4... give us a glimpse of some fear and deflation before kicking the can some more..
Shirely left the building, six years ago.
We can also safely state that productions function is not to satisfy consumption as few can afford the products produced and distributed.
The true goal of the eurosystem seems to be a total destruction of the European peoples.
There are no markets, only interventions. The Government has open-season out on bears.
I think we are going to witness the Big Bang Theory up close and personal soon.
The Fundementals look fine, we can always make up some new ones anyway.
I think it will be more like those coalmine fires that keep burning for decades and gassing all the life out of the regions
Federal Reserve monetizing debt until a currency crisis and then the IMF's SDRs.
Move to reprice debt with a world currency.
Using Marxist language the nations of Europe have moved outside national capitalistic monopolies of the post 1648 world and into the arms of stateless generalized financial capital which although has no little nominal ownership has total control over capital and its movements
Increased GDP growth is not good for euro conduit countries.
They function as capital goods and labour dumping grounds.
They can in no way be described as nations with anything like closed systems.
We can see increased activity in countries such as Ireland and Spain.
Increased activity (gdp growth) will further erode their wealth base.
i am sure, ferguson was the trigger for higher markets
As the stock market continues to remain at historic highs and go higher please tell me what is so good? What is so much better? As I see it the weight of carrying a large number of unemployed and people who have dropped out of the work force is wearing society down through attrition.
The article below points out some of the glaring flaws in the argument that blue sky lies ahead as the stock market seems to indicate. As I look at a landscape of empty and under-leased buildings that once housed thriving businesses that provided Americans with good paying jobs I'm forced to ask, How are things getting better?
http://brucewilds.blogspot.com/2014/10/tell-me-again-how-things-are-getting.html
Futures rise because we have no future!
There.