Equity Futures Spooked By Second Day Of Bund Dumping, EUR Surges; Nikkei Slides

The biggest overnight story was neither out of China, where despite the ridiculous surge in new account openings and margin debt the SHCOMP dipped 08%, or out of Japan, where the Nikkei dropped 2.7%, the biggest drop in months, after the BOJ disappointed some by not monetizing more than 100% of net issuance and keeping QE unchanged, but Europe where for the second day in a row there was a furious selloff of Bunds at the open of trading, which briefly sent the yield on the 10Y to 0.38% (it was 0.6% two weeks ago), in turn sending the EURUSD soaring by almost 200 pips to a two month high of 1.1250, and weighing on US equity futures, before retracing some of the losses.

As we reported earlier, the technicals certainly do not favor Bund flows now, and it is likley that the Bund squeeze is far from over.

Negative news about the Apple watch aka the "tattoo snafu"will likely weigh on the DJIA today, with AAPL stock already down -1% in premarket trading.

A deeper look at the market shows Asian equities falling amid a negative Wall Street close, after the FOMC failed to offer any changes to its policy. Nikkei (-2.7%) led the slump after resuming trade following yesterday’s market closure, with weakness prompted by the BoJ refraining from carrying out further easing. Shanghai Comp (-0.8%) and Hang Seng (-0.9%) also fell with declines led by financials after ICBC (-2.1%) (market cap of USD 310bln) earnings. The ASX 200 (-0.83%) was also weighed on by financials amid worries around higher capital requirements, although support was found at 5,750, which is a triple bottom.

Bunds have continued yesterday’s trend lower sending German 10y yields above 0.3% which traded lower by 268 ticks since yesterday’s open from session lows. Analyst’s state that although the reasoning behind the recent move lower remains unclear, a correction was due with investors too fixated on the prospect of negative yields alongside improving European credit conditions and inflation expectations.

European equities (-0.3%) trade mixed at the height of European earnings season as a slew of positive earnings from major large caps including BASF, Bayer, Shell lift core indices are unable to lift stocks firmly into the green whereby the DAX is the notable underperformer in Europe. However, notable outperformers come in the form of Vallourec (-14.7%) who opened lower by 17% following poor earnings and Nokia (-7.4%) after they reported weak sales from their networking unit which also weighed on Alcatel-Lucent (-6.4%).

The USD-index (-0.5%) has extended its losses following last night’s FOMC meeting despite the Fed failing to rule out a June hike, although analysts discounting the possibility of such a move. The Fed also highlighted that weak US data in Q1 was weighed upon by transitory factors.

Major pairs have been buoyed with EUR/USD higher by almost a point after being bolstered by German Unemployment Change (000's) (Apr) M/M -8k vs. Exp. -15K and stronger European yields.

Elsewhere, the BoJ refrained from further easing following their rate decision overnight which led to USD/JPY falling below 119.00, while the BoJ's Semi Annual report showed that the central bank cut their 2015 inflation and GDP forecasts to 0.8% from 1% and cut 2% from 2.1% which caused USD/JPY to give back some all of its losses to sit just below 119.00. Furthermore, the BoJ also pushed back their forecast for inflation to reach their mandated 2% target in H1 2016.

The RBNZ kept rates on hold at 3.50% however, they stated that would be appropriate to lower OCR if demand weakens and if there is lower inflation pressure. The central bank also commented on the strength of NZD and added that it trades at an unjustifiably high level.

Yesterday’s DoE Crude Oil Inventories (Apr 24) W/W 1910K vs. Exp. 3300K as Cushing Crude oil inventories fell for the first time since November has buoyed WTI and Brent crude futures despite both products failing to consolidate the move above USD 59.00 and USD 66.00 respectively. Precious metals are also seen higher with spot gold sitting above USD 1,200 after seeing resistance at the aforementioned level. Overnight iron ore futures fell to 4% at its lows as supply continues to swell, although the metal has pared some of the move.

In Summary: European shares fall with the tech and chemicals sectors underperforming and oil & gas, telco outperforming. Euro-Area consumer prices end four-month streak of declines, German unemployment fell less than expected. The Swiss and Dutch markets are the worst-performing larger bourses, the Swedish the best. The euro is stronger against the dollar. Japanese 10yr bond yields rise; German yields increase. Commodities gain, with natural gas, gold underperforming and nickel outperforming. U.S. Chicago purchasing manager, jobless claims, continuing claims, Bloomberg consumer comfort, ISM Milwaukee, employment cost index, personal income, personal spending due later.

Market Wrap

• S&P 500 futures down 0.3% to 2091.7
• Stoxx 600 down 0.4% to 395.8
• US 10Yr yield up 1bps to 2.05%
• German 10Yr yield up 4bps to 0.33%
• MSCI Asia Pacific down 1.7% to 153.8
• Gold spot little changed at $1204.5/oz
• 6 out of 19 Stoxx 600 sectors rise; telco, autos outperform, basic resources, oil & gas underperform
• Asian stocks fall with the Nikkei outperforming and the ASX underperforming.
• MSCI Asia Pacific down 1.7% to 153.8; Nikkei 225 down 2.7%, Hang Seng down 0.9%, Kospi down 0.7%, Shanghai Composite down 0.8%, ASX down 0.8%, Sensex down 0.6%
• Euro up 0.6% to $1.1195
• Dollar Index down 0.46% to 94.77
• Italian 10Yr yield up 2bps to 1.53%
• Spanish 10Yr yield up 4bps to 1.5%
• French 10Yr yield up 5bps to 0.61%
• S&P GSCI Index up 0.4% to 442.8
• Brent Futures up 0.3% to $66/bbl, WTI Futures up 0.9% to $59.1/bbl
• LME 3m Copper up 0.9% to $6202.5/MT
• LME 3m Nickel up 2.9% to $13805/MT
• Wheat futures up 0.9% to 487.8 USd/bu

Bulletin Headline Summary from RanSquawk and Bloomberg

• Bund sell-off rattles the market with stronger German yields benefitting the EUR.
• The USD-index (-0.5%) has extended its losses following last night’s FOMC meeting despite the Fed failing to rule out June hike but most analysts deem this unlikely
• Looking ahead sees the release of US Initial Jobless Claims, Chicago Purchasing Manager, ISM Milwaukee, EIA NatGas storage change, Fed’s Tarullo and large cap earnings from Exxon, Gilead and Visa
• Treasuries lower led by short end, yields higher by ~1bp as bunds lead EGBs lower in positioning-driven selloff; FOMC assessment of U.S. economy and labor market more dovish than many expected, based on published research.
• Euro-zone consumer prices were unchanged in April, ending a four month string of declines
• Greece and its euro-area partners are stepping up talks in a bid to break an impasse over bailout aid as early as next week, even as the country’s government sent conflicting signals over its willingness to agree on long-stalled reforms
• Greece will leave the euro, according to the majority of investors, analysts, and traders in a Bloomberg survey
• 58.1% of Greeks say govt shouldn’t hold referendum on any potential deal with creditors, compared with 37.3% who said it should, according to Marc poll for Alpha TV
• German joblessness fell 8k to 2.79m in April while the  unemployment rate remained at 6.4%, the lowest level since reunification
• China will step up targeted control measures and fine-tune policies to combat downward pressure on economy, Xinhua News Agency reports, citing a statement released after Communist Party Politburo meeting
• The Bank of Japan refrained from boosting monetary stimulus even as it pushed back its forecast for reaching a 2% inflation target, ascribing the delay to the tumble in oil prices
• Sovereign bond yields higher.  Asian stocks fall, European stocks mostly lower, U.S. equity-index futures drop. Crude oil and copper higher, gold little changed

US Event Calendar

• 8:30am: Employment Cost Index, 1Q, est. 0.6% (prior 0.6%, revised 0.5%)
• 8:30am: Personal Income, March, est. 0.2% (prior 0.4%)
  • Personal Spending, March, est. 0.5% (prior 0.1%)
  • Inflation-Adjusted Personal Spending, March, est. 0.4% (prior -0.1%)
  • PCE Deflator m/m, March, est. 0.2% (prior 0.2%)
  • PCE Deflator y/y, March, est. 0.4% (prior 0.3%)
  • PCE Core m/m, March, est. 0.2% (prior 0.1%)
  • PCE Core y/y, March, est. 1.4% (prior 1.4%)
    8:30am: Initial Jobless Claims, April 25, est. 290k (prior 295k)
• Continuing Claims, April 18m, est. 2.3m (prior 2.325m)
• 9:00am: ISM Milwaukee, April, est. 53 (prior 53.25)
• 9:45am: Chicago Purchasing Manager, April, est. 50 (prior 46.3)
• 9:45am: Bloomberg Consumer Comfort, April 26
• 10:00am: Retail Sales benchmark revisions

DB's Jim Reid concludes the overnight summary

It was a bit of a nightmare to be long bonds yesterday as we saw a major sell-off despite a weak US Q1 GDP print and a fairly predictable FOMC statement. It was a good day for us 'secular stagnationists' but I'm not sure it would have helped us much in trading the report as bond market positioning seemingly outweighed all else. Having said that Bunds had already sent global yields higher after a slightly stronger German inflation report (+0.3% YoY, +0.2% expected) and a weak auction. A five year Bund auction yesterday only gathered EUR3.649bn in bids which fell short of the EUR4bn sales target. This was the first time a Bund auction had missed its target since 21 Jan and the third bond sale this year that was technically uncovered according to Bloomberg. 10yr Bunds rose +12bps to 0.285%, with the equivalent in France, Spain, Italy, Portugal and the UK up between 12-15bps on the day. The US 10yr actually out-performed, only finishing the day +3.5bps higher. Very few dared to short bunds 10-14 days ago when intra-day they fell below 0.05bp but now there's a bit of momentum we're seeing increasing interest in jumping on the bandwagon. Our view on European rates is incredibly confused at the moment as we believe in many different conflicting things. We believe in secular stagnation but think Europe will see a decent cyclical recovery in 2015 and we believe we're in a giant bond bubble but think we need it to be sustained by central banks to some degree to keep the debt heavy financial system solvent. Overall it probably points to a bias of a mild back-up in yields over the rest of the year but not an excessive one. We still think spreads will tighten though.

Back to the US GDP number, it came in at +0.2% annualised QoQ, well below already low expectations so hats off to the Atlanta Fed GDPNow model we've been tracking for a couple of months now. The headline figure actually belied even weaker underlying factors as it was bolstered by inventory accumulation which added +0.7% to output. As DB Chief US Economist Joe LaVorgna wrote, the weak Q1 GDP was to some extent to be expected but the mix does not bode as well for Q2 with the chance that this buildup in inventories is liquidated. Given this Joe thinks that current quarter growth is likely to run at around 2.5% and not the 4% snapback he’d previously anticipated.

Equities and credit markets on both sides of the Atlantic sold off with the Stoxx 600 down -2.2%, the DAX down -3%, iTraxx Main +1.5bps wider and Xover +9bps in Europe. US markets also struggled as the S&P500 closed the day down -0.37%% and CDX IG and HY widened +1bp and +4bps. The USD also suffered as EURUSD rose almost +2%. Commodities enjoyed a stronger day with the CRB Index and Brent up +1.2% and +1.8%, respectively. Oil’s performance was also supported by latest data which showed that inventory gains were less than expected.

Taking a slightly closer look at what was a fairly uneventful Fed statement, Peter Hooper reckons the importance of the April statement was how the Committee saw recent and prospective economic developments. The message was that growth has slowed and the improving trend in the labour market has passed due “in part” to transitory factors. Conditions are still in place to support further improvement in the job market ahead and inflation is also expected to eventually return to desired levels. Reading between the lines Peter thinks the statement is still consistent with a September liftoff as long as economic conditions develop in line with the Committee’s expectations.

Onto more micro matters we’ll quickly roundup yesterday’s earnings. 43 S&P 500 companies reported yesterday and strong EPS beats continues to be the main theme. 31 out of those 43 firms delivered upside surprises (including Time Warner, Mastercard and Hess Corp) to EPS but only 19 of those managed to do the same for sales revenue. The trend remains quite the opposite in Europe where we saw just over half of the companies beat EPS forecasts but just over two-thirds of them beat sales estimates.

Key Asian equity and government bond markets are trading lower overnight. The BoJ has left monetary policy/QQE unchanged as we go to print. Look out for the press conference after we publish. The Nikkei is down -2.6% while the 10yr JGB yield is also up 4bps to 0.329% with the Nikkei weakening -1% since the announcement. The Hang Seng is -1% lower as we type but still on track to close nearly +14% on the month – its biggest monthly gain since May 2009. There seems to also be some profit taking in China with the Shanghai Composite -0.1% lower overnight. The 10yr UST is about 2bps lower at 2.02% as we go to print.

Taking a look at Greece, it looks like EU officials will resume negations today. A reinforced Greek team is set to meet with its international creditors in Brussels today with some new proposals from the Greeks expected to be discussed. The aim is to reach a preliminary deal by 3 May to allow finance ministers to sign off an accord by the next scheduled meeting on 11 May (Bloomberg news).

Looking to the day ahead we have German March retail sales (expected to rise to +0.5% MoM), their unemployment rate (expected steady at 6.4%), French March PPI (expected +0.5%) and consumer spending (expected to fall to -0.5% MoM). We will also get Spanish April CPI (expected to fall to +0.7% MoM) and Q1 GDP (expected to rise to +0.8% QoQ). Continuing what is a busy day for European data we will have the Eurozone March unemployment rate (expected slightly down at 11.2%) and the April CPI estimate (expected to rise to 0% MoM). Finally we will also get Italian April CPI (expected down at +0.5% MoM). In the US we will see the Q1 Employment Cost Index (expected at +0.6%) as well as March personal income (+0.2%), personal spending (+0.5%) and core PCE (expected to rise to +0.2% MoM) as well as the April Milwaukee ISM (expected to fall to 53) and the Chicago Purchasing Manager number (expected to rose to 50).

Earnings season continues to roll on with heavy-hitters including Airbus, BNP, RBS and Shell reporting in Europe and Coca-Cola, Exxon, AIG and Visa in the US. A busy day to end another exciting month.

Comments

[firstdivision]

QE6 = Buying all iWatch inventory at mark to skittles prices.

[NoDebt]

I want my $20 oil and -20 bps 10 year Bund rate.  I was promised.

[yogibear]

Where's that sudden change of direction upwards when the market manipulators take control?

The CBs want to control everything, just like North Korea.

[Hype Alert]

Let's see, the Fed wants to normalize rates, or at least try to.   More and more articles are appearing about the oversupply of everything caused by QE/low rates.  Fight the Fed if you want, but they are putting the word out.

[B2u]

Apple needs to pay for my tattoo removals....

[Zirpedge]

Just wait for the apple headband coming next month. It's like watch but on your face. Just think of the efficiency of their biometric scanner monitoring your adrenaline dump upon hearing the good news.

[new game]

i used to "give a shit" about the markets. now i couldn't give a flying fuck about what the fuck they are doing...

better off going to a zoo and looking at caged animals.

[R19]

Ace of Spades to the large players trading spot FX and government bonds today. YOU ARE REALLY FUCKING THE MARKET ALL WAYS.

[vegas]

EUR "surge" was inevitable since record short interest in futures has fueled the rally. Dealers sell on the rally to retail specs who just figured out nothing goes down forever. So what else is new?

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