Futures Jittery As Attention Returns To Greece; China Stocks Rebound On Latest Central Bank Intervention

Tyler Durden's picture

With the big macro data out of the way, attention today and for the rest of the week will focus on the aftermath of the latest Chinese rate cut - its third in the past 6 months - which managed to boost the Shanghai Composite up by 3% overnight but not nearly enough to make up for losses in the past week; any resumption of the 6+ sigma volatility in the German Bund, which already has been jittery with the yield sliding to 0.52% only to spike to 0.62% shortly thereafter before retracing some of the losses; and finally Greece, which in a normal world would have concluded its negotiations during today's Eurogroup meeting and unlocked up to €7 billion in funds for the coming months. Instead, Greece may not only not make its €770 million IMF payment tomorrow but according to ever louder rumors, is contemplating a parallel currency on its way out of the Eurozone.

This is how DB's summarized the latest news out of Greece:

Greece will no doubt be front and centre at today’s Eurogroup meeting, however the likelihood of any material outcome looks fairly slim with more ‘progress’ likely to be a popular term used by officials in both camps. One topic which we await news on is the potential for increased haircuts on Greek collateral, which may or may not come to fruition depending on just how much ‘progress’ is made at today’s meeting. There was little in the way of new news over the weekend on the subject. Instead, German finance minister Schaeuble was quoted as warning that ‘experience in other parts of the world has shown that a country can suddenly slide into bankruptcy’ in German press FAS, while Eurogroup President Dijsselbloem reiterated that today’s meeting ‘won’t be decisive’. Perhaps of more interest, pressure appears to be growing internally from German Chancellor Merkel’s Christian Democratic Party to give up on Greece for the sake of the single currency with arguments suggesting that the Euro will be stronger should Greece leave (Bloomberg). As well as digesting European official commentary on just how much progress is being made post today’s meeting, one eye will also be on tomorrow’s €750m IMF repayment with Greek press Ekathimerini commenting that some Greek officials are in favour of not repaying should today’s meeting be deemed ‘not satisfactory’.

Back to Asia, where stocks rose in reaction to Friday’s NFP-miss and its implications on rate expectations, with the surprise PBoC rate cut further bolstering the Shanghai Comp (+3%) and Hang Seng (+0.5%). Nikkei 225 (+1.3%) rose with broad gains. However large tech names such as Sharp (-23%) and Toshiba (-16%) have witnessed its largest decline since 1974 and 2011 respectively, with Sharp reaching limit down amid reports that the Co. is mulling cutting capital by 99%, while Toshiba withdrew its FY 2015 forecast amid an ongoing accounting probe. JGB’s rose following Friday’s spill over buying in UST’s as yields fell with prospects that the Fed will keep rates lower for longer.

Focus turns to Greece with the market expecting today’s Eurogroup meeting to be downbeat after comments from Eurogroup President Dijsselbloem stating that the meeting will not see any accord reached on Greece. Greek banks have been pressured with the tomorrow’s pending EUR 750mln IMF debt repayment dragging the Athens Stock Exchange (-3.5%) lower while Greek bonds remain sideways and Bunds under selling pressure after a bout of technical selling. Meanwhile, source comments suggested that a senior Greek official called Treasury Secretary Jack Lew and said that Greece may not pay EUR 750mln back to the IMF, however Washington believes this is a bluff, according to sources. Furthermore, a senior Greek official stated that there do not have a ‘plan b’ and reiterated that the debt-stricken nation will reach its debt obligations. This uncertainty has caused European equities (Eurostoxx50 -0.9%) to reside in negative territory with the exception of the FTSE 100 (+0.3%), as basic materials are supported by the PBOC conducting further stimulus after cutting their 1 year lending rate and raising their deposit rate by 25bps to 5.1% and 2.25% respectively in an attempt to combat  lacklustre inflation and growth in the world’s second largest economy. Furthermore, BMW (-0.6%) and Daimler (-0.3%) are  seen lower after Chinese car sales are at its lowest level since Feb 2013 as Chinese consumers opt for domestic auto names.

The USD-index has gained ground on the major pairs across the board with the EUR exhibiting broad-based weakness amid uncertainty regarding Greek finances with source comments suggesting that Greece may not have enough funds after tomorrow’s IMF payment. GBP/USD has shrugged off the post-election euphoria and is seen lower with focus switching to today’s BoE rate decision which is not scheduled at its usual day of Thursday given the UK election disruption. NZD is the session’s laggard as participants continued to bring forward rate cut expectations, with OIS markets now pricing in an 46% chance of a 25bps rate cut at the June meeting. NZD/USD broke below 0.7400 and is on course for its largest decline since March 6th, with tech cross-related selling spurred by NZD/JPY breaking below its 200 DMA (0.8923) and AUD/NZD testing 1.0700 to the upside to trade at 2-month highs. Elsewhere, there are some large FX options today in AUD/USD at 0.7800 (3.8bln), NZD/USD at 0.7525-30 (1bln) and USD/JPY at 120.00 (2.3bln), 121.00 (1.7bln) due to roll of at the 1500BST NY cut.

WTI (-0.3%) and Brent crude (-0.3%) futures trade marginally lower alongside the stronger USD-index (+0.2%), where spot gold is also weighed upon in what has been an uninspiring session in the commodity complex due to a lack of fundamental news. Copper declined overnight as participants booked profits following the bull market rally seen last week, while Dalian iron ore futures rose by over 1% in tandem with Chinese steel prices after the PBoC surprise rate cut over the weekend.

In summary: European shares little changed with the autos and health care sectors underperforming and basic resources, retail outperforming. Euro-area finance ministers meet today to discuss aid to Greece. German 10-year bond yields resume rise. China cuts interest rates for 3rd time in six months. The French and German markets are the worst-performing larger bourses, the U.K. the best. The euro is weaker against the dollar. German 10yr bond yields rise; Japanese yields decline. Commodities little changed, with Brent crude, WTI crude underperforming and nickel outperforming.

Market Wrap

  • S&P 500 futures down 0.1% to 2105.8
  • Stoxx 600 down 0.1% to 399.8
  • US 10Yr yield up 2bps to 2.17%
  • German 10Yr yield up 3bps to 0.58%
  • MSCI Asia Pacific up 0.3% to 151.7
  • Gold spot down 0.1% to $1187.3/oz
  • 37.7% of Stoxx 600 members gain, 60.5% decline
  • Eurostoxx 50 -1%, FTSE 100 +0.2%, CAC 40 -1.5%, DAX -0.6%, IBEX -0.2%, FTSEMIB -0.6%, SMI -0.2%
  • Asian stocks rise with the Shanghai Composite outperforming and the ASX underperforming.
  • MSCI Asia Pacific up 0.3% to 151.7; Nikkei 225 up 1.2%, Hang Seng up 0.5%, Kospi up 0.6%, Shanghai Composite up 3%, ASX down 0.2%, Sensex up 1.5%
  • Bonderman’s TPG Purchases Cushman & Wakefield for $2 Billion
  • Euro down 0.35% to $1.116
  • Dollar Index up 0.3% to 95.08
  • Italian 10Yr yield up 6bps to 1.74%
  • Spanish 10Yr yield up 6bps to 1.72%
  • French 10Yr yield up 4bps to 0.87%
  • S&P GSCI Index up 0.1% to 444.6
  • Brent Futures down 0.3% to $65.2/bbl, WTI Futures down 0.3% to $59.2/bbl
  • LME 3m Copper up 0.1% to $6396/MT
  • LME 3m Nickel up 1% to $14450/MT
  • Wheat futures up 0.2% to 482.5 USd/bu

Bulletin Headlin Summary from RanSquawk And Bloomberg

  • The PBoC have once again cut rates, with a 25bps cut to the 1-year lending and deposit rates in an attempt to revive inflation and export/import growth
  • Downbeat expectations of today’s Greek Eurogroup meeting and ongoing uncertainty regarding Greek funds are weighing on European equities
  • In terms of today’s Eurogroup meeting, arrivals are scheduled for 1500BST/0900CDT, roundtable at 1530BST/0930CDT and no time given for the press conference but historically begins at 1900BST/1300CDT
  • Looking ahead today’s calendar is particularly light with the sole highlights being the BoE rate decision and Eurogroup meeting
  • Treasuries decline with bunds and gilts as euro-area finance ministers meet to discuss Greece; $64b quarterly refunding this week, starting with $24b 3Y notes tomorrow.
  • China’s central bank cut interest rates for the third time in six months as it ratchets up support for an economy grappling with a debt overhang and property slump; China’s stocks rallied the most in two weeks
  • PBOC dismissed idea of introducing QE, MNI reports
  • Greek PM Tsipras’s anti-austerity government heads for another confrontation with an increasingly testy German-led bloc of creditors as warnings of an accidental default loom over his debt-swamped nation
  • Troika doesn’t expect positive outcome from talks; its plans on Greece include one positive, three negative scenarios, Welt newspaper reports, citing an unidentified negotiator
  • Merkel is coming under growing pressure from within the ranks of her own party bloc to give up on Greece for the sake of the euro
  • Greece needs at least a symbolic show of progress today to persuade ECB to keep emergency funding flowing to nation’s banks; EU750m due to IMF tomorrow. Click here for Greece debt distribution
  • Greece’s ballooning debt load is casting doubt over the IMF’s  role in future bailouts; IMF typically needs debt to be sustainable and, with the economy faltering, Greece is heading in the wrong direction
  • Saudi Arabia said its new king won’t attend this week’s long-planned summit for Persian Gulf countries at the U.S. presidential retreat; comes as Obama tries to restore flagging confidence of Gulf Arab leaders in U.S. leadership
  • Sovereign bond yields rise.  Asian stocks higher, European stocks, U.S. equity-index futures lower. Crude oil, gold lower, copper higher

US Event Calendar 

  • 10:00am: Labor Market Conditions Index Change, April (prior -0.3)

DB's Jim Reid concludes the overnight recap

The great thing about the UK opinion poll companies is that they are now making us strategist and economists look very good at our jobs. As a final word on the UK election, on Thursday I discussed how the polls argued that it would be the first election since 1918 that neither of the main two parties would receive 35% of the vote. Well the Conservatives polled 36.9% shocking the pollsters. However behind the scenes it was a still an election of extremes. In Scotland the Labour party has had a minimum of 40 seats for the last 51 years. On Friday morning they were left with 1 and the Scottish Nationalist Party with 56 out of 59. UKIP ended up with 3.88 million votes (12.6%) and came second in 120 seats. Interestingly the SNP achieved 55 more seats than UKIP with 2.43 million less votes. In the end perhaps the winning Conservatives weren't loved but the alternative of a Labour Party keen to move pretty left wing (e.g. price/rent controls, a suspicion of big business and notably higher taxes for the wealthy) wasn't appealing to voters in an economy with quite a low unemployment rate, a growing economy but with a fragility caused by high debts. The point on the economy is key as this still remains the best way for politicians to get elected. Europe, with its still structurally high unemployment rate and limited domestic policy tools is certainly not out of the woods in terms of more non-mainstream political shocks over the years ahead. The cyclical recovery of 2015 will probably save Spain from such an outcome at the end of the year but the wider threat hasn't gone away.

Before the election, the 'Brexit' EU referendum risk was a key question from clients. The UK will now hold one by 2017 which could eventually create much more nerves than the Scottish independence referendum last year. It’s worth pointing out though that an opinion poll (Survation for the Mail on Sunday) over the weekend suggested that 45% want to remain and 38% want to leave (with the remaining 18% unsure). However at the peak of the Euro crisis in 2012 the polls consistently suggested 50% wanted to leave the EU and only around 30% to stay (YouGov). It’s only the recovery in the UK economy and the gradual return to stability in Europe that has turned the tide. So a lot can happen by 2017 but it shows again that the economy on both sides of the channel at the time will likely decide the vote. So if you want to know the outcome ask an economist to predict the economy in 2017 and as we know they are now far above pollsters in the forecasting pecking order!!

Onto markets now and firstly to China where over the weekend the People’s Bank of China has cut the benchmark deposit and lending rates by 25bps and also lifted the ceiling of deposit rates to 1.5x of the benchmark rate (from 1.3x previously) – which in turn is another significant step forward in interest rate liberalization. The moves come on the back of slightly softer than expected inflation data out on Saturday (+1.5% yoy vs. +1.6% expected) and continued downward pressure on the PPI (-4.6% yoy vs. -4.5% expected). Our China Economist Zhiwei Zhang believes that there is now a stronger sense of urgency in policy circles and has revised his interest rate call for two more cuts in 2015 (one in June and another in Q3) as well as one more RRR cut in Q3. Zhiwei also highlights that he does not expect China to replicate exactly the QE policies in developed countries, but that the PBOC will highly likely get involved in financing the fiscal gap in order to stop issuance driving up market interest rates and slowing growth. On the growth side, Zhiwei maintains his view that growth may slow to 6.8% in Q2 and rebound to 7.0% in Q3 and 7.2% in Q4, before then decelerating to 6.7% in 2016.

In terms of the early reaction in the Asia timezone, the Shanghai Comp and CSI 300 are +1.18% and +1.09% respectively on the back of the news while China 5y CDS is around 2bps tighter. The stronger US session on Friday along with the PBOC moves appear to be fueling a better sentiment generally across most markets in Asia this morning. The Nikkei (+1.17%), Hang Seng (+0.50%) and Kospi (+0.77%) are all up as we go to print and Asia credit markets are around 2bps tighter.

Greece will no doubt be front and centre at today’s Eurogroup meeting, however the likelihood of any material outcome looks fairly slim with more ‘progress’ likely to be a popular term used by officials in both camps. One topic which we await news on is the potential for increased haircuts on Greek collateral, which may or may not come to fruition depending on just how much ‘progress’ is made at today’s meeting. There was little in the way of new news over the weekend on the subject. Instead, German finance minister Schaeuble was quoted as warning that ‘experience in other parts of the world has shown that a country can suddenly slide into bankruptcy’ in German press FAS, while Eurogroup President Dijsselbloem reiterated that today’s meeting ‘won’t be decisive’. Perhaps of more interest, pressure appears to be growing internally from German Chancellor Merkel’s Christian Democratic Party to give up on Greece for the sake of the single currency with arguments suggesting that the Euro will be stronger should Greece leave (Bloomberg). As well as digesting European official commentary on just how much progress is being made post today’s meeting, one eye will also be on tomorrow’s €750m IMF repayment with Greek press Ekathimerini commenting that some Greek officials are in favour of not repaying should today’s meeting be deemed ‘not satisfactory’.

After another hugely volatile week for global bond markets last week in which we saw 10y Bunds hit a 5-month high in yield at 0.775% intraday on Wednesday having started the week at 0.373%, yields actually closed lower for the first time since April 24th as 10y Bunds closed -4.3bps tighter at 0.547%. Other core European bond markets were firmer as 10y yields in Netherlands, Sweden, Switzerland and France closed -4.5bps, -4.2bps, -8.0bps and -5.9bps respectively. Peripherals were also some 8-12bps tighter at the close. There were similar moves in Treasuries meanwhile as the benchmark 10y closed 3.2bps tighter at 2.148% as Friday’s payrolls largely dictated price action.

With equity markets also having a better day as the S&P 500 (+1.35%), Dow (+1.49%), Stoxx 600 (+2.87%) and DAX (+2.65%) all climbed and credit markets firmed (CDX IG +3bps), it’s probably fair to say that the +223k reading (vs. +228k expected) offered a little something for both the hawks and the doves with the better tone generally across most markets. The improved April number also came on the back of a downward revision to the already low March print (revised down 39k to +85k) which made it the lowest reading since June 2012. The hawks will no doubt point to the April reading being suggestive of a more supportive growth profile for Q2 and therefore keeping the September timeframe firmly in play, however the lack of improvement in wage growth, as evidenced by the lower than expected growth in average hourly earnings (+0.1% mom vs. +0.2% expected) will mean the doves will continue to point towards the 2016 timeframe. In terms of the reaction in Fed Funds contracts, the Dec15 contract closed 3bps tighter at 0.320% while the Dec16 (-8.5bps) and Dec17 (-9.5bps) contracts fell to 1.080% and 1.705% respectively.

Elsewhere, the unemployment rate dropped as expected by one-tenth of a per cent to 5.4%, while later in the day wholesale inventories (+0.1% mom vs. +0.3% expected) and trade sales (-0.2% mom vs. +0.5% expected) both disappointed. Our US colleagues noted in fact that the weaker wholesale inventories report could lead to Q1 real GDP being revised down to -0.8% compared to their prior estimate of -0.5% on the back of the weaker trade data.

It was fairly light data-wise in Europe on Friday. The notable releases came out of Germany where industrial production (-0.5% mom vs. +0.4% expected) came in well below expectations and the German trade balance surplus (€23bn vs. €20bn expected) printed higher than expected in March following a better than expected exports reading (+1.2% mom vs. +0.4% expected) in particular. Back to the industrial production print, following the weak number our European colleagues have now lowered their Q1 GDP forecast to +0.6% qoq after a previous call of +0.8%, although still a tad ahead of the current market consensus (+0.5% qoq) with the reading due on Wednesday. The view reflects the fact that construction did not benefit as much from the mild winter and pull-forward effects as expected. However, on the flip side, this means that Q2 growth will not be affected by a strong counter movement to Q1 construction and they now see Q2 growth at +0.4% qoq instead of +0.2% about in line with PMI and IFO data.

Running through this week’s calendar now, it’s a quiet start data wise in Europe this morning with no releases expected, but today’s Eurogroup meeting will be key in determining where Greece and its creditors negotiations currently stand. Over in the US this afternoon, it’s the usual post payrolls lull with just the labor market conditions data expected. We kick off in Japan tomorrow with leading and coincident index prints, before we move onto the European timezone where we see French business sentiment and UK industrial and manufacturing production. Focus in the US on Tuesday will be on the JOLTS report as well as the monthly budget statement. The NFIB small business optimism survey is also due. It’s a busy start in Asia on Wednesday as we get trade data out of Japan as well as retail sales, industrial production and fixed assets investment readings in China. It’s no less busy in Europe where we see Euro area Q1 GDP (advanced reading) and industrial production as well as German Q1 (provisional) GDP and the final April CPI print. Over in France, we also get CPI data along with employment indicators. In the UK we get the BoE inflation report as well as the usual monthly employment data dump including unemployment and average weekly earnings. In the US on Wednesday, April retail sales will be the main highlight while the import price index is also due. Its quiet data wise on Thursday with no notable releases in Asia or Europe while in the US PPI and jobless claims prints are expected. It’s a similarly quiet end to the week on Friday with just Japan PPI and consumer confidence due in the early session, followed by US industrial and manufacturing production, capacity utilization and the University of Michigan consumer sentiment print. Fedspeak wise we’ve got Williams expected to talk on Tuesday while earnings seasons creeps to an end with 15 S&P 500 companies due to report and 56 Stoxx 600 companies expected

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Firewood's picture
Firewood (not verified) May 11, 2015 5:56 AM

This farce has gone on long enough. Greece should finally jump the €urodollah Titanic before the entire derivative Ponzi sewer explodes.

wmbz's picture

Yep, they should and should have a long time ago, but they won't. This lousy dog and pony show has a long way to play out. Certainly buy now most of the player are getting bored.

Banksters Inc. still has a little more shaking down to do yet!

VinceFostersGhost's picture

 

 

Banksters Inc. still has a little more shaking down to do yet!

 

Yeah, just a little.

 

Greece wants to start charging people for cash withdrawals to prevent a run on banks

http://www.independent.co.uk/news/business/news/greece-wants-to-start-charging-people-for-cash-withdrawals-to-prevent-a-run-on-banks-10229686.html

Wolferl's picture

Throw those pathetic Greeks out of Europe already.

lester1's picture

Buy physical gold while you can at these artificially low prices. Another good long term play is Comstock Mining (LODE). They are based in Nevada and are sitting on 92 tonnes of gold resources on just 10% of their explored land holdings.

Huge potential!

Monetas's picture
Monetas (not verified) May 11, 2015 6:29 AM

Monday humour:  PONZI .... Portugal, Oman, Netherlands, Zimbabwe, Indonesia

Baby Eating Dingo22's picture

jittery my'ass

onward and upward

it's a new week and we got records to break

thismarketisrigged's picture

of course ''investors'' after a bullshit pump on friday are not selling, yet if there had been the same ''market'' move in a downward way on friday. these ''investors'' wouldnt be able to stop buying.

 

basically, buy buy buy stawks no matter what because everything is fucking awesome out there.