Futures Flat With Greece In The Spotlight; China Boomerangs Higher

Remember China's 6% crash last week? It is now a distant memory made even more remote thanks to the latest batch of ugly data out of China, coupled with hints of even more liquidity injections, which led to the latest surge in the Shcomp, an index that has put most pennystocks to shame.

Indeed, while the Hang Seng was up a modest +0.6% overnight, the Shanghai Comp soared higher +4.7% amid further easing expectations, underlined by a disappointing HSBC Mfg PMI print (49.2 vs. Prev. 49.1), which marked the third consecutive contraction as reported earlier. Prices were also supported by reports that China are said to consider doubling its CNY 1 trillion local debt swap program, with the program allowing regional authorities to convert high yielding debts into municipal bonds and effectively lowers financing costs. JGBs softened after shrugging Friday’s gains across German Bunds and USTs as investors were reluctant to chase prices higher ahead of tomorrow’s JPY 2.4trl 10yr auction.

In Europe, the big story remains Greece, and as everyone expected, the doomed country and its creditors failed to make a deal on Sunday. This is after Greek Officials were said to have prepared a draft agreement, which was expected to be announced on Sunday. Not helping things, Greek PM Tsipras came out in fully defiant mode and accused bailout monitors of making “absurd” demands and seeking to impose “harsh punishment” on Athens.

Separately according to Greek Economy Minister Stathakis, Greece
envisages that they will repay the first tranche of their loans from the IMF on the 5th June, although it was unclear with what money. Finally, Germany’s EU Commissioner Oettinger still believes a deal can be struck this week.

There was also a bunch of final European manufacturing PMI data which came in marginally weaker than the Flash driven by yet another round of Germany weakness which is starting to become a concern: if Germany can't rebound with a EUR at these levels, where does the European currency have to be: parity? 0.9? 0.8?

The aggregate Euro Area mfg PMI print was 52.2, 0.1% below the previous estimate if 0.2% better than the April number.

From April to May, the German manufacturing PMI fell by 1.1pt to 51.1. In the two first months of Q2, the German manufacturing PMI lost 1.7pt, unwinding the 0.8 gain seen in Q1.The French equivalent expanded by 0.1pt, but still remains at a weak level (49.4). On the other hand, Italian and Spanish momentum remains strong. The Italian manufacturing PMI rose robustly in May (+1.0pt to 54.8). Today's outturn constitutes another marked sequential improvement for the Italian manufacturing PMI, which has risen by 6.4pt since November. The Spanish manufacturing PMI rose very robustly (+1.6pt to 55.8) and remains the only 'big-4' Euro area country with a manufacturing PMI that has consistently been in excess of the 50 threshold in 2014.

Then again, with both Italian and Spanish economic data just as fabricated as America's soon to be double seasonally adjusted numbers, it is perhaps no wonder why both the EUR and Spanish and Italian bond prices promptly dropped following the report.

The weakness has also spilled into stocks and despite initially opening higher, European equities have continued to drift lower throughout the session as participants remain cautious over Greece. As mentioned above, Greece failed to strike a deal yesterday and Tsipras highlighted the differences between the two camps by referring to proposals as ‘absurd. Nonetheless, Greece are still sticking to their pledge that they will repay the IMF on Friday and can make a deal work.

From a fixed income perspective, Bunds initially traded relatively unchanged as last week’s month-end demand dissipated, with upside capped by the bid tone in equities. However, heading into the US open, Bunds ebbed higher with the move part attributed to a touted liquidation trade out of Italian bonds and into Bunds, at the same time. Gilts are the notable underperformer in the wake of comments from the CBI over the weekend suggesting UK economic growth has risen to its fastest pace for a year, boosting hopes that a slowdown in the first quarter of 2015.

EUR weakness has been observed across the board amid the situation for Greece, which in turn has supported the USD index in what has otherwise been a relatively quiet session for FX markets thus far. Furthermore, FX markets have also been relatively unfazed by the slew of Eurozone manufacturing PMIs this morning which overall painted a promising picture for the periphery. For the UK release, GBP saw a modest bout of selling pressure after the miss on expectations (52.0 vs. Exp. 52.5).

In the energy complex, price action has largely been dictated by the USD-index with overnight gains for WTI and Brent trimmed by broad-based USD strength, while participants also await Friday’s OPEC meeting with the cartel expected to keep production unchanged. In the commodity complex, it is a relatively similar story with spot gold and silver modestly lower, while Copper prices traded marginally higher overnight amid expectations of possible measures from China.

In Summary: European shares rise after largest selloff of month on May 29 while Asian equities little changed. U.S. equity index futures rise with dollar while oil, gold decline. Bund yields little changed as Greek bailout talks continue. U.S. Markit U.S. manufacturing PMI, ISM manufacturing, construction spending, personal income, personal spending due later.

Bulletin Headlin Summary from Bloomberg and RanSquawk

• European equities have pared opening gains as participants continue to remain cautious over the Greek situation
  with EUR also subsequently weaker
• Bunds have been provided a bid tone in recent trade with the move also partially attributed to a touted liquidation
  trade out of Italian bonds and into Bunds
• Looking ahead, today sees the release of US Construction Spending, ISM Manufacturing and Personal Income and potential comments from Fed’s Fischer and Rosengren
• Treasuries little changed before personal income/spending and ISM manufacturing reports and as Greece and its creditors traded accusations over lack of progress on talks.
• While PM Tsipras wrote in a French newspaper that any intransigence wasn’t the fault of his administration, a senior German lawmaker said it was down to Greece to adhere to reforms agreed to before Tsipras took power
• Greece must make four payments totaling almost EU1.6b to IMF this month; bailout package backed by the euro region expires at the end of June
• China’s official manufacturing PMI was at 50.2 in May vs 50.3 median estimate of economists surveyed by Bloomberg News
• China’s Ministry of Finance may set additional quota of 500b-1t yuan for local governments to swap debt into municipal bonds, according to people familiar with the matter; plan needs State Council approval
• Manufacturing in Spain and Italy grew more than economists forecast last month as the weaker euro helped to boost export competitiveness
• Three U.S. spy programs expired early Monday amid procedural obstacles raised by Senator Rand Paul over legislation to renew them
• Sovereign 10Y bond yields mixed. Asian stocks gain; European stocks lower, U.S. equity-index futures rise. Crude oil and lower, copper little changed

US Event Calendar

• 8:30am: Personal Income, April, est. 0.3% (prior 0%)
  • Personal Spending, April, est. 0.2% (prior 0.4%)
  • Inflation Adjusted Personal Spending, April (prior 0.3%)
  • PCE Deflator m/m, April, est. 0.1% (prior 0.2%)
  • PCE Deflator y/y, April, est. 0.2% (prior 0.3%)
  • PCE Core m/m, April, est. 0.2% (prior 0.1%)
  • PCE Core y/y, April, est. 1.4% (prior 1.3%)
• 9:45am: Markit US Manufacturing PMI, May final, est. 53.8 (prior 53.8)
• 10:00am: Construction Spending m/m, April, est. 0.7% (prior -0.6%)
• 10:00am: ISM Manufacturing, May, est. 52 (prior 51.5)
• ISM Prices Paid, May, est. 43 (prior 40.5)

Central Banks

• 9:05am: Fed’s Rosengren speaks in Hartford, Conn.
• 9:30am: Fed’s Fischer speaks in Toronto

Market Wrap

• S&P 500 futures up 0.2% to 2109.2
• Stoxx 600 up 0.4% to 401.3
• US 10Yr yield up 1bps to 2.13%
• German 10Yr yield little changed at 0.49%
• MSCI Asia Pacific little changed at 151.4
• Gold spot down 0.2% to $1187.7/oz
• Eurostoxx 50 +0.1%, FTSE 100 -0%, CAC 40 +0.3%, DAX -0%, IBEX +0.3%, FTSEMIB +0.3%, SMI +0.7%
• Asian stocks little changed with Chinese bourses outperforming and Taiex, FTSE Straights Times Index underperforming.
• MSCI Asia Pacific little changed at 151.4
• Nikkei 225 little changed, Hang Seng up 0.6%, Kospi down 0.6%, Shanghai Composite up 4.7%, ASX down 0.7%, Sensex  up 0.2%
• Euro down 0.6% to $1.092
• Dollar Index up 0.54% to 97.43
• Italian 10Yr yield up 8bps to 1.93%
• Spanish 10Yr yield up 6bps to 1.9%
• French 10Yr yield up 2bps to 0.81%
• S&P GSCI Index down 0.4% to 437.2
• Brent Futures down 0.8% to $65/bbl, WTI Futures down 1% to $59.7/bbl
• LME 3m Copper up 0.2% to $6024.5/MT
• LME 3m Nickel down 0.6% to $12540/MT
• Wheat futures up 0.3% to 478.3 USd/bu

DB's Jim Reid summarizes the weekend events and previews the busy week

There's an awful lot going on this week with Friday seeing the latest US payroll number and in theory seeing the long awaited Greek loan repayment deadline with the IMF. However with news late last week that the IMF could bundle Greece's June repayments to the end of the month, this week's pivotal moment could be pushed back towards the end of the month assuming a deal is not reached earlier. So the real sting has possibly been removed from the next 5 days. However payrolls will be hotly anticipated as will all the Global PMI/ISM numbers out over the next 24 hours or so. A full week ahead is at the end before the performance review.

We start today with the latest PMIs out of Asia where on the whole the numbers paint a fairly mixed picture. In China the official manufacturing PMI rose 0.1pts to 50.2 (vs. 50.3 expected) to make a six-month high while the equivalent HSCB reading rose 0.1pts to 49.2 as expected, although remained below 50 for the third consecutive month. The official non-manufacturing PMI continues to disappoint, sliding 0.2pts to 53.2 and to the lowest level since December 2008. Over in Japan, there were no changes versus the initial flash estimate of the May manufacturing PMI of 50.9.

As well as the data perhaps signally more economic stimulus ahead for China, headlines on Bloomberg suggesting that Chinese policy makers are considering to double the size of local-bond swap program this morning have given markets a lift. The article suggests that in the second stage of the programme, up to 1tn yuan of local-government loans would be authorized to be swapped into bonds at the hands of cities and provinces. The Shanghai Comp (+2.77%), CSI 300 (+2.91%) and Shenzhen (+3.54%) have all taken a steep leg higher once again this morning. Bourses elsewhere are generally weaker however with the Nikkei (-0.39%), Kospi (-0.75%) and ASX (-1.02%) in particular trading lower.

So back to Greece. Weekend talks between the Greek government and its Creditors ended without agreement with the key sticking points around fiscal targets and pension and labour reforms still outstanding. Despite PM Tsipras saying that talks were ‘constructive’ between himself and Germany’s Merkel and France’s Hollande, as well as comments from the EU’s Oettinger that he sees a chance of Greek solution in the coming days, there was a familiar defiant stance from Tsipras and one which showed signs of strain in an op-ed published by French newspaper Le Monde on the weekend. In it, Tsipras said that ‘the lack of an agreement so far is not due to the supposed intransigent, uncompromising and incomprehensible Greek stance’, but rather ‘it is due to the insistence of certain institutional actors on submitting absurd proposals and displaying a total indifference to the recent democratic choice of the Greek people’. Meanwhile, a senior Eurozone official was quoted in the Guardian as saying that ‘it is a lie that there is any optimism, there is no optimism’ and that ‘what the so-called optimism is about is stopping the panic-stricken Greeks withdrawing deposits from banks’.

All outcome paths still remain open in what’s still a critical week, although the potential for bundling payments (which the IMF confirmed Greece have yet to enquire about) could well mean this drags on slightly further as mentioned. In the meantime, expect headlines to only intensify as we move towards Friday.

Recapping markets on Friday, a softer than expected Chicago PMI (46.2 vs. 53.0 expected) in the US saw equity markets decline and Treasury yields fall modestly. Indeed, supported by weakness for industrial and financial names, the S&P 500 (-0.63%) and Dow (-0.64%) both declined on Friday to cap a relatively weak week for equities. Treasury yields were a touch lower at the close, with the benchmark 10y yield falling 1.4bps to 2.121% and back to more or less where it was at the start of the month. The Dollar was fairly unmoved for the most part with the DXY ending 0.06% lower. It was a different story in commodity markets however as both WTI (+4.54%) and Brent (+4.76%) wiped out a decent chunk of the losses this month to close at $60.30/bbl and $65.56/bbl respectively and recording the highest one day gains since 15th April, seemingly buoyed by the latest oil rig count data.

Back to the data, as well as missing expectations, the Chicago PMI also fell 6.1pts from April’s print and in turn taking it back below 50. Despite printing sub-50 in both February (45.8) and March (46.3), the weak readings then were largely blamed on cold weather and the ports strike, particularly following the rebound in April. However, the stronger Dollar appears to be weighing down on production and Friday’s data will likely put more pressure on today’s ISM manufacturing reading. Away from the Chicago PMI, there was also some weakness in the ISM Milwaukee (47.7 vs. 50.0) while the final May University of Michigan consumer sentiment print was revised up to 90.7 from 88.6 previously, the lowest monthly reading this year however. The other notable data point from Friday was the second revision to Q2 GDP, with the downgrade to -0.7% qoq (from the initial +0.2%) less than consensus forecasts of -0.9% while the core PCE was revised down one-tenth of a percent to +0.8% qoq.

It was a similar picture in Europe on Friday as US data and Greece headlines largely dictated market direction. The Stoxx 600 (-1.71%), DAX (-2.26%) and CAC (-2.53%) all fell while Greek equities ended 1.44% lower. Aside from a 3bps move higher in yield for 10y Portugal bonds, yields fell across most of Europe on Friday. Indeed, 10y Bunds ended 4.2bps lower at 0.485% while both Italy (-1.7bps) and Spain (-0.2bps) also tightened modestly. Greek 10y yields meanwhile closed 12.5bps wider at 10.86%. In terms of Friday’s data in Europe, French consumer spending (+0.1% mom vs. +0.4%) was weak in the month of April, while in Germany, retail sales (+1.7% mom vs. +1.0% expected) were strong, making up for declines in February and March. Due to a base effect, the yoy rate was limited at +1.0% but our colleagues in Germany noted that sales were still up by 2.8% yoy on average over the last three months.

Onto this week’s calendar now and there’s plenty for us to look forward to. It starts this morning in Europe where we get the final May manufacturing PMI readings for the Euro area and also regionally, before we then see the preliminary May CPI report out of Germany. In the US this afternoon, the PCE core and deflator readings will be closely watched while we also get personal income and spending data. Later this afternoon, we also get the final May manufacturing PMI along with construction spending and also ISM manufacturing and prices paid. Tuesday starts in Japan where we are due to get cash earnings and monetary base data. In the European session we’ll get German unemployment along with the all important advanced May Euro Area CPI print. Euro area PPI is also due along with UK mortgage approvals. In the US on Tuesday we’ve got the ISM NY to look forward to along with factory orders, the IBD/TIPP economic optimism survey and finally vehicle sales data. In Asia on Wednesday we’ve got the May services and composite PMI prints to start things off for Japan and China. We’ll then get these also for the Euro area before the ECB meeting around midday. US data is highlighted by the April trade balance which will be important in the context of Q2 GDP, while we also get an early payrolls indicator with the May ADP employment change print. Also in the US on Wednesday, we’ll get the final composite and services PMI’s along with the May ISM non-manufacturing reading and also the Fed’s Beige Book. There’s more Central Bank action on Thursday with the BoE due to meet, while the only notable data release in the morning will be French unemployment. Nonfarm productivity, unit labour costs and initial jobless claims are the highlights in the US on Thursday. In Asia on Friday we’ve got the Conference Board leading indicator for Japan due up. In Europe the preliminary Q1 GDP report for the Euro area will be closely watched. This all comes before the all important US payrolls print on Friday afternoon with current consensus running at 225k (+2k on April). We’ll also get the usual associated employment indicators including average hourly earnings and unemployment prints. Fedspeak wise we’ve got Rosengren, Evans, Tarullo and Dudley all due to speak while on the ECB side Liikanen, Mersch and Knot are expected. Of course, Greece headlines will continue with the June 5th IMF payment due on Friday.

Comments

[RougeUnderwriter]

Market Up, Market Down! Extend / pretend/ life goes on!

QE 1-2-3-4-5-6-7-8-, Crash, reset, new players, crash again. Re-Inflate the bubble - enter next generation.

Pension defaults, bonds default civil unrest - war comes, all shit breaks loose, gov't breaks down, destruction - start all over - life goes on.

It's like a bad Seinfeld episode

[Headbanger]

Yeah, but what can we expect from a bunch of self anointing but no clue bunch of fucking apes like ourselves?

I apologize to the apes cause they seem to have a much better clue of what it's all about than we ever will.

Anybody see that massive comet on the way to hit us yet?

[negative rates]

Yup, and it's made of cocaine.

[stant]

Ie sovereign debt comet

[Ghordius]

"There was also a bunch of final European manufacturing PMI data which came in marginally weaker than the Flash driven by yet another round of Germany weakness which is starting to become a concern: if Germany can't rebound with a EUR at these levels, where does the European currency have to be: parity? 0.9? 0.8?"

aren't you reading too much into PMI data? what "rebound" is... necessary?

[Oldwood]

The "trend" is not our friend.

A world recession masked by the drug of economic manipulation is slowly becoming a world depression, which will likely eventually turn to real violence and ultimately self destruction.

A recession is an economic condition whereas depression is psychological. Ultimately our economic health reflects our mental health.

[Ghordius]

perhaps, but Tylers are making the point of "Germany has to do moar", the way I read it, and linking it to the EURUSD

meanwhile, both the eurozone and China are "exporting" capital, to the tune of 358 billion the eurozone and 221 billion China

compare this with the "import" of capital of the US, -358 billion and the UK, -110 billion

that's a lot of empty containers returning to China and the continent of Europe, and a lot of EUR that is being converted to USD (and GBP) or "recycled" from Chinese USD hoards

and lent or invested in the US and UK. this despite the increase of "reverse yankee" bonds of US corps funding themselves in EUR

those are trends that aren't included in neither Tyler's nor your view

[firstdivision]

The beauty of the "markets" is how the US has been nothing but range bound since the QE spigot was turned off for the time being.  So equities cannot surge higher, and the Fed will not allow them to fall (as their fundamentals pull them).  So expect us to be stuck here until the Sep rate hike, which will crash the markets, then te Fed will announce emergency QE in October. 

[IndyPat]

OXI!

Everywhere is Chinese People....

https://m.youtube.com/watch?v=Mf5mjP_Kzcw