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Futures Slump, Bund Selling Resumes With All Eyes On The Jobs Number
After yesterday's unprecedented volatility fireworks across all markets and continents, today so far has been a modest disappointment, with no crashes and subsequent surges in China, where the Politburo's only achievement was keeping the bubble dream alive by pushing the Shanghai Composite over 5,000 for the first time since January 2008, closing the index 1.5% higher on the day - a very modest gain by China's recent blow-off top standards. Europe, too, has been relatively tame with the 10 Year Bund starting off on the wrong foot, the yield rising back above 0.91% before once again dipping to the upper 0.8% range, tracking the move in the EURUSD tick for tick, which also is a tractor beam for the US 10 Year.
On the equity, front, things are just as muted, with futures at the Low of Day as of this moment, despite yesterday's last minute manic buying spree, the S&P set to open below 2100 as a result. Oil is likewise weaker with an OPEC announcement imminent, one which will be neutral at best and quite bearish at worst as fundamentals are once again gaining the upper hand over margin, leverage and positioning.
In any event, all of the above will promptly change at 8:30:00:00001 today when the NFP payroll is announced (or leaked a few milliseconds earlier): a very strong number and it will be risk off across the board driven by EUR strength; a sub-200K print and the shorts will be trampled yet again.
A closer look at equity markets, reveals the Shanghai Comp (+1.5%) surged to its highest level since Jan’08 in what was once again a volatile session for the index. The Hang Seng (-1.1%) fell with the 50 DMA capping further downside. Nikkei 225 (-0.1%) traded in the red after breaking below yesterday’s low. JGBs rose lifted by short-covering following yesterday’s global bond market rebound, which saw the 10yr yield retreat back below 0.5%.
In Europe, Bunds initially continued their recent their decline with the 10y yield failing to consolidate above 0.9% with prices finding support at the 150.00 handle. Meanwhile, developments from Greece have suppressed European fixed income products as Greek Interior Minister Stathakis stated that the debt-stricken nation are to bundle their June IMF payments to the end of the month, which will in turn provide Greece with more time to reach an agreement with its creditors.
Furthermore, Greek 2y and 4y bonds are substantially pressured and their yields have surged 207bps and 176bps respectively. Separately, in a rather tentative session ahead of risk events in today’s data slate, European equities (-0.9%) have followed on from the negative closes in Asia and Wall Street. In terms of stock specific news, Vodafone were under renewed merger speculation involving Liberty Global and initially opened higher, however later fell into negative territory after a Vodafone (- 2.0%) representative later clarified that they are in early discussions with Liberty Global over a potential asset swap deal and not a merger.
In FX markets, EUR/USD has held onto gains from the open with support stemming from updates on the Greek negotiations and higher European rates. USD/JPY has shown mild gains in the wake of comments from the GPIF head who said he does not see the immediate need to amend their investment strategies in the wake of the risk of a stronger JPY due to diverging
monetary policy of the BoJ and Fed. Furthermore, analysts at Standard Chartered suggested that the pair may surge above 127 if today’s US NFP data beats expectations and sees the pair trading between the range of 122-127 this month. Elsewhere, GBP underperforms other major currencies and GBP/USD near lowest levels driven by cross-related selling and positive German data supporting EUR vs. GBP.
Despite the softer USD, WTI and Brent crude futures are mildly lower ahead of the OPEC meeting with several oil ministers from the cartel signalling that oil production will be kept unchanged. Precious metals have remained relatively range-bound ahead today’s key risk events, with Spot Gold drifting marginally lower in the session.
In Summary: European shares fall with the financial services and personal & household sectors underperforming and basic resources, utilities outperforming. Greece defers IMF payment. Bundesbank raises German economic growth outlook on consumption, German April manufacturing orders above estimates. Shanghai Composite rose above 5,000 for first time since 2008. The Swedish and Swiss markets are the worst-performing larger bourses, the Italian the best. The euro is stronger against the dollar. German 10yr bond yields rise; French yields increase. Commodities decline, with WTI crude, Brent crude underperforming and natural gas outperforming. U.S. consumer credit, nonfarm payrolls, unemployment, average earnings, labor force participation, due later.
Market Wrap
- S&P 500 futures down 0.2% to 2094
- Stoxx 600 down 0.8% to 389.6
- US 10Yr yield up 4bps to 2.34%
- German 10Yr yield up 6bps to 0.9%
- MSCI Asia Pacific down 0.5% to 148.5
- Gold spot little changed at $1176.7/oz
- Eurostoxx 50 -0.8%, FTSE 100 -0.5%, CAC 40 -0.8%, DAX -0.8%, IBEX -0.6%, FTSEMIB -0.5%, SMI -1%
- Asian stocks fall with the Shanghai Composite outperforming and the Hang Seng underperforming. MSCI Asia Pacific down 0.5% to 148.5
- Nikkei 225 down 0.1%, Hang Seng down 1.1%, Kospi down 0.2%, Shanghai Composite up 1.5%, ASX down 0.1%, Sensex up 0.4%
- Euro up 0.33% to $1.1275
- Dollar Index down 0.07% to 95.4
- Italian 10Yr yield up 8bps to 2.22%
- Spanish 10Yr yield up 6bps to 2.17%
- French 10Yr yield up 8bps to 1.22%
- S&P GSCI Index down 0.4% to 427.2
- Brent Futures down 0.7% to $61.6/bbl, WTI Futures down 0.9% to $57.5/bbl
- LME 3m Copper up 0% to $5917.5/MT
- LME 3m Nickel down 0.3% to $12915/MT
- Wheat futures down 0.6% to 520.5 USd/bu
Bulletin headline summary
- Despite selling off in the early stages of European trade, Bunds have found support at the 150.00 level
- EUR continues to be underpinned by higher European rates with the stronger EUR weighing on export names
- Looking ahead, today sees the release of the US and Canadian jobs reports and the OPEC meeting in Vienna
- Treasuries decline, 10Y yields +22.1bps on week amid EGB rout before report forecast to show U.S. economy added 226k jobs in May while the unemployment rate held at 5.4%.
- Tsipras raised the stakes in Greece’s showdown with creditors, rejecting demands for more austerity to receive bailout funds and opting for an unconventional deferral of IMF payments
- Tsipras should call a referendum to decide whether Greece should stay in the euro area, Christopher Pissarides, economics professor at LSE and Nobel Prize winner, said yday in Bloomberg interview
- OPEC members signaled that there was little prospect of changing their oil-output target as the 12-nation group gathered in Vienna
- Bundesbank raised forecasts for German economic growth, now sees GDP expanding 1.7% in 2015 and 1.8% in 2016 vs December predictions of 1% and 1.6%, respectively
- German Finance Minister Wolfgang Schaeuble wasn’t informed about a confidential meeting between Merkel, Lagarde and Draghi on June 1, Bild-Zeitung says
- An EPA study that found fracking had no widespread impact on drinking water, undercutting demands by environmentalists for more regulation
- The disclosure by U.S. officials that Chinese hackers stole records of as many as 4m government workers is now being linked to the thefts of personal information from health-care companies
- Sovereign 10Y bond yields surge. Asian stocks decline, European stocks fall, U.S. equity-index futures lower. Crude oil lower, copper and gold little changed
US Event Calendar
- 8:30am: Change in Nonfarm Payrolls, May, est. 226k (prior 223k)
- Change in Private Payrolls, May, est. 220k (prior 213k)
- Change in Mfg Payrolls, May, est. 5K (prior 1k)
- Unemployment Rate, May, est. 5.4% (prior 5.4%)
- Average Hourly Earnings m/m, May, est. 0.2% (prior 0.1%)
- Average Hourly Earnings y/y, May, est. 2.2% (prior 2.2%)
- Average Weekly Hours All Employees, May, est. 34.5 (prior 34.5)
- Underemployment Rate, May (prior 10.8%)
- Change in Household Employment, May (prior 192k)
- Labor Force Participation Rate, May (prior 62.8%)
- 3:00pm: Consumer Credit, April, est. $16b (prior $20.523b)
DB's Jim Reid completes the overnight event summary
As we embark on what is another important payrolls Friday, this should have been the day when all was resolved with Greece and we could all have started the process of moving on with our lives. Alas no as Greece has finally asked the IMF to bundle its June repayments to month-end. Indeed the IMF was heavily in the news yesterday as they suggested that the Fed should delay lift-off until early 2016. This caused a ripple of excitement in markets.
The bundling of payments wasn’t the only development in Greece yesterday. News that the Greek Finance Ministry had rejected the Creditors bailout proposals added to what turned out to be a very busy day. A statement from the Finance Ministry said that ‘after four months of negotiations, creditor institutions submitted proposals which can’t solve the riddle of the economic crisis caused by the policies implemented in the last five years’. In a call between Tsipras, Merkel and Hollande, Tsipras was said to have told the Creditors that the proposal put in front of him could not be a basis for a deal and was not reflective of the progress made in talks in Brussels. Merkel’s comments last night that ‘we’re still far from reaching a conclusion’ and that ‘we still have to wait a bit’ is a clear sign that large gaps remain between the two sides. The announcement of the bundling of payments into a €1.6bn lump sum on June 30th meanwhile (which is also the first time such an option has been exercised since Zambia did in the 1980’s) also highlights what is a particularly fragile liquidity situation for the Greek government now, and suggestive that cash reserves are more or less exhausted. The moves yesterday are negative signals, but provides Greece with more time to come back with a response of its own. Pressure is mounting and in the meantime Tsipras is due to meet with Parliament today after cancelling a second round of talks in Brussels with the EC’s Juncker.
Elsewhere it was another day of high Bond market volatility. The intraday high to low range in 10y Bunds was 18.4bps. This week we’ve had ranges of 20.6bps, 19.7bps and 7.1bps on Wednesday, Tuesday and Monday respectively. In fact, with the exception of a 19.7bps range on May 7th, the ranges of the last three days are the largest we’ve seen this year and nearly 4x the average intraday range (5.8bps) YTD. Yesterday actually saw 10y Bunds eventually close 4.4bps lower at 0.835%. Earlier yields actually touched 0.994% before reversing course and trading steadily lower over the course of the day. It wasn’t clear what sparked the turnaround, although there was some market chatter that the psychological 1% level may have played a part. The news out of the IMF with regards to both Greece and Fed liftoff came much later in the day and in reality the bulk of the move tighter had already happened by then.
The moves in Bunds again filtered into the rest of bond markets. Other core European bond markets had similar moves intraday, while in the periphery Italy, Spain and Portugal finished 3.6bps, 2.5bps and 1.8bps tighter respectively. 10y Treasuries followed a similar pattern of trading, striking 2.424% intraday (we’ve not closed higher in yield since October 3rd last year), before then rallying into a closing level of 2.307% - a 5.7bps tightening but a 13bps high-to-low range. The brief move higher in Treasuries actually saw 5y, 10y and 30y yields all briefly touch YTD highs in yield.
The volatility in bonds wasn’t particularly kind to equity markets yesterday as the S&P 500 (-0.86%), Dow (-0.94%), Stoxx 600 (-0.83%) and DAX (-0.69%) all fell. A weaker performance for energy names didn’t help with the commodity complex softening yesterday. WTI (-2.75%) and Brent (-2.77%) both fell to $58.00/bbl and $62.03/bbl respectively after concerns that OPEC would refrain from cutting its production target today. Gold fell 0.70% while the Dollar index pared earlier losses to finish unchanged as the Euro moved higher with Bund yields.
It’s also interesting taking a look at what the moves in Bunds this week has done for credit spreads. Since Friday’s close, Euro IG spreads have widened 4.3bps, while HY spreads have actually tightened a very modest 0.3bps. This masks a more material weakening yesterday however when HY spreads actually widened 5bps and essentially wiped out the week's move tighter. The move wider for IG was a lot more muted yesterday (+0.7bps), although spreads have been edging wider over the last couple of weeks. Interestingly this comes on the back of the largest weekly inflow for Western European HY funds in six weeks ($490m). It was a more muted week for Western European IG funds (+$47m) however, but it’s interesting to see that the rates sell-off hasn't yet led to outflows.
Back to the IMF yesterday. The fund certainly added to a slightly more dovish tone from Fed speakers recently after saying that the Fed should wait until the first half of 2016 to raise rates. The IMF noted that the Fed should wait for ‘greater signs of wage or price inflation than are currently evident’ and that ‘based on the mission’s macroeconomic forecast, and barring upside surprises to growth and inflation, this would put lift-off into the first half of 2016’. The Fund also downgraded their forecasts for US growth this year to 2.5%, from the previous 3.1% projection while taking their 2016 forecast down slightly to 3% (from 3.1%).
The comments yesterday from the IMF echoed a fairly dovish Fed Governor Tarullo, who said that ‘in a broader sense, there are more questions at this point in 2015 than there were at this point in 2014’. He then went on to say that the Q1 weakness cannot be blamed solely on seasonality and suggested that the US economy has now lost momentum. Tarullo’s comments have added to a run of more dovishly-biased comments of late, including from Evans, Brainard, Kocherlakota and Rosengren.
Data yesterday was more of a sideshow with the events elsewhere but was generally more or less in line with expectations. In the US we saw another solid initial jobless claims print, declining 8k to 276k (vs. 278k expected). Q1 unit labour costs were above market (+6.7% qoq vs. +6.1% expected) while nonfarm productivity was a touch weaker (-3.1% qoq vs. -3.0% expected). In Europe the French unemployment rate ticked down one-tenth of a percent to 10.0% as expected. Meanwhile in the UK the BoE offered no surprises leaving rates on hold at 0.5%
Yesterday’s bond market volatility actually came following what was also a highly volatile day for Chinese equities, once again coming after we went to print. Yesterday we saw the Shanghai Comp finish +0.76%, although this was after the index fell 5.2% intraday (-1.8% when we went to print) after the news that a brokerage was suspending margin financing for purchases of ChiNext shares. So a 12% round trip. This morning we’ve seen further volatility after the Shanghai Comp (-0.12%) and Shenzen (-0.06%) reversed earlier gains of as much as +2%. The Shanghai Comp did at one point top the 5000 level for the first time since early 2008. There’s a similar weakness elsewhere with the Nikkei (-0.44%), Hang Seng (-0.88%) and Kospi (-0.25%) trading down. 10y Treasuries have widened 1.3bps in early trading.
In terms of the calendar this morning, it’s relatively quiet in Europe with just French trade data and German factory orders being the highlights. The focus this afternoon will of course be on payrolls, with the market currently looking for a 226k print, +3k on April. DB’s Joe Lavorgna is more optimistic however, forecasting a 275k reading and noting in particular the supportive downward trend in initial jobless claims recently. Elsewhere in the US, we get the usual associated employment readings including unemployment and average hourly earnings. Consumer credit for May rounds off the releases while the Fed’s Dudley will be the latest Fed official to speak.
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German news media buzzing about possible Schäuble resignation;
http://www.faz.net/aktuell/wirtschaft/eurokrise/griechenland/schuldenstr...
Apparently Germany wants to cave and Schäuble isn't having it.
Maybe time for the 'poisonous gnome' to spend more time in his garden.
I just find the news perplexing.
We have apparenty,
1) A German finance minister who is about to resign, apparently.
2) A Greek finance minister who was supposed to resign, and who has definitely been muzzled.
3) A Geerk prime minister who is going to ask his government if he should resign or not.
Haus, did you forgot to mention that Merkel's senior coalition partner, vice-Chancellor Gabriel (SPD), is also making a lot of strange noises, with some increasing distance from Merkel? The BND Affair is not over, yet
Note also the squabble the BundesNachrichtenDienst is having with the NSA, where the NSA is refusing the delivery of some of the promised surveillance equipment because it fears some secrets may become public... through revelation by the Parliamentary Committee going through the BND Affair themselves
"Mutti" is not safe herself, then the BND is the Chancellery's intelligence service. And she exposed herself, politically, by referring to her own private calls being tapped
re 1), I'd say the FAZ is just floating a "is it not time for Schäuble to resign" question
re 2), I'd say that Varoufakis is playing at "they muzzled me, they threatened me". Fact is that in the Tsipras Cabinet there are a few that found him a bit too much of a diva. Varoufakis is the darling of one faction in Parliament... but also has many that can't stand him or his Game Theory approaches
re 3) this is a completely different affair. In a parliamentary system, it's a very often used tactic for a Prime Minister to give Parliament a hard thing to swallow and "bind it" himself to a "motion of no-confidence"
the result is that Parliament either accepts the whole package or it has to reorganize a whole majority and appoint a whole new government
in fact, I see it as likely, or at least possible, that this sequence might happen:
- Tsipras to propose the current bargain to the Greek Parliament, in one package with a "motion of no confidence"
- the Greek Parliament to refuse the package
- Result: Greek Government Crisis. Tsipras to continue as "care-taker government". Public to finally get the details of the package, and public discussion
- meanwhile, talks about a new Greek Government, with or without many more parties, possibly a "national unity government"
- while a Gov is in crisis, european sovereign "etiquette" is that no hard decision can be pressed on a country
- since the IMF loan repayment can be pushed out for a month, there is one month for a new Greek government, and perhaps even more
end result: finally the broader discussion in Greece is more focused on "how much". More time for Greece. Possibly new elections or a broad "National Unity Government"
just an "educated guess", only speculation on what might happen, soon, and which procedures might be used
Agreed on many fronts, Mutti is definitely not safe. Then again, lots of political chaos at the moment, essentially all over Europe. The problem is that what Merkel is pushing (caving to the Greeks) is not threatened by the SPD, her coalition partner, which supports these measures, but by the right flank of her own party.
Any more free shit for the Greeks is going to cause problems within her own party. I expect to see more resignations from German MPs.
Its too bad the AfD is in their own little civil war right now.
Its all BS until something happens though.
What I find so interesting about this whole situation, is if a Grexit is so "controlled" and there is "nothing to worry about" -- the establishment sure is putting in the time and jaw-boning to make sure it doesn't happen.
"Its too bad the AfD is in their own little civil war right now."
well, it started with a few academics, and then it attracted a lot of "political homeless" factions... particularly on the Right
either AfD sets a clear demarcation between itself and them, or it is not regarded as a possible coalition party at government
the founders seem to prefer the first, and go for broader political activity, with a chance to be, eventually, part of a government
Caution: the original quote comes from Bild-Zeitung.
Trotzdem, vielen Dank.
Yeah let's wait and see. There might be some disagreements but it doesn't mean that this will lead to an open rupture between the two. Merkel is now heading to Elmau and there her Masters will surely tell her how to proceed in regard with Greece...
The Bild, I have found is either hit or miss.
Very rarely do they get it just "kinda right."
It is either he really is contemplating resignation, or they had nothing else to print so they just made it up.
Sorry Haus for my topic change.
I need some serious advice from my brothers at ZH. I have been a member of ZH for 5 years and 4 weeks. February 20th I was diagnosed with metastasized Duodenal Adenocarcinoma otherwise known as cancer of the ampulla of Vater. This is a rare cancer that has no cure. I am 63 years old and have been through the first series of chemo. My sister and I have POAs to manage the assets of our 92 year old mother valued at 900k.
I will not be around too much longer and have been getting my ducks in a row to setup my wife for the transition.
My sister and I want to quickly convert 900k into cash. The 900k is in 2 banks and is made up of cash, stocks, bonds, treasuries and gold. The stocks have appreciated very well since 2008 and we will have capital gains in 2015 when the stocks are sold.
I am having estimated 2015 taxes worked up so we will know what this will be.
We want to convert all 900k to cash and physical gold ASAP. We will reserve cash for estimated taxes on 900k for 2015.
My questions are:
Once we have converted to all cash what is the cash to physical gold we should have after 2015 estimated taxes are set aside?
Where should the cash be parked?
How and where should I buy the gold?
Where should the gold be held?
My goal is to protect the 900k against deflation or inflation and we know we won’t have the return on investment we have currently but know we have to do this ASAP.
ZH brothers I need your advice!
Ying-Yang
Acciones populares pronosticos intradia Popular shares intraday forecasts http://www.aseperfi.com/inf/infIaccpopulares.htm
But, but ... is this not another Summer of Recovery?
I think the author of this article is turned around.
" A very strong number and it will be risk off across the board driven by EUR strength; a sub-200K print and the shorts will be trampled yet again."
A stronger number would be $usd positive and eur negative. It should also be equity negative as rates move higher.
Technically you would have had an inverted yield curve during the dollar rally against the Euro, while Euro area bills have negative nominal rates.