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Futures Flat Ahead Of Greek Bridge Loan Approval
After weeks of overnight turbulence following every twist and turn in the Greek drama, this morning has seen a scarcity of mostly gap up (or NYSE-breakding "down") moves, and S&P500 futures are unchanged as of this moment however the Nasdaq is looking set for another record high at the open after last night's better than expected GOOG results which sent the stop higher by 11% of over $40 billion in market cap. We expect this not to last very long as the traditional no volume, USDJPY-levitation driven buying of ES will surely resume once US algos wake up and launch the self-trading spoof programs. More importantly: a red close on Friday is not exactly permitted by the central planners.
Light newsflow has failed to provide European equities with any substantial direction (Euro Stoxx: -0.1%). Market attention will be on today's German parliamentary vote on Greek reforms which is said to conclude at around 1200BST/0600CDT and is widely expected to be approved: after all the ECB needs to be paid with money effectively from the ECB.
Bunds have outperformed their US counterparts during the European session, undertaking a bid tone this morning as some desks attribute the move to the aforementioned German vote, despite expectations for the vote to comfortably pass.
Asian equities traded mostly higher taking a positive lead from Wall Street , where the Nasdaq-100 reached 15-yr highs following strong earnings from Netflix and Google, with latter rising by 12% in after-market trade. Hang Seng (+1.0%) and Shanghai Comp. (+3.5%) outperformed following reports that China Securities Finance Co. won CNY 2trl worth of credit to support Chinese stocks. Nikkei-225 (+0.3%) rose, with the index now on course to post its best week since Nov'14. Finally, JGBs gained overnight with the BoJ conducting its large purchase program.
In FX, central bankers remain in focus heading into the final session of the week, as has been the case throughout the week, with GBP/USD the notable outperformer at one point rising by over 50 pips this morning as European participants react to further hawkish comments by BoE's Carney from last night, who stated UK interest rates could rise "at the turn of this year". As such, EUR/GBP has continued its recent decline reaching its lowest level since 2007.
Elsewhere, the USD-index resides in modest negative territory (-0.1%) to come off its recent highs which came on the back of hawkish comments from Fed's Yellen in her semi-annual testimony to congress over the past 2 days.
In terms of Asian-Pacific currencies, USD/JPY broke above the 124.00 handle to trade at its highest level for almost a month, while NZD/USD came off its multi-year lows after finding support at the 0.6500 level, which provided some respite following the continued decline which saw the pair fall by over 2 points in the past 2 days.
In the commodity complex price action has been relatively subdued with the exception of copper and platinum, with the latter falling to 6.5 year lows after dipping below USD 1,000/oz. Copper futures slid after the crossover of its 50 and 100DMA, followed by the overlap of the 100 and 200DMA to exacerbate the move to the downside. While the energy complex has seen WTI (+USD 0.14) and Brent crude (+USD 0.02) reside in neutral territory which a lack of fundamental catalysts driving much direction in prices.
Looking ahead, today sees US CPI, housing starts, building permits and University of Michigan preliminary reading as well as comments from Fed's Fischer and Canadian CPI.
Bulletin Headline Summary
- GBP/USD is the notable outperformer as European participants react to last nights comments by BoE's Carney.
- The USD-index resides in modest negative territory to pare some of its Fed's Yellen semi-annual testimony inspired gains.
- US CPI, housing starts, building permits and University of Michigan preliminary reading, Canadian CPI and comments from Fed's Fischer.
- Treasury curve flattens in overnight trading sending 5/30 curve (+143bps) to its lowest level since June 16 ahead of today’s CPI release.
- Flattening of 5/30 curve a reflection of lower commodity prices indicating lack of inflation and willingness by bond investors to set-up for a rate hike in September, ED&F Man head strategist Tom di Galoma says in note
- Wherever you look, central bankers are moving markets with ECB support for Greece and stimulus measures spurring gains in bonds; signs Britain is moving closer to raising interest rates sending the pound to a seven-year high
- It’s become more difficult to buy and sell securities as Greece’s financial crisis curbs risk taking and dealers scale back trading activity to meet regulations introduced since the financial crisis
- China has created what amounts to a state-run margin trader with $483 billion of firepower, its latest effort to end a stock-market rout that threatens to drag down economic growth and erode confidence in the government
- Bank of England Governor Mark Carney said the end of record- low interest rates is in sight and the time for such a move will become much clearer by the end of the year
- The European Union’s 7 billion-euro ($7.6 billion) loan to keep Greece afloat until its full bailout is approved will have two layers of guarantees and will be finalized by midday in Brussels
- Growing dissent in Chancellor Angela Merkel’s party bloc makes the lower-house vote on Friday the latest test of her struggle to persuade Germans that Greece is still worth helping
- IMF’s Lagarde states Greece needs debt forgiveness
- Sovereign 10Y bond yields mostly lower, led by Greek 10Y (-26bps). European stocks mixed, Asia rises, U.S. equity- index futures mixed. Crude oil, copper and gold fall
US Event Calendar
- 8:30am: Housing Starts, June, est. 1.106m (prior 1.036m)
- Housing Starts, June, 6.7% (prior -11.1%)
- Building Permits, June, est. 1.150m (prior 1.275m, revised 1.250m)
- Building Permits, June, est. -8.0% (prior 11.8%, revised 9.6%)
- 8:30am: CPI, June, est. 0.3% (prior 0.4%)
- CPI Ex Food and Energy, June, est. 0.2% (prior 0.1%)
- CPI y/y, June, est. 0.1% (prior 0%)
- CPI Ex Food and Energy y/y, June, est. 1.8% (prior 1.7%)
- CPI Index NSA, June, est. 238.632 (prior 237.805)
- CPI Core Index SA, June, est. 242.098 (prior 241.76)
- Real Avg Weekly Earnings y/y, June (prior 2.2%)
- 10:00am: U. of Mich. Sentiment, July preliminary, est. 96 (prior 96.1)
- U. of Mich. Current Conditions, July (prior 108.9)
- U. of Mich. Expectations, July (prior 87.8)
- U. of Mich. 1 Yr Inflation, July (prior 2.7%)
- U. of Mich. 5-10 Yr Inflation, July (prior 2.6%)
DB's Jim Reid completes the overnight event recap
A combination of decent US earnings and more progress in Greece, including the news that EU Finance Ministers have agreed in principle to a bridge loan helped propel equity markets higher on both sides of the pond yesterday. Indeed in Europe the Stoxx 600 closed up +1.35%, a seventh consecutive daily gain and helping to cap its longest winning streak since January having rebounded 8.8% now off the early July lows. There were similar gains for the DAX (+1.53%), CAC (+1.47%), IBEX (+1.54%) and FTSE MIB (+1.67%) too. Over in the US the S&P 500 finished up +0.80% to take it back to within just 0.3% of its all-time high, while the NASDAQ (+1.26%) went one better to close at a record high as earnings out of Netflix and eBay helped cap a good day for equity bulls.
Before we dig deeper, with the exception of China it’s been a fairly subdued end to the week across bourses in Asia this morning. Chinese equities are on track to close the week on a positive note however with the Shanghai Comp (+1.37%), Shenzhen (+2.64%) and CSI 300 (+1.56%) all up. The Nikkei (+0.05%) and ASX (-0.02%) are more or less unchanged while the Kospi (-0.57%) has declined. Credit markets across Asia, Japan and Australia are around 2bps tighter while S&P 500 futures are flat. Meanwhile Treasuries are mostly unchanged this morning while the Dollar index has dropped back a touch (-0.2%).
Onto Greece now. On the back of the parliamentary approval late Wednesday night, at yesterday’s ECB meeting we saw the Governing Council approve a €900m increase to the ELA cap. The small increase largely endorsed the improving but fragile picture with our European colleagues expecting capital controls to remain until Q4 when the bank recapitalization has been completed but with the ECB continuing to review ELA within its rules. For now the bank holiday has been extended through July 19th. Away from the ELA update the other headline yesterday was the news that EU Finance Ministers have agreed in principle on a €7bn bridge loan for Greece from the EFSF which will be needed to help repay €3.5bn of bonds to the ECB on Monday. According to Bloomberg, the deal is expected to be announced formally today after national parliaments have approved the proposals (Bundestag is set to vote today). Meanwhile, there is yet to be any response from Tsipras with regards to a cabinet reshuffle following Wednesday’s vote although it’s possible that we hear at any moment. For now it certainly feels like headlines are abating and attention is slowly moving to events elsewhere.
Some of that attention is now turning to earnings in the US which were generally better than expected on the whole yesterday and helped support part of the better tone in markets. As well as the contributions from the aforementioned tech names, Citigroup, Intel (post market Wednesday), Philip Morris, Goldman Sachs and UnitedHealth all reported beats, although the latter two did see some weakness in the details which disappointed the market slightly. Google meanwhile reported after the closing bell, with results ahead of consensus and sending the share price 10% higher in aftermarket trading.
It’s still early days so far but of the 52 S&P 500 companies to have reported, 73% have beaten earnings expectations, although the split is more 50/50 at the top line while the stronger Dollar has continued to play out as a theme for a number of the corporates this reporting period.
Elsewhere, there was little new to report from Fed Yellen’s testimony in front of the Senate yesterday which largely reflected her speech on Wednesday, including that she favours tightening in a ‘prudent and gradual manner’.10y Treasuries did end the day more or less unchanged (-0.2bps) at 2.351% while the Dollar index firmed for a second consecutive session, closing +0.52%. In terms of the data flow in the US, initial jobless claims declined for the first time in four weeks, falling 15k to 281k (vs. 285k expected), the 19th consecutive week below 300k now. The NAHB housing market index was unchanged for July at 60 (vs. 59 expected), however the Philadelphia Fed business outlook dropped in July (5.7 vs. 12.0 expected) having bounced to 15.2 in June with both new orders and the employment index down.
Over in the Europe meanwhile 10y Bunds also had a quiet session, closing 0.5bps higher at 0.831%. Led by a tightening across the Greek curve, 10y yields in Spain (-3.7bps), Italy (-1.5bps) and Portugal (-1.5bps) all finished tighter. Credit markets also continued to rebound with Crossover and Main 11bps and 3bps tighter respectively. There were signs yesterday too of the primary market for European credit coming back to life having stalled with the volatility around Greece after a couple of decent sized bond issues yesterday.
Aside from the obvious focus on Greece, there was no change in the ECB’s monetary policy stance yesterday. The Governing Council reiterated their ability to use all instruments available within its mandate in the face of any material change in the outlook for price stability while Draghi said that ‘economic risks have been contained as a result of our monetary policy’ and the overall picture of the economy was largely seen as unchanged. On the data front, there were no revisions to the final Euro area CPI prints for June at either the headline (+0.2% yoy) or the core (+0.8% yoy). The May trade balance for the region showed a slightly smaller than expected surplus (€21.2bn vs. €22.0bn expected).
Staying on the Central Bank theme, the Bank of England’s Governor Carney was vocal once again, this time narrowing his time frame slightly saying that ‘the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of the year’. Carney also said that ‘interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages’. The Governor did cite risks to the world outlook from Greece and China, saying that ‘we can expect the global economy to proceed at a solid, not spectacular pace’. His comments came post market close, with 10y Gilts earlier finishing 4bps tighter at 2.075%. Sterling saw a modest spike up following the comments, but pared those moves to finish down 0.19% versus the Dollar.
Looking at today’s calendar now, it’s a particularly quiet morning in Europe with no significant data due with the focus likely to be on further Greek developments and the Bundestag vote. It’s all eyes on the US this afternoon however where we get the June CPI report with our US colleagues expecting higher energy costs to help push the headline up +0.3% (in line with market) in the month. At the core, the market is looking for a +0.2% mom reading. Along with the inflation numbers, average weekly earnings are also expected along with housing starts, building permits and the July University of Michigan consumer sentiment print.
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All is totally awesome and hunky dory.
rock a bye baby...
What we do for Peter, we have to do for Paul and Mary...and we can't afford that.
Expect more churn.
More importantly: a red close on Friday is not exactly permitted by the central planners.
Nuff said.
I can see the sign on the Bridge now " This way to serfdom "
Moar like another bridge to nowhere.
Happy days are here again...
The skies above are clear again..
So let's sing a song of cheer again..
HAPPY DAYS ARE HERE AGAIN!!!!
Sons of buggers fixed it all, again. I'm impressed.
Just a thought, regarding Google - earnings tell you what a company has DONE, not HOW it's going to do.
Isn't buying the stock now like bolting the stable door after the horse has run off?
DavidC
I want two-sided markets. This is boring.
Is it a bridge loan or a ramp loan?
A bridge is usually built in between 2 embarkments.
If the 2nd embarkment is missing you aren't bulding a bridge but a ramp.
So they are bulding a ramp into a precipice. And the longer the ramp, the deeper the fall at the end of the ramp.
Enjoy the tailspin...
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