Global Stocks, Dollar Falter As Yellen Testimony Looms; S&P Futures Pressured By Flynn Resignation

Tyler Durden's picture

European, Asian stocks declined, halting a global rally that sent U.S. stocks surging to new all time highs faltered, weighing on the S&P although the index rebounded modestly after a kneejerk announcement lower overnight after Trump's National Security Advisor announced his unexpected resignation.

The dollar dropped versus most of its Group-of-10 peers ahead of uncertainty surrounding Fed Chair Janet Yellen's testimony to Congress later Tuesday, while the pound declined after U.K. consumer-price inflation data missed economists’ forecasts. Oil gains, copper advances. Treasuries steadied. As a result, the DXY dipped 0.2 percent against a basket of currencies to 100.74 but was still near its strongest since Jan. 20, while the euro was 0.3 percent firmer after three sessions of losses to stand at $1.0626. Against the yen, the dollar weakened 0.2% on the day to stand at 113.38 yen, off Monday's high of 114.17 but well above a 10-week low of 111.59 yen touched a week ago.

Adding to pressure on the dollar was the resignation of President Donald Trump's national security adviser Michael Flynn, who quit over revelations he had discussed U.S. sanctions against Moscow with the Russian ambassador to the United States before Trump took office, and misled Vice President Mike Pence about the conversations.

As Reuters notes, the prospect of Trump-led economic stimulus in the United States has underpinned the dollar and stocks in recent days, powering U.S. equity markets to record highs on Monday and helping Asian shares to eke out 19-month peaks on Tuesday. But the buoyant mood in global markets was tempered somewhat as attention turned to semi-annual testimony by Yellen on Tuesday and Wednesday that could highlight the likelihood of two or more U.S. interest rate hikes this year.

Attention now shifts to Yellen’s first Congress appearance since Trump was sworn in, as investors seek clues on whether the Fed will accelerate monetary tightening to make way for the administration’s promised fiscal stimulus.  The market will be hoping Janet Yellen doesn't ruin Valentine's Day as today marks her semi-annual testimony to the Senate Banking Panel before she repeats it tomorrow to the House Financial Services Committee. There are probably too many unanswered questions of the new Trump administration’s fiscal plans and also not enough additional hard data to make Yellen deviate much from her January 19th speech and the February 1st FOMC statement. The testimony might instead be used to emphasise that the economy is close to reaching its dual mandate goal and it’s possible that we also get a repeat of the “every meeting is live” mantra, although it would be surprising if Yellen signalled strongly about a March rate hike. Perhaps the most interesting part for markets might be what Yellen says about the Fed’s balance sheet, which as we know has been a topical discussion amongst policymakers of late and also drawn scrutiny from congressional Republicans in the past. The testimony is scheduled for 10am.

Dallas Fed President Robert Kaplan on Monday argued the Fed should move soon to avoid falling behind the curve, especially as fiscal policy could drive faster growth and inflation.

"If Yellen wants March to be a live meeting as other Fed officials have suggested it is, she will have to adopt a more hawkish tone beyond the usual reference to data dependency," said ING senior rates strategist Martin van Vliet. "Currently we calculate a market implied probability of around 17 percent for a March rate hike."

Europe reported Q4 GDP numbers, with German and Italian growth falling short of forecasts, casting doubt on the strength of two of the euro area’s biggest economies amid global uncertainties. German gross domestic product rose a seasonally-adjusted 0.4 percent in the three months through December, while Italian GDP expanded 0.2 percent, according to the nations’ statistics offices. Both figures missed predictions in Bloomberg surveys by 0.1 percentage point.

As Bloomberg adds, while Italy has lagged growth in the 19-nation euro area, Germany -- which had annual growth of 1.9 percent last year -- has driven Europe’s slow but steady recovery, aided by a weak euro, cheap oil and the European Central Bank’s stimulus policies. While those tailwinds boosted consumer spending and supported exports, rising inflation pressures and uncertain prospects for global trade have cast doubt over whether the pace of expansion can be maintained.

German fourth-quarter GDP was led by domestic demand, the statistics office said. Government spending increased markedly, and households raised consumption slightly. Investment also developed positively, bolstered by building. With imports outpacing exports, net trade was a drag on growth. “The data are alright -- German growth is solid, and impulses came exactly from where we expected them to do,” said Marco Wagner, an economist at Commerzbank AG in Frankfurt. “Growth drivers will be similar in 2017.”

Meanwhile, Europe's most battered economy, Greece, suffered yet another unexpected economic contraction with Q4 growth dropping 0.4% after 0.9% growth in Q3, suggesting that once again the country’s stuttering bailout talks are doing nothing to help boost the real economy and dimming hopes that growth is finally back on track.

Looking at global markets, the MSCI All-Country index was little changed at 441.02, near its all-time high of 442.70 reached in May 2015. The MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.2 percent, trying for its fifth straight session of gains. Japanese shares ran into trouble after Toshiba Corp delayed an anxiously awaited earnings release. As reported earlier, Toshiba said it would take a 712.5 billion yen ($6.28 billion) writedown on its U.S. nuclear business, wiping out its shareholder equity and dragging the company to a full-year loss. There was also some eye-catching data from China, where producer price inflation picked up more than expected in January to near six-year highs, while consumer price inflation neared a three-year high.

The Stoxx Europe 600 Index slipped 0.1 percent, after a five-day rally brought it to the highest level in more than a year. Japan’s Topix slipped 1 percent. Toshiba tumbled after delaying a scheduled earnings announcement meant to show how much of a loss the company was facing from its nuclear-equipment operations. Futures on the S&P 500 fell 0.1 percent, after the benchmark index closed up 0.5 percent at a record 2,328.25 on Monday.

U.S. stock market futures pointed to a slightly weaker open on Wall Street stock indexes hit historic peaks on Monday, with the benchmark S&P 500's market value topping $20 trillion as investors bet tax cuts promised by Trump would boost the economy.

In commodity markets, metals were on a tear thanks to supply disruptions and strong Chinese demand. Copper CMCU3 hit its highest since May 2015 after shipments from the world's two biggest copper mines were disrupted. Iron ore climbed to its since August 2014 amid reports China plans to cut steel capacity by at least half in 28 cities across five regions during the winter heating season. Oil recouped some ground on OPEC-led efforts to cut output, though rising production elsewhere kept prices to a narrow range that has contained them so far this year. U.S. West Texas crude added 22 cents to $53.15 a barrel, having shed 1.7 percent overnight. Brent futures LCOc1 rose 33 cents to $55.90 a barrel.

Bulletin Headline Summary From RanSquawk

  • European equities enter the North American crossover with little in the way of direction as market's await Fed Chair Yellen
  • GBP has felt the squeeze during the European session as the latest inflation data hampers investor sentiment
  • Looking ahead, highlights include Fed's Yellen, Lacker, Kaplan and Lockhart

Market Snapshot

  • S&P 500 futures down 0.09% to 2,324.25
  • STOXX Europe 600 down 0.1% to 369.63
  • German 10Y yield rose 0.5 bps to 0.336%
  • Euro up 0.2% to 1.0619 per US$
  • Brent Futures up 0.8% to $56.05/bbl
  • Italian 10Y yield fell 4.6 bps to 2.225%
  • Spanish 10Y yield fell 1.1 bps to 1.651%
  • MXAP down 0.2% to 144.03
  • MXAPJ up 0.1% to 463.54
  • Nikkei down 1.1% to 19,238.98
  • Topix down 1% to 1,539.12
  • Hang Seng Index down 0.03% to 23,703.01
  • Shanghai Composite up 0.03% to 3,217.93
  • Sensex down 0.03% to 28,342.16
  • Australia S&P/ASX 200 down 0.09% to 5,755.24
  • Kospi down 0.2% to 2,074.57
  • Brent Futures up 0.8% to $56.05/bbl
  • Gold spot up 0.3% to $1,228.59
  • U.S. Dollar Index down 0.1% to 100.85

Top News from Bloomberg

  • White House National Security Adviser Michael Flynn resigned Monday amid a snowballing controversy over whether he lied about his contacts with a Russian official, throwing President Donald Trump’s security team into turmoil just weeks into his term
  • PSA Group, the maker of Peugeot and Citroen cars, is exploring an acquisition of General Motors Co.’s European business
  • Toshiba Corp chairman Shigenori Shiga will step down amid a 7.125 billion yen ($6.3b) writedown in its nuclear power business, citing cost overruns at a U.S. unit and diminishing prospects for its atomic-energy operations
  • Apple Inc. shares hit a record on optimism the next iPhone will drive a resurgence in sales and help the company’s services businesses grow
  • After posting a 4Q loss of 2.35b francs and taking a charge to settle a U.S. investigation into the role of its mortgage securities business in the 2008 financial crisis, Credit Suisse pledged to cut between 5,500 and 6,500 jobs this year
  • President Donald Trump assured Prime Minister Justin Trudeau that Canada isn’t the main target of his plans to reset U.S. trade relationships, as both leaders said they are committed to maintaining commercial ties and economic integration that support millions of jobs on both sides of the border
  • German and Italian growth fell short of forecasts, casting doubt on the strength of two of the euro area’s biggest economies amid global uncertainties

Asia equity markets traded subdued as the region failed to sustain the momentum from Wall Street where stocks  extended on record highs and financials outperformed amid a continuation of the reflation trade. ASX 200 (+0.1%)  was initially kept afloat by strength in real estate and the mining sector with the latter underpinned following continued  advances in iron ore, but then failed to sustain early gains and finished marginally negative while Nikkei 225 (-1.1%) was dampened by a firmer JPY with Toshiba shares slumping after the Co. delayed its earnings release. Shanghai Comp (-0.3%) and Hang Seng (flat) traded subdued despite an increased liquidity injection by the PBoC and stronger than expected Chinese CPI and PPI data which printed multi-year highs, as the firm inflation figures spurred concerns of overheating prices and prospects of tighter policy. 10yr JGBs saw minor gains amid weakness in Japanese stocks, although gains were only minimal with a mixed 5yr auction failing to spur prices while the curve steepened amid  underperformance in the super-long end.

Top Asia News

  • South Korean Prosecutor Again Seeks to Arrest Samsung’s Lee
  • Noble Group Surges as Trader Confirms Strategic Investor Talks
  • Bank Mandiri Posts First Annual Drop in Profits Since 2005
  • Top Nickel Shipper Intensifies Mine Crackdown as Prices Rise
  • China H-Share Rally Falters as Inflation Fuels Liquidity Concern
  • Maersk to Expand Online Freight Booking After Partnering Alibaba

European stocks traded modestly lower for the majority of the morning, however much of the initial losses have been pared in recent trade. In terms of a stock specific basis, Roll Royce (-5%) lags in the        FTSE 100 after announcing a record loss and as such is now on course for its largest one decline in 4-months. Elsewhere, Credit Suisse (+2.5%) outperforms in the SMI after the bank announced that profit before tax came ahead of analyst estimates. while material names are among the worst performers in Europe to pare some of yesterday's  advances. Across fixed income markets, price action has been somewhat range bound thus far, however some of the initial  downside has been reversed led by gilts amid the aforementioned UK inflation report.

Top European News

  • German Economy Grows Slower Than Forecast as Trade Drags
  • Michelin to Raise Dividend as Europe Helps 2016 Profit Increase
  • EDF Profit Beats Estimates After French Utility Lowers Costs
  • U.K. Rejects 1.8 Million-Signature Petition Seeking Ban on Trump
  • Bund Futures Dip, Flows Muted; Downside Bought in Options
  • Germany, Italy Grow Less Than Forecast Amid Global Uncertainties
  • Rolls-Royce Profit Beats Estimates on Cost Cuts, Airbus Lift

In currency markets, AUD is firmer this morning in the wake of Chinese inflation figures overnight (Y/Y 2.5% vs. Exp. 2.45) subsequently eyeing last Friday's high (0.7689), while option related barriers are  situated at 0.7700 which could  curb a move to the upside. GBP has been pressured following a surprise miss on UK inflation (1.8% vs. Exp. 1.9%),which is a blow for the hawkish members of the Bank of England advocating a rate hike. Elsewhere, in terms of data, this morning's disappointing German ZEW survey and Eurozone GDP data failed to provide much in the way of traction for prices.

In commodities, gold (+0.2%) prices were mildly higher amid a subdued USD and downturn in risk sentiment, with participants now looking ahead to Fed Chair Yellen's Semi-Annual testimony today. Copper has eroded some of its gains after the red metal reached its highest level since May 2015 due to supply disruptions, meanwhile, WTI crude futures nursed some of yesterday's losses to barely reclaim the USD 53.00/bbl level to the upside.

Looking at the day ahead, the main focus will be on the January PPI report where headline PPI is expected to have increased +0.3% mom and the core +0.2%. Away from the data, the big focus for the market and as we mentioned at the top will be on Fed Chair Yellen’s semiannual testimony at 10am. It’s worth also highlighting that we’re due to hear separately from the Fed’s Lacker, Kaplan and Lockhart today too.

US Event Calendar

  • 6am: NFIB Small Business Optimism at 105.9, est. 105, prior 105.8
  • 8:30am: PPI Final Demand MoM, est. 0.3%, prior 0.3%
    • PPI Ex Food and Energy MoM, est. 0.2%, prior 0.2%
    • PPI Ex Food, Energy, Trade MoM, est. 0.2%, prior 0.1%
    • PPI Final Demand YoY, est. 1.5%, prior 1.6%
    • PPI Ex Food and Energy YoY, est. 1.1%, prior 1.6%
    • PPI Ex Food, Energy, Trade YoY, prior 1.7%

Central Banks

  • 8:50am: Fed’s Lacker to Speak at University of Delaware
  • 10am: Fed’s Yellen Appears Before Senate Banking Panel
  • 1pm: Dallas Fed’s Kaplan Speaks in Houston
  • 1:15pm: Fed’s Lockhart to Speak on Economy in Huntsville, Alabama

DB's Jim Reid concludes the overnight wrap

The market will be hoping Mrs Yellen doesn't ruin this special day as today marks her semi-annual testimony to the Senate Banking Panel before she repeats it tomorrow to the House Financial Services Committee. As we discussed yesterday there are probably too many unanswered questions of the new Trump administration’s fiscal plans and also not enough additional hard data to make Yellen deviate much from her January 19th speech and the February 1st FOMC statement. The testimony might instead be used to emphasise that the economy is close to reaching its dual mandate goal and it’s possible that we also get a repeat of the “every meeting is live” mantra, although we’d be surprised if Yellen signalled strongly about a March rate hike. Perhaps the most interesting part for markets might be what Yellen says about the Fed’s balance sheet, which as we know has been a topical discussion amongst policymakers of late and also drawn scrutiny from congressional Republicans in the past. The testimony is scheduled for 10am.

Markets look set to go in to today’s main event on a high after the four main US equity markets recorded fresh all time highs once again last night. Indeed the S&P 500 (+0.52%), Dow (+0.70%), Nasdaq (+0.52%) and Russell 2000 (+0.25%) indices all had another positive day with a rally for financials at the heart of that with the S&P 500 Banks index breaking out of the recent range to touch the highest level since February 2008. Tech stocks also had a decent day with Apple closing at its highest price ever, while the telecoms sector was the only sector to retreat. Prior to this moves in Europe had been even more impressive after the Stoxx 600 closed up +0.75% and FTSE MIB (+1.13%) and IBEX (+1.07%) also
rebounded.

Meanwhile there appears to be no stopping the Greenback in recent days after the Dollar index (+0.19%) rose for the ninth consecutive session, the longest streak since November when the index rose for ten sessions in a row. Treasury yields also continue to inch higher with 10y yields finishing 2.9bps higher yesterday at 2.436%. Yields are now 11bps off the lows of last week. With newsflow light there wasn’t a huge amount to drive markets yesterday leaving investors to instead debate the potential for hawkish appointees to the FOMC. Former Fed official Alan Blinder said that Trump’s administration could “really transform the board” with three spots now to fill. Interestingly Blinder also said that Yellen could look to signal a possible March rate hike at the testimony today with the clue being if she talks more than usual about inflation. Markets barely responded to that comment though with the market pricing in a low 30% probability according to Bloomberg of a hike (although other measures suggest the probability is lower).

Elsewhere, in commodity markets it was another overall decent day for base metals with Copper (+0.26%), Nickel (+0.66%) and Lead (+0.83%) continuing to edge higher. Even more eye catching was the rally for Iron Ore (+6.48%) which has now surged past $90/tn and touched the highest level since August 2014. Energy was however a bit of an underperformer yesterday with WTI Oil (-1.73%) back below $53/bbl despite Saudi Arabia announcing that it had cut production by more than it pledged last month under the OPEC agreement.

This morning in Asia the positive momentum has generally faded as the session has progressed. The Nikkei (-0.55%), Shanghai Comp (-0.26%), ASX (-0.10%) and Kospi (-0.25%) are in the red while the Hang Seng is little changed. Despite markets being quiet there has been some data out of China this morning though with the January inflation numbers released. CPI has printed at +2.5% yoy which is not only up from +2.1% in December, but also a tenth ahead of expectations and the highest since May 2014. Meanwhile the remarkable increase in producer prices has continued with PPI rising to +6.9% (vs. +6.5% expected) from +5.5%. That is the highest rate of growth since August 2011, with last month’s rise helped by a 31% surge for mining products prices. After 54 months of negative PPI prints January marked the fifth consecutive month of expansion for producer prices. Away from that we’ve also had the news of the first personnel casualty from the Trump administration with National Security Adviser Michael Flynn announcing his resignation. This follows the controversy surrounding the allegations of improper conduct with Russian officials according to Bloomberg.

Moving on. While yesterday was a fairly quiet day for newsflow, European politics continues to be one to watch. In France the latest Opinionway poll, released yesterday, showed that a second-round vote between Macron and Le Pen would have the former coming out on top at 63% versus 37%. Interestingly a second round vote between Fillon and Le Pen showed Fillon coming out on top at 58% versus 42% - that is the highest second round vote percentage for Fillon in Opinonway polls this year (a total of 7 separate polls). Meanwhile in Germany there was some criticism from the CDU about new SPD leader Schulz’s prior support for Eurobonds in the single currency bloc as a way of relieving its debt crisis. A CDU campaign manager said yesterday that the party intends to remind voters ahead of the election later this year that Schulz has long pushed for the introduction of EU wide debt. A reminder too then that German political developments will only likely pick up in the months to come.

Elsewhere, in Greece there wasn’t much in the way of developments yesterday, rather it was some strong words from Bank of Greece Governor Stournaras which seemed to stoke a near 50bps sell off in Greek 2y yields. The Governor warned that “any further delay in completion beyond this month will feed a new circle of uncertainty” and that “such a vicious circle could return the economy to recession and a rerun of the negative developments that took place in the first half of 2015”. As we noted yesterday the ball is back with the Greek government and we’ll have to wait to see further response from Tsipras’ administration as to the route they decide to take in the face of the demands from creditors.

Before we look at today’s calendar, the FT ran an interesting story yesterday suggesting that the EU and other US trading partners have already began early stage work for a potential legal challenge over the US border tax proposal in what the FT suggest could be the biggest case in WTO history. The article suggests that the basis of the argument is that the Republican plan is “definitely not compatible with global trade rules”, notwithstanding the fact that a tax change would lead to a major challenger to the global trading system. One to perhaps keep an eye on.

Looking at the day ahead, there’s a fair bit of data to get through in Europe this morning. We’ll be kicking things off in Germany where we’ll get the preliminary Q4 GDP print (consensus for +0.5% qoq) and also the final revisions to the January CPI report. After that attention turns over to the UK where the January inflation data dump is due out with CPI, PPI and RPI prints all released. Thereafter we’ll get Euro area Q4 GDP (+0.5% qoq expected) and industrial production data, as well as the February ZEW survey out of Germany. Over in the US this afternoon the main focus will be on the January PPI report where headline PPI is expected to have increased +0.3% mom and the core +0.2%. The NFIB small business optimism reading will also be released. Away from the data, the big focus for the market and as we mentioned at the top will be on Fed Chair Yellen’s semiannual testimony at 3pm GMT. It’s worth also highlighting that we’re due to hear separately from the Fed’s Lacker (at 1.50pm GMT), Kaplan (at 6pm GMT) and Lockhart (at 6.15pm GMT) today too.

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Batman11's picture

The great wonder of the Wizard of Oz disappears when the curtain has been pulled back.

The great Central Bankers are little men and women pulling their "interest rate" and QE levers but nothing much is happening.

The magic has gone.

VinceFostersGhost's picture

 

 

When does Priebus resign......that's all I want to know.

 

He can take Paul Ryan with him.

abyssinian's picture

Curtain pulled back, Yellen naked holding his cock

dimwitted economist's picture

yawn...

Magic?

Yes, it's TRUE that Yellen Does Indeed

Have a Magic Talking Cat!

it tells her what to do!

AND When to do it Too!

nmewn's picture

OMG! 

CEO's are in danger of not getting their bonuses?! Yellen is hiding cash under her skirt, strip her down!...lol.

Arnold's picture

http://www.foxnews.com/politics/2017/02/14/federal-judge-grants-injuncti...

 

It's alright, Virginia, we'll limp along with out you.

There is plenty of room in Chantilly for FEMA....er....refugee relocation facilities.

In the meantime you can work on taking out the trash.

https://en.wikipedia.org/wiki/Terry_McAuliffe

 

On May 23, 2016 it was reported that McAuliffe was being probed by the FBI "over whether donations to his gubernatorial campaign violated the law." One example cited was a donation of $120,000 from Chinese businessman Wang Wenliang. According to CNN, Wang's status as a legal permanent resident of the United States could make the donation legal under U.S. election law.[70]

Jäger's picture

I think this place is restricted, Wang, so don't tell them you're Jewish.

Kefeer's picture

Amazing how the pundits can add a headline to every movement of the market - what a joke.

gatorengineer's picture

S&P futures off 0.02 percent...I guess this is the dip we are supposed to buy

Last of the Middle Class's picture

Hopefully we're at the point where the QE hard on is going flaccid. God knows it's fucked enough Americans. Fucking Elon Musk just said we must merge with technology as it will lead to massive unemployment and government will have to pay workers salaries. (Paraphrasing here). No where on the planet does anyone anywhere suck off the government teat more than Elon Musk and now, after taking the government's money for his burning Tesla he wants the government to pay your salary. If that doesn't scare the shit out of you then you're just plain stupid. That's worse than wally world wanting all their employees on government assistance so that they don't have to pay medical insurance thus Obamacare.

BigFatUglyBubble's picture

"Hopefully we're at the point where the QE hard on is going flaccid. God knows it's fucked enough Americans."

My ass is quite sore and in shambles, and now I can't even afford lube.

syzygysus's picture

I hear they will be bringing back Government butter.  Maybe that will help?  Probably help things move better than Government cheese would.

AlexCharting's picture

"S&P Futures Pressured By Flynn Resignation" hahahahahah lol.... sure, cause and effect :P

Baby Eating Dingo22's picture

"Futures pressured" Seriously???? Who wrote this, CNBC???

Not up 1/2% is now considered "under pressure"