S&P Futures Jump Ahead Of GOP Healthcare Vote, Ignore China Commodity Crash

Tyler Durden's picture

S&P futures rose on hopes a successful Republican healthcare vote on Thursday will unlock the Trump fiscal agenda, while European shares jumped to a 20 month high on signs Macron is poised to win Sunday's French election coupled with reassuring corporate results, including strong earnings from HSBC, even as Chinese and Australian stocks fell as commodities, and iron ore futures particularly, tumbled. Oil also declined while the Bloomberg Dollar spot index fell 0.1% in London morning trading, after gaining 0.4% Wednesday. It weakened against all but two of its Group of 10 peers.

As reported overnight, Iron ore traded in China plunged limit down (-8%) in the afternoon session, with Rubber also limit down (7% lower), and steel rebar, coke, coking coal tumbling over 6% on concerns a crackdown on Wealth Management Products and shadow banking in general - in addition to the worst service sector PMI print in nearly a year - could result in a hard-landing for the Chinese economy (something both PIMCO and Kyle Bass warned about in the past 24 hours). Of note: the drop in iron ore prices was the biggest so far this year.

Concerns about a crackdown of credit in China also dragged 10-yr treasury futures lower, down 0.44% at the close, while the 21st Century Business Herald reported that Chinese borrowing costs in April surged with the average coupon rate up near 200bp.

Chinese worries however were lost on Europe, if only for the time being, after Europe reported a stronger than expected Service PMI print, rising to 56.4 from 56.0, beating expectations of 56.2, the 46th consecutive month of expansion and the highest reading since April 2011. Of note: Italy posted a nearly 10 year ago on its composite PMI category.

Helping European risk sentiment, a poll showing Macron had outperformed far-right candidate Marine Le Pen in a televised debate sent short-term French bond yields to their lowest in five months, with encouraging euro zone data also helping the mood.  The most recent Oddschecker data showed that the market now gives Macron a 90% probability of victory.

Additionally, a flurry of stronger than expected earnings updates in Europe sent the STOXX 600 up 0.4% to its highest since August 2015, gaining for the day in a row, and included a smaller-than-feared fall in bank giant HSBC's profits which sent its shares up more than 3%.  The Stoxx Europe 600 and FTSE 100 also headed higher. Oil and gas stocks were also up 1.1 percent following robust updates from both Statoil and Royal Dutch Shell, which rose 3 percent and 2.3 percent respectively.

A rebounding European economy and a string of upbeat earnings are prompting firms from Morgan Stanley to Deutsche Asset Management to boost allocations to the region’s stocks. After trailing for most of last year, the Stoxx Europe 600 Index has outpaced the S&P 500 Index.

"There are a number of things playing out at the moment. Traditionally in May there is a strong dollar effect and that is adding to the pressure on the commodity bloc," said Unicredit's head of FX Strategy Vasileios Gkionakis. "In Europe it is slightly different. There is what is going on with the French election and we have been seeing some strong data."

“We see more value in Europe versus the U.S.,” Deutsche Asset’s global head of research Phil Poole said in an interview with Bloomberg TV’s Mark Barton. The investment arm of Deutsche Bank AG increased allocation to Europe in its multi-asset portfolios from the lowest on record in the past quarter, Poole said. “Valuations are attractive, the European economy is growing. We feel there’s too much optimism priced into the Trump stimulus program.”

In the US, S&P 500 futures climbed on hopes Obamacare will get repealed giving a fresh boost to the Trump fiscal agenda and as investors awaited earnings reports from companies including Kellogg and Chesapeake. Futures on the S&P 500 Index expiring in June climbed 0.3 percent ot 6.75 to 2.390 at 6:40 am in New York. The benchmark hasn’t posted gains or losses exceeding 0.2% for six straight sessions, and has struggled to top a record last seen on March 1. Contracts on the Dow Jones Industrial Average added 52 points to 20,931 on Thursday.

At the end of its two-day meeting, the Fed kept its benchmark interest rate steady, as expected, but downplayed weak first-quarter economic growth and emphasized the strength of the labor market, a sign it was still on track for two more rate increases this year. Futures traders are now pricing in a 72 percent chance of a June rate hike, from 63 percent before the Fed's statement, according to the CME Group's FedWatch Tool. Attention now turns to U.S. non-farm payrolls for March, due on Friday, after separate data showed private employers added 177,000 jobs in April. That was higher than expected but the smallest increase since October.

After the dollar had risen across the board after the Fed's meeting on Wednesday, the dollar index which measures it against the top six world currencies, was modestly lower, erasing some gains. It was, however, well higher at 113.00 yen. The euro meanwhile drew some support from Macron's performance ahead of Sunday's election run-off, and was barely budged at $1.0876.

In commodities, oil fell for a third session in four to leave it near its lowest since late March at $50.50 after the China services wobble and supply data had shown a smaller than expected decline in U.S. inventories. Bellwether industrial metal copper was also teetering near a four month low on what traders said was China-based selling and on expectations that two U.S. rate rises this year could curb interest in dollar-denominated metals. Iron-ore futures slid 5.3 percent. Copper futures dropped 0.4 percent extending Wednesday’s worst tumble since 2015.  Oil declined 0.7 percent to $47.46 a barrel.

"Later today there is a mass of U.S. data including key employment numbers, durable goods and factory orders and if these also fall below expectations it would be reasonable to expect another wave of selling," Kingdom Futures said in a note.

Occidental, Regeneron, Activision Blizzard among companies reporting earnings. Factory orders and durable goods orders due. U.S. MARKETS

Bulletin Headline Summary

  • European equities trade modestly higher with Shell leading energy names higher
  • EUR on the front foot as Macron clears TV hurdle, alongside firm Eurozone PMI figures
  • Looking ahead, highlights include US trade balance, factory orders and a slew of ECB speakers

Market Snapshot

  • S&P 500 futures up 0.2% to 2,387.75
  • STOXX Europe 600 up 0.3% to 390.62
  • MXAP down 0.4% to 149.04
  • MXAPJ down 0.3% to 487.33
  • Nikkei up 0.7% to 19,445.70
  • Topix up 0.7% to 1,550.30
  • Hang Seng Index down 0.05% to 24,683.88
  • Shanghai Composite down 0.3% to 3,127.37
  • German 10Y yield rose 3.8 bps to 0.364%
  • Euro up 0.3% to 1.0918 per US$
  • Brent Futures down 0.6% to $50.48/bbl
  • Italian 10Y yield fell 4.4 bps to 1.967%
  • Spanish 10Y yield fell 1.0 bps to 1.602%
  • Sensex up 0.8% to 30,132.08
  • Australia S&P/ASX 200 down 0.3% to 5,876.37
  • Kospi up 1% to 2,241.24
  • Gold spot down 0.2% to $1,236.22
  • U.S. Dollar Index down 0.04% to 99.17

Top Overnight News

  • China’s risk crackdown is rattling its municipal bond market, with yield premium over Chinese sovereign debt widening to a record
  • In ultra-long Treasury debate, bond analysts find little to like, with strategists say stick with 10- and 30-year auction process as TBAC floats 20-year bond, 50-year zero coupons as alternatives
  • Le Pen unleashed a barrage of attacks on Macron in TV debate as she tried to close a gap of some 20 percentage points in the only head-to-head debate of the French election campaign
  • HSBC Shares Rise on Surprise Revenue Gain as Trading Tops Rivals
  • Boeing to Start Production With JV Partner Tata This Year
  • General Motors China April Vehicle Sales Fall 1.9% on Year
  • Google Says Gmail Phishing Scam Affected Less Than 0.1% of Users
  • Tesla Assures Model 3 on Time as Musk’s Cash Burn Continues
  • WhatsApp Says Access Issue Fixed for Worldwide Users
  • Shell Pumps a Torrent of Cash as Takeover, Cost Cuts Pay Off
  • Big Beer Is Back as AB InBev, Carlsberg Beat Sales Estimates
  • Facebook’s Social Network Fuels Growth as Ad Slowdown Looms

Asian equity markets traded mostly lower after weakness across the commodities complex and as participants digested the latest FOMC which spurred expectations for a June hike. ASX 200 (-0.5%) declined as materials names felt the brunt of the losses in the metals complex, while Shanghai Comp. (-0.3%) and Hang Seng (-0.4%) were pressured as commodity prices in China slumped in which Dalian iron ore futures hit limit down shortly after the open. Downside was also attributed to recent deleveraging in shadow banking, an increase in Chinese short-term money market rates and after Caixin Services and Composite PMI data fell to 11-month and 10-month lows respectively. However, heading into EU trade, the Shanghai Comp staged a modest recovery. As a reminder, Japanese markets remained closed for Greenery Day.

Top Asian News

  • Asian Stocks Decline as Iron Ore Futures Tumble: Markets Wrap
  • China Bonds Seen Extending Drop as PBOC Keeps Tight Rein on Cash
  • China’s Belt-Road Plan May Top $500 Billion, Credit Suisse Says
  • China H Shares Drop Most in Two Weeks Amid Deleveraging Concerns
  • China’s Economy Shaping Up for Positive 2018, Rio Tinto Says
  • Glencore Sees Trading Profit Boost, Enhancing Dividend Outlook
  • Phone Betting Lifts Money Laundering Risk at Manila Casinos
  • Australian Equity Movers: Corporate Travel, Fortescue, Eclipx
  • Beijing Sandstorm Prompts Pollution Warning for Some 22 Million

European bourses are higher this morning as price action has been dictated by the latest slew of large cap earnings. The energy sector outperforms amid gains seen in Shell after they announced profits beat analyst estimates, however FTSE 100 slightly lags its counterparts despite the upside in Shell and HSBC shares, with the index hampered by the upside in GBP, while retail names slip following poor results from Next. In fixed income markets, EGBs trade lower amid the upside in equities, alongside the fall out of the FOMC meeting last night, while various issuance from the likes of Spain and France also kept prices subdued with Bund lower by 45 ticks. Elsewhere, the German/French spread is tighter after polls suggested Macron produced a stronger performance than Le Pen in the TV Presidential debate. The French Presidential candidates conducted a live TV debate in which Macron was seen to have performed better, as an Elabe poll showed that 63% thought Macron won the debate vs. 34% for Le Pen with the rest undecided.

Top European News

  • U.K. Economy Rebounds in April With Unexpected Services Strength
  • Euro-Area Growth Gathers Speed as Top Three Economies Converge
  • BNP Stock Sale Managers Said to Be Left Holding Unsold Shares
  • European Miners Drop to Lowest This Year as Iron Ore Tumbles
  • Buyout Funds in ‘Shock’ as Swedish Tax Nightmare Becomes Reality
  • Swiss Re Profit Drops to Lowest Since 2011 on Cyclone Claims
  • SocGen Profit Drops After $1 Billion Libya Legal Settlement
  • Siemens Is ‘Well-Advanced’ on Health-Care Unit Carve Out
  • Rosneft Claims May Force Sistema to Give Up MTS Control: Citi
  • Norges Bank to Raise Number of Policy Meetings, Publish Minutes

In currencies, the Bloomberg Dollar Spot Index fell 0.1 percent as of 10:33 a.m. in London, after gaining 0.4 percent Wednesday. It weakened against all but two of its Group of 10 peers; the euro added 0.4 percent to $1.0927, while the pound gained 0.3 percent; the yen lost 0.1 percent to 112.75 per dollar. It has been a choppy session seen in FX this morning, and we can assume the modest excitement in the aftermath of the FOMC statement release has played out. The USD saw a very modest rally after traders focused on the pricing for a Jun hike on what was effectively a `stand pat' on policy, with the rate path still leaving room for 1 or 2 rate hikes this year. USD/JPY continues to run into resistance ahead of 113.00, and as Yellen and Co continually reiterate, constant data monitoring will determine the pace of rate move. As such, we may need a healthy jobs report tomorrow to see a sustained move above the figure, with techs pointing to resistance circa 113.25-30. USD/CHF has been notably quiet. EUR/USD is where the bulk of action is going through, and we see little sign of any defensive positioning ahead of this weekend's election run off in France. Indeed, the market is still pushing for a move on 1.0950, as traders seen keen to take advantage of any gap should Macron win this weekend as the polls are suggesting, and a little more so in the wake of last night's TV debate.

In commodities, further losses in Copper today to the detriment of the AUD, but the 2017 range is still intact as the lower band at USD2.50-45 holds for now. No disputing that the China PMIs have been a major contributor to this weakness, and to metals across the board, whilst supply concerns have been a constant weight through the year so far. This has also been an issue dampening Oil prices, where we now see Brent testing the USD50.000 mark, while WTI grapples with range traders coming in ahead of USD47.00 amid hopes of a production cut extension into H1 as OPEC and non OPEC members have been talking of late. Safe haven demand for Gold is minimal and this is all down to the heightened expectations/polls pointing to a Macron win this weekend. If he does, then Gold heads lower still. We have dipped under USD1235 this morning. Silver holding above mid USD16.00's after recent slide.

Looking at today’s calendar, we’ll get a first look at the Q1 nonfarm productivity and unit labour costs data, as well as the latest weekly initial jobless claims print, March trade balance, March factory orders and final revisions to the March durable and capital goods orders data. Away from the data there are a number of ECB speakers on the cards for today including President Draghi at 4.30pm BST when he is due to speak in Switzerland. Lautenschlaeger, Praet and Mersch are also due. Away from this, UK local elections are scheduled today with polls closing at 10pm BST. We should have an idea of some of the results early tomorrow morning and they are worth keeping an eye given the proximity to next month’s General Election. Earnings wise today the headliners are AB Inbev, BMW and Shell.

US Event Calendar

  • 7:30am: Challenger Job Cuts YoY, prior -2.0%
  • 8:30am: Trade Balance, est. $44.5b deficit, prior $43.6b deficit
  • 8:30am: Nonfarm Productivity, est. -0.1%, prior 1.3%; Unit Labor Costs, est. 2.7%, prior 1.7%
  • 8:30am: Initial Jobless Claims, est. 248,000, prior 257,000; Continuing Claims, est. 1.99m, prior 1.99m
  • 9:45am: Bloomberg Consumer Comfort, prior 50.8
  • 10am: Factory Orders, est. 0.4%, prior 1.0%; Factory Orders Ex Trans, prior 0.4%
  • 10am: Durable Goods Orders, est. 0.7%, prior 0.7%; Durables Ex Transportation, prior -0.2%
  • 10am: Cap Goods Orders Nondef Ex Air, prior 0.2%; Cap Goods Ship Nondef Ex Air, prior 0.4%

Db's Jim Reid concludes the overnight wrap

On your long but fulfilling DB powered commute this morning the main stories overnight revolve around the FOMC, the final French Presidential TV debate and plans to avoid the imminent potential US government shutdown. Overnight we can also report the breaking news that House Republicans will today vote on the GOP health care bill. Majority Leader Kevin McCarthy said that the Republican bill will have the votes required to push through so we’ll see how that goes today.

In terms of the Fed yesterday, as expected there were no real surprises to come from the decision to keep rates unchanged or out of the post meeting FOMC statement but there was just about enough for the market to ramp up the odds for another tightening next month. Indeed Bloomberg’s calculator (which overstates a little) now has the probability of a hike at 90% which compares to 67% this time yesterday. With regards to the statement itself the FOMC acknowledged the soft quarter for growth in Q1 and also softness in consumer spending but also emphasised the need to look through it and that the slowdown is likely to be transitory. There was a reference to fundamentals underpinning consumer spending remaining solid and the Committee generally sounded more upbeat on business fixed investment. On the labour market the Fed said that job gains were solid in recent months. The Committee also acknowledged the drop in core inflation in March and that while market-based measures of inflation compensation remain lower, survey-based measures of longer-term inflation expectations are little changed on balance. So all-in-all more of the same. Tomorrow’s Fedspeak could well be more interesting particularly for any snippets around the balance sheet. For now our US economists continue to expect the next rate hike to come in June with high conviction for this view.

A few hours after the Fed and post the US close we then learned that the House had finally approved a $1.17tn spending bill by a majority of 309-118 votes, moving a step closer to avoiding a government shutdown this Saturday. The bill will now pass over to the Senate where it is expected that a vote will be held today. According to the WSJ the bill supposedly excluded a number of Trump’s top priorities including a smaller than expected increase in military spending. The other main event after the US close was the live French presidential debate which finished up at 10.30pm BST last night having been going for about 2 hours. In terms of the outcome a snap Elabe poll out just after the debate showed that Macron won by a score of 63% to 34% over Le Pen. As expected there were the usual fiery exchanges but nothing that really moved the dial. Instead the general feeling was that Macron solidified his position and lead. Le Pen was questioned intensely about her plans for a dual-currency regime for the franc and euro while the FT also summarised that Macron focused routinely on the contradictions and inaccuracies in Le Pen’s plan to exit the EU. Le Pen on the other hand spent a great deal of time portraying Macron as an elitist. The Euro traded in a tight range through much of the debate and finished up little changed compared to where it was when the debate started.

With regards to markets yesterday, in what was another otherwise subdued day of price action, the most notable moves came in Treasuries following the FOMC. 2y and 10y yields ended the day up +3.6bps and +3.8ps respectively, although 30y yields ended up little changed with the US Treasury Borrowing Committee warning against possible issuance of long-dated bonds. The Greenback also firmed up with the Dollar index up about +0.45% versus this time yesterday. Gold and Silver sold off -1.48% and -2.14% respectively. Meanwhile price action in US equities remains incredibly dull. The S&P 500 did recover from Apple-driven heavier losses at the open but still finished down a small -0.13%. To put it in perspective the last six daily closing changes for the S&P have been -0.13%, +0.12%, +0.17%, -0.19%, +0.06% and -0.05%.

It wasn’t much more exciting in Europe yesterday where the Stoxx 600 closed -0.04%. European credit did outperform however led by financials with Senior and Sub Fins iTraxx indices ending 1bp and 7.5bps tighter respectively. One asset class which did see a decent move yesterday was base metals with Copper (-3.48%) in particular suffering its biggest-one day decline since 2015 following bearish stockpiles data.

That weakness in commodities coupled with further softening data in China this morning has seen most bourses in Asia edge lower in the early going. As we go to print the Hang Seng (-0.52%), Shanghai Comp (-0.25%) and ASX (-0.52%) are all in the red, although the Kospi (+0.57%) has gone against the grain. On that data, China’s Caixin services PMI in April declined 0.7pts to 51.5 which has left the composite reading at 51.2 versus 52.1 in March. The Aussie Dollar is also weaker this morning with the moves in commodities.

Moving on. In terms of the economic data in the US yesterday the April ADP print came in more or less in line with the consensus at 177k (vs. 175k expected). That follows a slightly downwardly revised 255k in March. It’s worth adding that the consensus for Friday’s NFP is hovering around 190k at present. Away from that the headline ISM non-manufacturing for April rose a solid 2.3pts to 57.5 (vs. 55.8) which is a smidgen below the YTD high made in February. At the same time the services PMI was also revised up 0.6pts to 53.1. Interestingly in the details of the ISM, the new orders component rose to a new 12-year  high of 63.2 however the employment component edged down another 0.2pts to a fairly low 51.4. Remember also that the employment component in the ISM manufacturing softened so that may sound some caution ahead of payrolls.

In Europe yesterday the main report of note was the Q1 GDP print for the Euro area which revealed that the economy grew +0.5% qoq in Q1 which was in line with the market and one-tenth ahead of what our European team had pegged. Away from that, PPI in the Euro area was reported as falling -0.3% mom in March, while unemployment in Germany held steady at 5.8% in April.

Before we look at the day ahead its worth noting that yesterday Puerto Rico officially filed for protection from its creditors in what is being called by numerous press outlets the largest debt restructuring filing by a local government or US state ever. According to Bloomberg the debt amount is around $74bn which the commonwealth is asking a federal court to force creditors to take losses on.

Looking at today’s calendar, this morning in Europe the main focus will be on the final April PMI revisions where we’ll get the services and composite readings and also a first look at the data for the UK and periphery. Also due out this morning is money and credit aggregates data for the UK for March, and retail sales data for the Euro area. In the US this afternoon we’ll get a first look at the Q1 nonfarm productivity and unit labour costs data, as well as the latest weekly initial jobless claims print, March trade balance, March factory orders and final revisions to the March durable and capital goods orders data. Away from the data there are a number of ECB speakers on the cards for today including President Draghi at 4.30pm BST when he is due to speak in Switzerland. Lautenschlaeger, Praet and Mersch are also due. Away from this, UK local elections are scheduled today with polls closing at 10pm BST. We should have an idea of some of the results early tomorrow morning and they are worth keeping an eye given the proximity to next month’s General Election. Earnings wise today the headliners are AB Inbev, BMW and Shell.

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Arnold's picture

In Arnold world there would be justice for the congress critters taking my future money out of my pocket like that.

It's a margin call they cannot meet.

Oldwood's picture

The markets have got the contagion of greed infecting the "retail" buyers and it is all up from here....... until the reality of their bleeding ass can no longer be ignored.

wmbz's picture

The lib retards favorite lunatic Moonbat, Bugeye Polosi said yesterday that replacing Obozo care will drive your Ins. much higher!

The Moonbat does not know what Obozo care is. Of course no one in the cesspool knows what it is. It has zero effect on them.

Flush the turds!

jamesmmu's picture

Gold Is Facing A Bearish Trend; Why Is It The Right Time Now To Buy Gold

http://investmentwatchblog.com/gold-is-facing-a-bearish-trend-why-is-it-...

Fake Trump's picture

Buy Viagra is a better bet. At least your wife will be satisfied and happy.

Sky flyer's picture

About time for them to light this candle. North Korea or Mideast? Which will it be or both.

Fake Trump's picture

and  a Cuban cigar for Monica.

Goldenballs's picture

Just shows how the system is being absolutely trashed to make the criminals in charge look as if they know what they are doing.Everywhere you look the financial world is full of smoke and mirrors its an absolute shambles.The smashdown in paper Gold and Silver shows there is a severe shitstorm ready to blow.Have YOU Got Physical.

FreeShitter's picture

Diversify.....au, ag, btc, ltc, eth, brass, lead.

jamesmmu's picture

When is the vote?

Fake Trump's picture

GOOD LUCK. IF YOU STILL TRUST TRUMP. 

Dragon HAwk's picture

Hard landing is such a mellow term..

Hard landing on the tarmac, everybody is fine

or hard landing in the Everglades, Gators Win.. devil is in the details,

1stepcloser's picture

Crypto currencies are the new commodities...its different this time LOL