Daily US Opening News And Market Re-Cap: March 22
- Chinese HSBC Manufacturing PMI records fifth consecutive contraction.
- French and German Manufacturing PMI records unexpected contractions.
- UK Retail Sales fall below expectations in both the monthly and yearly readings.
European cash equity markets are making heavy losses as we head into the midpoint of the European session. Markets got off to a bad start as participants reacted to overnight Chinese HSBC manufacturing PMI recording a steeper contraction than the previous month. The manufacturing outlook has gotten even worse as the session has progressed, with France, Germany and the Eurozone as a collective recording contractions in their respective manufacturing PMI numbers for March. As such, commodity linked currencies are trading lower with AUD/USD down around 85 pips.
WTI and Brent crude futures are moving in tandem with other markets as they also record losses going into the US open.
In other news, there were reports that the ECB were looking to pull out their covered bond asset purchase program as less than a quarter of the fund has been used so far. A Bundesbank spokesman commented that it will not pressure the ECB into withdrawing the covered bond purchase program as it is the central bank’s decision to make.
Looking ahead in the session, the market awaits the weekly US jobs data due at 1230GMT.
BarCap US Treasury month end extension seen at +0.02yrs.
Chinese HSBC Manufacturing PMI (Mar) M/M 48.1 (Prev. 49.6) (Sources)
Japanese Merchandise Trade Balance Total (JPY) (Feb) M/M 32.9B vs. Exp. -120.0B (Prev. -1475.0B, Rev. -1476.9B)
Japanese Merchandise Trade Exports (Feb) M/M -2.7 vs. Exp. -6.5 (Prev. -9.3)
Japanese Merchandise Trade Imports (Feb) M/M 9.2 vs. Exp. 8.2 (Prev. 9.8, Rev. 9.9) (Sources)
EU and UK Headlines
European PMI data came in below expectations throughout the French, German and Eurozone readings, prompting risk-averse behaviour in markets today. As such, European equities are seen making losses as we head to the midpoint of the European session and fixed-income securities are grinding higher throughout the session.
French Manufacturing PMI (Mar P) M/M 47.6 vs. Exp. 50.3 (Prev. 50.0)
French Services PMI (Mar P) M/M 50.0 vs. Exp. 50.6 (Prev. 50.0)
German Manufacturing PMI (Mar A) M/M 48.1 vs. Exp. 51 (Prev. 50.2)
German Services PMI (Mar A) M/M 51.8 vs. Exp. 53 (Prev. 52.8)
Eurozone Composite PMI (Mar A) M/M 48.7 vs. Exp. 49.7 (Prev. 49.3)
Eurozone Manufacturing PMI (Mar A) M/M 47.7 vs. Exp. 49.5 (Prev. 49)
Eurozone Services PMI (Mar A) M/M 48.7 vs. Exp. 49.2 (Prev. 48.8) (Sources)
The ECB is eyeing an exit for its EUR 40bln covered bond asset purchase program launched at the height of the crisis. (FT-More) This may be the first step towards unwinding emergency support for the region’s financial system. The scheme was started last November and was intended to run until at least October this year, however the ECB has used less than EUR 9bln so far.
According to a German finance ministry report, Germany sees the global economy picking up in the course of this year. The report forecasts a further fall in unemployment in Germany and a stabilising in the economy in Q1 of this year following a slight decline in the previous quarter. The report predicts an accelerating recovery to take place in Germany in the second half of this year. (Sources)
ECB’s Draghi has said he believes the worst is over in the Eurozone debt crisis, adding that the situation is stabilising, though there are still risks. (Bild Zeitung) Draghi commented that key figures such as inflation, trade balances and budget deficits are better in the US. The ECB chair added that should the outlook for inflation worsen, the ECB will act immediately and preventively.
UK Retail Sales w/ Auto Fuel (Feb) M/M -0.8% vs. Exp. -0.5% (Prev. 0.9%, Rev. 0.3%)
UK Retail Sales w/ Auto Fuel (Feb) Y/Y 1.0% vs. Exp. 2.4% (Prev. 2.0%, Rev. 1.4%) (Sources)
Fitch said UK budget is neutral for its ‘AAA’ status, and that the UK government remains committed to deficit reduction strategy. Fitch also noted that the scale of the ‘fiscal challenge’ for the UK remained large relative to its ‘AAA’ peers. (RTRS)
Business leaders have warned that the UK Chancellor did not go far enough to cut youth unemployment. (Telegraph) John Longworth, director-general of the BCC said the budget did not include sufficient additional measures to incentivise businesses to employ more young people.
BarCap Pan Euro Agg month end extension seen at +0.13yrs.
European equity markets are seen markedly lower at the midpoint of the European session following renewed concerns on the manufacturing sector. Markets started off on a bad note in reaction to the Chinese HSBC manufacturing PMI data coming in below the previous reading and moved yet lower following the release of the French and German manufacturing PMIs recording contractions in the flash estimate for March.
In individual equity news, Vodafone are seen as one of the best performers in Europe today, going against the downward trend of the telecommunications sector. This follows yesterday’s news that they had been added to conviction buy list at Goldman Sachs. Company shares currently trade up 1.00%.
BP, along with ExxonMobil and ConocoPhillips are in discussions regarding a USD 40bln project to export liquefied natural gas from Alaska to Asia, potentially opening up large but stranded reserves that currently have no route to market, according to the people close to the negotiations (FT-More), despite this, moving alongside WTI and Brent crude prices, company shares trade down 1.44%.
Top performing sectors in the BE500: Telecomms (-0.15%), Consumer Services (-0.43%), Consumer Goods (-0.55%)
Worst performing sectors in the BE500: Basic Materials (-2.13%), Industrials (-1.63%), Oil & Gas (-1.59%)
The CNY may become the third-biggest global currency in 15 to 20 years time after the USD and the EUR, according to Zhiqiang, the director of the International Finance Research Institute at the Bank of China. (Financial News) The director commented that the Chinese government should take measures that help make the CNY a settlement currency for commodities and improve the management of the CNY’s use in cross-border trade settlement and investment.
Commodity-linked currencies are making losses going into the US open following the overnight data from China recording the fifth consecutive contraction in HSBC manufacturing PMI as this dampens future commodity demand. As such, AUD/USD is seen around 80 pips lower and AUD makes losses across the board.
USD/JPY is seen against the upward trend of the year and is making losses as the JPY gains upward momentum following the overnight trade balance data recording an unexpected surplus.
EUR is seen on the back foot going into the US open, making losses following worse than expected manufacturing PMI data from France and Germany. EUR/USD currently trades down around 55pips.
WTI and Brent crude futures were making losses going into the European open following disappointing Chinese manufacturing PMI data overnight. Crude price levels faced further downward pressure today from French and German manufacturing data coming in below expectations. As such, the energy complex is on a downward trend going into the US open.
Oil & Gas News:
• The French Industry Minister said that France is considering various “options” to counter the rise in oil prices as of late, and that releasing some strategic oil stocks is “one option”.
• Saudi Arabia’s ability to increase oil output is more talk than action, according to the former Royal Dutch Shell CEO of US operations John Hofmeister.
• Iraq's North Oil Co. says current output from Northern fields at 580,000-600,000 BPD.
• South Korea wants to strike a controversial agreement with the US that will allow Seoul to extend the range of its ballistic missiles to counter the threat of a nuclear-armed North Korea.
• China’s top newspaper has slammed US moves to restrict Iran’s oil trade which could see Chinese banks sanctioned. The People’s Daily said such unilateral action was not only wrong but could exacerbate the stand-off over Iran’s nuclear programme.
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