It's almost as if the manic-depressive market has gotten exhausted with the script of surging overnight volatility, and following a week of breathless global "taper tantrumed" trading, tonight's gentle ramp seems modest by comparison to recent violent swings. With no incremental news out of China, the Shanghai composite ended just modestly lower, the Nikkei rushed higher to catch up to the USDJPY implied value, Europe has been largely muted despite better than expected news out of Germany on the unemployment front. This however was offset by a decline in Europe's May M3 (from 3.2% to 2.9%) while bank lending to NFCs and households simply imploded, confirming that there is no hope for a Keynesian, insolvent Europe in which there isn't any credit creation either by commercial banks or by the central bank (and in fact there is ongoing deleveraging across the board). US futures are rangebound with ES just shy of 1,500. We will need some truly ugly data in today's economic docket which includes claims, personal income/spending and pending home sales to push stocks that next leg higher. To think the S&P could have been higher by triple digits yesterday if the final Q1 GDP has just printed red. Failing that, the Fed's doves jawboning may be sufficient for a 100+ DJIA points today with Dudley, Lockhart and Powell all set to speak later today.
All the headlines that's fit to bulletin, via Bloomberg:
- Dollar mixed versus most major peers ahead of consumer spending, personal income and jobless claims data that are forecast to improve; GBP/USD falls to lowest since June 3 after U.K. GDP misses ests., and EUR/USD rises as euro- area economic confidence beats ests.
- Today: U.S. initial jobless claims for last week and May personal income, personal spending due at 12:30GMT/08:30 NYT, with ests. showing better readings than previous period; also U.S. May pending home sales due at 14:00GMT/10:00 NYT
- GBP/USD falls to three-week lows after U.K. GDP report misses expectations; disposable income drops most in 25 years
- EUR/USD keeps trading above 1.30 as euro-zone June economic confidence better than expected
- EU finance chiefs reach deal on how to handle failing banks
- Japanese investors were net sellers of foreign bonds during week ended June 21, selling 1.19t ($12.1b) in overseas bonds and notes, most since April 2012; bought 13.9b yen in overseas stocks
- Ireland’s 7-year EU loan repayment extension positive: Moody’s
- Chris Bowen named Australian Treasurer, replaces Swan as Rudd is sworn in as new prime minister
- Sweden’s state-backed export bank is warning businesses not to rely on weaker krona to support their sales abroad, even after the currency sank to lowest in a year against euro
- The jolt Premier Li delivered to China’s financial system emulates a playbook crafted by predecessor Zhu Rongji in 1990s, inflicting short-term pain in anticipation of longer- term gain
- New Zealand’s central bank said it isn’t appropriate to raise rates at the moment, is “seriously considering” using other tools to curb housing boom
MARKETS
- Dollar Index at 82.99, +0.01%; still above 50-DMA at 82.58
- EUR/USD rises +0.08% with euro-zone confidence data better than expected
- GBP/USD touches lowest since June 3 after GDP, current account data disappoint, recently at 1.5268
- USD/JPY 0.39% to 98.11
- U.S. 10Y yield -2bps to 2.51%
- Bunds, gilts rise in line with Treasuries
- Peripheral bonds add to yday’s gains; Italian 10Y bond yield declines -16bps to 4.54%
- Asian indexes rise, Chinese stocks fall
- Nikkei 225 rose +2.96%
- Euro Stoxx 50 -0.20%, snaps two consecutive days of gains
- Dow, S&P500 futures contracts higher
- WTI, metals up; gold rises after three consecutive days falling
DB's Jim Reid summarizes quickly the overnight market action so far:
In terms of overnight markets, solid gains are being recorded across all the major Asian bourses following the strong lead-in from Wall St yesterday. Most equity indices are up 1-2%. The KOSPI is outperforming (+3.1%) and EM sovereign credit continues to gap tighter.
Interbank liquidity conditions continue to ease in China, but reports keep filtering out about constrained access to funding in the real economy. Yesterday, it was reported by Chinese news agency Caixin that a number of branches of the big four banks had halted lending to businesses and individuals apparently “due to mounting liquidity pressures” (Caixin). At a micro-level, reports suggest that a number of corporates in cyclical sectors are finding bank funding difficult to come by which is a situation that has persisted for a number of months now. So we'll have to watch out for the impact of this in the data over the next few weeks. Turning to the day ahead, we have a busy data calendar which includes an update on German unemployment, euroarea money aggregates and Eurozone confidence readings. In the US, jobless claims, pending home sales and personal income and consumption are the main highlights. There are a number of Fed speakers lined up to speak over the next couple of days which will probably garner some attention.
The Fed’s Dudley, Powell and Lockhart are scheduled to speak at separate events today. Dudley and Powell are voting FOMC members so it will be interesting to hear their latest thoughts.
SocGen recaps the macro highlights of the day
The ECB's verbal intervention worked to a tee yesterday and Spain in particular will be breathing a sigh of relief over the turnaround in 10y yields. Having touched 5.13% early on and briefly threatened to extend on a break of the 200d moving average, yields suddenly turned south as first ECB president Draghi, then council members Noyer and Mersch, talked up the bank's dovish stance and the importance of the OMT. If this game of cat and mouse is played out over the summer it will make participants wary of shorting the periphery, but nearly a year on from Draghi's ‘whatever it takes' comment, it is a demonstration of the ECB's intent to prevent eurozone borrowing costs rising in tandem with those in the US. The rise in short-term funding costs for Spain, echoed in Italy where 6-month bills were sold yesterday at double the rate of May (1.052% vs 0.538%), with no return to positive GDP growth this year, would be a menace for confidence if left unchecked. The importance of the OMT as a policy tool continues to be vigorously defended, but let's not forget that its effectiveness (not one euro spent so far) may stand or fall with the German court decision. A negative ruling would not make it unreasonable to expect new ECB accommodation. One week before the 4 July ECB meeting, was it that uncertainty that dragged EUR/USD below 1.30 yesterday? One-year bunds are trading back at 0.10% vs a 0.212% high last week, a substantial 50% move.
The political unrest in Australia is nothing like what has been observed in Turkey and Brazil lately, but the leadership contest which has put Kevin Rudd in command means early elections are now mooted for late August. The AUD took the news in its stride yesterday and posted decent gains pretty much across the board. Mining companies will not think back fondly of PM Rudd (2007-2010) as he was one of the architects of the ‘resource super profit tax' (RSPT). However, it is under Rudd and thanks to 425bp worth of rate cuts that the Australian economy averted recession post-Lehman. There may be more easing down the pipeline, but there is no obvious reason to mark the AUD down because political winds are changing.
A busy calendar today features eurozone confidence and M3 credit data, Italian debt supply, French consumer confidence and German unemployment. Another four ECB members are scheduled to speak and we have pencilled in a 19k drop in US initial claims and a 5% mom jump in US pending homes sales.