Despite an overnight surge in the Chinese markets, with the Shanghai Composite closing up 2.4% following reports that China will not only continue with its "liquidity tightening" operation by, paradoxically, cutting RRR for smaller banks, but launch a stimulus for several Chinese provinces and city governments "on the quiet" in the form of jumbo-sized bank loans, and GDP news in Japan that were so bad they were almost good (although not bad enough to close the Nikkei in the green) US futures continue to take on water following the second worst week of 2013 as the market now appears resigned to a Taper announcement in just over 5 weeks [35] (as we have claimed since May [36]). News in Europe continues to be bipolar, with the big picture confirming that only dark skies lie ahead following yesterday's news [37]that a new Greek bailout is just around the corner, or rather just after the Merkel reelection (even though Kotthaus perpetuated the lies and said a second cut in Greek debt is not on the agenda - although maybe he is not lying: maybe only Greek deposits will be cut this time), offset by on the margin improvements in the economic headlines, even as credit creation remains not only non-existent but as the FT reports [38] (one year after Zero Hedge), some €3.2 trillion in financial deleveraging is still on deck meaning an unprecedented contraction in all credit-driven aggregates (one of which of course is GDP).
Taper debate and "next chairman" speculation will continue to be the primary driver of the market but in the meantime, here is the market recap via RanSquawk:
- Germany's Bundesbank expects Greece will need a new aid package at the beginning of 2014 at the latest according to a central bank internal document. However, German ministry said that it is not aware of Bundesbank paper on Greece.
- Analysts at Goldman Sachs have revised up Euro-area Q2 GDP forecast to 0.2%. Also revised German Q2 GDP estimate to 0.8% Q/Q vs. Prev. 0.3% and French GDP estimate to 0.1% vs. Prev. -0.2%.
- According to South China Morning Post, key Chinese cities and provinces are set to receive stimulus.
Market Re-Cap
Heading into the North American open, stocks in Europe are seen broadly lower, with the German DAX index underperforming. In spite of the cautious sentiment, which also saw the defensive sectors such as healthcare outperform, Bunds traded lower throughout the session, amid light economic calendar and looming supply. There was little in terms of fresh macroeconomic commentary, but German ministry noted that it is not aware of Bundesbank paper on Greece, which as reported by Spiegel expects that Greece will need a new aid package.
Overnight in Asia, even though the Nikkei 225 index settled lower following the release of weaker than expected GDP data, USD/JPY is trading higher, as prospects of growth picking up in China following reports that key Chinese cities and provinces are set to receive stimulus ensured that Shanghai Comp settled up with a gain of around 2.4% and Hang Seng gained 2.13%. As a result, in spite of coming under pressure immediately following the GDP release, USD/JPY soon reversed course and remained on an uptrend ever since. In turn, firmer USD (trades in close proximity to the 200DMA line at 81.58) weighed on both EUR/USD and GBP/USD. Going forward, there is little in terms of scheduled macroeconomic data releases, but market participants will get to digest earnings from Sysco and NY Fed’s Outright Purchase op.
Asian Headlines
Japanese GDP SA (Q2 P) Q/Q 0.6% vs. Exp. 0.9% (Prev. 1.0%, Rev. 0.9%)
GDP Annualized SA (Q2 P) Q/Q 2.6% vs. Exp. 3.6% (Prev. 4.1%, Rev. 3.8%)
- Japan PM adviser Honda said Q2 GDP shows conditions are not yet appropriate for sales tax hike, which conflicts with comments from Economy Minister Amari that the GDP figures were positive.
-Japan vice fin.min. Obuchi will make judgement on sales tax hike after reviewing various indicators, including GDP. Key Chinese cities and provinces are set to receive stimulus. According to the report, the mainland government is quietly offering financial stimulus to key cities and provinces to help them maintain local economic growth.
EU & UK Headlines
Germany's Bundesbank expects Greece will need a new aid package at the beginning of 2014 at the latest according to a central bank internal document.
- However this morning, German finance ministry said it sees no need for new Greek aid.
In related news CDU's Kauder said a CDU/CSU-led government in Germany will not approve a debt cut for Greece. Preliminary data for July shows that Greece achieved a primary surplus of ca. EUR 2.5bln in the first seven months of the year vs. target for primary deficit of EUR 3.1bln according to the Alternate Finance Minister Staikouras.
Analysts at Goldman Sachs have revised up Euro-area Q2 GDP forecast to 0.2%. Also revised German Q2 GDP estimate to 0.8% Q/Q vs. Prev. 0.3% and French GDP estimate to 0.1% vs. Prev. -0.2%.
Goldman Sachs also revised its UK growth and monetary policy forecasts for 2013 from 1.2% to 1.4% and its 2014 forecast from 2.0% to 2.3%. Analysts have also pushed out the timing of the first BoE rate hike from Q4 2015 to Q2 2016
US President Obama said that Lawrence Summers and Janet Yellen are both highly qualified people to be the next chair of the US Federal Reserve, but stressed that they were not the only names being examined for the job.
Equities
Heading into the North American open, stocks in Europe are seen broadly lower, with the German DAX index underperforming. In terms of notable stocks news, ThyssenKrupp shares came under pressure following reports citing sources that the company is preparing for a capital increase. Separately, Deutsche Boerse shares fell around 3% amid reports that co.'s Need to Know News is being investigated by the SEC and FBI.
Eurozone banks need to shed EUR 3.2trl in assets to meet Basel III. (FT-More)
According to analysts by RBS, the burden is greatest on smaller banks, which need to shed EUR 2.6trl by 2018 from their balance sheets, raising fears that lending to the region’s small and medium size enterprises will be sharply reduced as a result.
FX
Overnight in Asia, even though the Nikkei 225 index settled lower following the release of weaker than expected GDP data, USD/JPY is trading higher, as prospects of growth picking up in China following reports that key Chinese cities and provinces are set to receive stimulus ensured that Shanghai Comp settled up with a gain of around 2.4% and Hang Seng gained 2.13%.
HSBC expects GBP/USD at 1.4500 in 2013 and 1.4400 in 2014, lowered its 2015 forecast to 1.4600 from 1.5400 and 2016 view to 1.4800 from 1.5200.
SNB Vice President Danthine said the SNB will continue to keep its EUR/CHF currency floor of 1.20 for as long as necessary. Danthine also said that the SNB will abolish its CHF ceiling once it starts raising interest rates.
Commodities
SPDR Gold Trust said its holdings rose 0.2% to 911.13 tonnes on Friday - the first increase since June 10.
While, according to CFTC, spec accounts have cut their net-long gold positions by 27% to 48,103 contracts.
- Analysts at Barclays note that gold shorts have fallen to lowest levels since early May and that last week saw the biggest short covering activity in gold since June 2000.
China Jan-Jun gold consumption rises 54% Y/Y to 706.36 tons, according to the China Gold Association.
Separately, India's July gold and silver imports USD 2.9bln according to a trade ministry official.
Morgan Stanley lowers Q3 Brent crude forecast to USD 108 from USD 112.
According to the head of the ruling party in Mexico, a sweeping energy overhaul that Mexican President is set to unveil today will not offer private firms concessions to tap Mexican oil, but will propose amending the constitution to allow them to invest in the ailing sector.
Operations at one of Libya's largest crude oil export terminals, Es Sider, resumed on Sunday after being closed for two weeks due to strikes according to the chairman of the federation of oil workers.
Egypt security forces headed for Rabaa El-Adawiya square; where the pro Mohammed Morsi protest camp is located.
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DB's Jim Reid has the comprenesive recap
Japan continues to dominate the headlines in the Asian session but there's also interesting stories on Greece and China to discuss. Starting with Japan, the preliminary Q2 GDP numbers came in at a disappointing +0.6%qoq which is lower than the +1.0% recorded in Q1 and +0.9% expected by the market for Q2. In somewhat better news, the GDP deflator fell 0.3% in Q2 from a year before, the smallest drop since Q3 of 2009 and 0.8ppt higher than Q1. The weaker than expected GDP print puts more pressure on the government’s decision over whether to hike sales taxes in April 2014. Indeed, a prominent adviser to PM Abe, Etsuro Honda warned this morning that Japan's growth remains too weak to raise the sales tax. Meanwhile, Japan's Economic and Fiscal Policy Minister Akira Amari, a proponent of the tax increase, said that the GDP number is a “good figure” that supports the government's plan to increase the sales tax.
The Nikkei opened up 1.4% lower following the data before paring losses to trade 0.7% at closing. There has been strong selling in Japanese real estate (-4.3%) stocks as well as telcos (-3.5%) while resources stocks are outperforming, partly on the back of the Chinese news (discussed below). USDJPY dropped around 30 ticks post-GDP but has recovered to trade at 96.50 as we type this morning.
Elsewhere in Asia, markets have started the week on a firmer footing on reports that several Chinese provinces and city governments will receive stimulus packages “on the quiet”, mostly in the form of jumbo-sized bank loans. One such report from the South China Morning Post said that the Agricultural Bank of China has signed an agreement with the Shanghai city government for a 250 billion yuan (or around US$40 billion) loan. The loan is equivalent to 12.5% of Shanghai's 2012 GDP and is intended to help fund the government-controlled joint venture that is building China's second Disneyland and also pay for improvements needed to implement the city's free-trade zone. The report says that other banks may quickly copy Agbank's loan plan for Shanghai and support other areas such as Guangdong province, where the export industry has been badly hit. Across the region, resources, banks and construction stocks are leading gains on the back of the news. The Hang Seng, Shanghai Comp (+2.4%) and ASX200 are all higher. All this follows the better than expected Chinese data on Friday which included a benign inflation number and better than expected industrial production and new bank lending data for the month of July.
In Greece, Germany’s Der Spiegel wrote that the Bundesbank believes international creditors will have to agree to a new bailout for Greece in early 2014. The article says that the move would come months after Germany's September 22nd general election as Merkel's conservative government has been at pains to appear firm on Greece's international bailout, which is unpopular with many Germans. EURUSD traded as low as 1.331 (-0.2%) overnight in gappy markets but has since recovered to 1.333. Der Spiegel added that the Bundesbank told the German Finance Ministry and the IMF that a recent EUR5.7bn payment to Greece was approved "due to political constraints”. The central bank reportedly also described the risks of the current rescue program for Greece as "unusually high" and the performance of the Greek government as "hardly satisfying". The news comes as the major German political parties begin their election campaign leading up to the Sept elections.
Over the rest of the week ahead, the focus will be on the dataflow. In the US, this week is a fairly important one for data starting with Tuesday’s advance retail sales. On Wednesday, the monthly PPI data is due. Thursday will be a very busy day for data with CPI, industrial production, initial jobless claims and the Empire State/Philly Fed surveys released. On Friday, we have housing starts, building permits and the UofMichigan consumer sentiment survey. Fed's Lockhart speaks on the economy on Tuesday, while Bullard speaks twice on Wednesday and Thursday.
In Europe, the key data releases are Euroarea industrial production and the German ZEW survey on Tuesday. The Euroarea Q2 GDP report on Wednesday will be closely watched as will the minutes from the Bank of England’s last MPC meeting and the UK unemployment report for July. Also on Wednesday, Angela Merkel will hold the first of 56 scheduled campaign rallies before the Sept. 22 federal elections.
In Asia, a big week for Japanese data continues with machine orders and BoJ minutes tomorrow. An important update on Indian industrial production is scheduled for today.