With the government shutdown stretching into an improbable 4th day (and with every additional day added on, the likelihood that the impasse continues even longer and hit the debt ceiling X-Date of October 17 becomes greater), today's monthly Non-Farm Payroll data has quickly become No-Farm Payroll. However, just like on day when Europe is closed we still get a ramp into the European close, expect at least several vacuum tube algos to jump the gun at 8:29:59:999 and try to generate some upward momentum ignition in stocks and downward momentum in gold. In addition to no economic data released in the US, President Obama announced last night he has cancelled his trip to Bali, Indonesia, to attend the APEC conference and instead to focus on budget negotiations back at home - which is ironic because his latest story is that he will not negotiate, so why not just not negotiate from Asia? Ah, the optics of shutdown.
As RanSquawk reports, early trade saw equities in the red as they tracked negative closes in the US and Japan. However, throughout the morning financials have been the best performing as the FTSE MIB completely recovers from losses seen early this week when the Letta government appeared to be facing a potential collapse. The FTSE MIB now trades up on the week as Letta has now gained a larger majority in the senate and markets expect former PM Berlusconi to be permanently expelled from government today. Of note the healthcare sector underperforms, weighing on the SMI, a further mark of buoyed risk appetite.
In FX GBP is weaker across the board with GBP/USD continuing moves lower through the 1.6100 handle after reports of long liquidation earlier in the session. Similarly EUR/GBP has seen continued upside after breaking through the 21DMA in yesterday’s session. The cross now approaches highs seen on the 23th Sep 0.8471, and will eye the 0.8500 handle on the break of this level. Of note the 50DMA is at 0.8507. Meanwhile USD/CHF continues to tick higher after breaking the level of an option expiry at the 0.9000 level.
Volumes remain light in bund future contracts as the calendar becomes sparse with the absence of US Non-farm payrolls today after the partial US government shutdown results in the government run BLS being unable to release the highly anticipated data.
Overnight news bulletin from Bloomberg and RanSquawk
- The calendar becomes sparse with the absence of US Non-farm payrolls today after the partial US government shutdown results in the government run BLS being unable to release the highly anticipated data.
- The Bank of Japan refrained from adding to unprecedented monetary stimulus after business confidence surged and Prime Minister Shinzo Abe decided the economy was strong enough to weather a sales-tax increase
- PIMCO's Gross said that Janet Yellen is 100% the next Federal Reserve Chairman.
- Treasuries little changed on the week; Sept. payrolls report pre-empted by U.S. government shutdown. Treasury plans to sell 3Y and 10Y notes and 30Y bonds next week.
- U.S. House Republicans meet at 10 a.m. today in Washington, on the fourth day of a partial government shutdown that shows no signs of ending; Obama canceled plans to attend two economic summits in Asia next week, a setback for his top foreign policy goal
- BlackRock Inc.’s Laurence D. Fink and Pimco’s Bill Gross said the U.S. budget standoff will be resolved without a debt default
- Switzerland’s financial markets regulator said it’s investigating “several” financial firms over the possible manipulation of foreign exchange rates
- While Obama’s health-care overhaul is on the verge of adding 1 million participants to California’s Medicaid participants, many physicians, as well as dentists and pharmacies, will see their fees cut 10% under a 2011 deal by Governor Brown
- JPMorgan’s CEO Jamie Dimon stepped down as chairman of the lender’s main bank subsidiary at the start of July, according to a person briefed on the move
- Sovereign yields mostly higher, peripherals spreads tighter. Nikkei falls 0.94%, leading Asian markets other than China’s lower; little changed; China markets lead gains in Asia. European stocks and S&P 500 futures higher. WTI crude, copper and gold lower
Asian Headlines
The BoJ unanimously voted to keep monetary policy unchanged and said it will make policy adjustments as needed. BoJ 2014 Monetary Base Target (JPY)(Sep 4) 270trl vs. Exp. 270trl (Prev. 270trl)
The BoJ also kept the economic assessment unchanged, stating the economy is recovering moderately and that Japan CPI is likely to rise gradually.
Later BoJ's Kuroda says BoJ easing is enough to meet BoJ's policy target, will take policy response if overseas tail risks threaten Japan's recovery.
EU & UK Headlines
Eurozone PPI (Aug) Y/Y -0.8% vs. Exp. -0.5% (Prev. 0.2%, Rev. to 0.0%)
Eurozone PPI (Aug) M/M 0.0% vs. Exp. 0.1% (Prev. 0.3%, 0.2%)
German PPI (Aug) Y/Y -0.5% vs. Exp. 0.0% (Prev. 0.5%)
German PPI (Aug) M/M -0.1% vs. Exp. 0.0% (Prev. -0.1%)
ECB says banks to repay EUR 4.61bln in 1st 3y LTRO and EUR 3.065bln in 2nd 3y LTRO
Portuguese PM Coelho says concluding reviews was an important target following reports Portugal completed 8th and 9th reviews and is approaching end of the aid program. Coelho also said evidence shows Q3 GDP will be positive. In response to the reports the German-Portuguese 10y government bond yield spread has narrowed by 14bps over the course of the morning.
Fitch affirmed Ireland at 'BBB+'; outlook stable, S&P affirmed Greece's rating at B-/B; outlook stable.
US Headlines
Fed's Fisher (Non-Voter, Hawk) said Fed bond buying message may have increased uncertainty. He added if US default this month due to a failure to lift debt limit, world will never be the same.
PIMCO's Gross and Blackrock's Fink said they see no possibility of US debt default and that they expect the debt stand-off to be resolved rapidly. Gross also added that Janet Yellen is 100% the next Federal Reserve Chairman.
Equities
Early trade saw equities in the red as they tracked negative closes in the US and Japan. However, throughout the morning financials have been the best performing as the FTSE MIB completely recovers from losses seen early this week when the Letta government appeared to be facing a potential collapse. The FTSE MIB now trades up on the week as Letta has now gained a larger majority in the senate and markets expect former PM Berlusconi to be permanently expelled from government today. Of note the healthcare sector underperforms, weighing on the SMI, a further mark of buoyed risk appetite.
Last night it was announced Jamie Dimon is no longer chairman of JPMorgan's banking unit elsewhere Twitter filed for an IPO with initial registration of USD 1bln. Co. said it has over 100mln daily active users and reports H1 2013 net loss of USD 69.3mln and 6-month revenue of USD 253.6mln. Twitter did state that it does not see paying any dividends in the foreseeable future.
FX
GBP weakness has been seen with EUR/GBP continuing its upside after breaking through the 21DMA in yesterday’s session. The cross now approaches highs seen on the 23th Sep 0.8471, GBP/USD remains lower on the day after reports of long liquidation earlier in the session having now settled around the 1.6100 handle after briefly printing a low at 1.6089 as a result of tripping stops below the figure. Meanwhile USD/CHF remains drawn to an option expiry at the 0.9000 level. Goldman Sachs recommends going short USD/JPY, targeting 94.00, citing less favourable rate differentials and less proactive stimulus policies.
Commodities
WTI crude futures see gains in European trade amid forecasts by the NHC of Hurricane Karen weakening, before strengthening again, as it approaches the gulf coast on Saturday or Saturday night.
According to an Iraqi Oil Ministry Spokesman, Iraqi Crude exports for September average 2.07mln bpd, the lowest for this year but Iraq is to start pumping 175,000bpd of Crude from Majnoon field with production set to increase to 200,000 bpd by the end of the year.
Credit Suisse have cut their 2013 Natural Gas forecast to USD 3.70mmbtu.
Iron-ore swaps trading fell 3mln tons from August to 25mln tons in September, according to the Steel Index. Macquarie says sees upside in lead, nickel and PGMS into 2014.
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DB's Jim Reid concludes the overnight event recap
Markets are in controlled risk-off mode at the moment. The S&P 500 had its worst day for almost six weeks last night but still was only down by -0.9%. Stocks took a turn lower after the ISM non-manufacturing data disappointed expectations. The September reading recording a sequential drop of 4.2 pts to 54.4, lower than consensus estimates of 57.0. In the detail of the report, there were notable declines in the business activity (55.1 vs. 62.2 previous) and also the employment component (52.7 vs. 57.0). DB’s economists note that the latter is the most important subcomponent of the series and now stands at the lowest level since last May (50.1). 10yr UST yields rallied around 5bp following the ISM data and finished at 2.61% (-1.3bp on the day). Partially offsetting that disappointment, initial jobless claims had a small beat (308k vs 315k) but its still not clear whether the computer distortions of the last month have fully worked through the data.
Asian markets are also trading with a cautious tone this morning. The Hang Seng (-0.6%), Nikkei (-0.9%) and KOSPI (-0.05%) are tracking yesterday’s losses on Wall St. The BoJ meeting ended with the central bank leaving policy unchanged, and there were minor upward revisions to the outlook for capex and economic outlook. There were no substantive comments made by the BoJ on the looming sales tax hike and its effect on the economy. USDJPY is unchanged this morning at 97.3 and the TOPIX is at -0.6%. In Asia credit, the focus is on the new ICBC Asia tier 2 bond, which is being billed as the region’s first USD Basel III compliant bond. Speaking of bond markets, government bond yields are higher across the board. As we type, 10yr UST, Australian and JGB yields are up 2bp, 11bp and 1 bp overnight.
Returning to Thursday there was a modest bounce in risk in the latter half of US trading after the NY Times reported that House Speaker John Boehner offered assurances to his colleagues that he was determined to prevent a US debt default even if the debt ceiling bill does not have majority Republican support. The article suggested that Boehner will put aside a practice known as the “Hastert rule” where party policy prevents the bringing to the floor of any bill that does not have majority Republican support. While the events inside Capitol Hill took much of the focus, so did events outside. There was a small wobble in risk after shots were fired near Pennsylvania Avenue in the vicinity of Capitol Hill. Though the event quickly subsided, members of Congress were locked down in their offices for much of the afternoon, perhaps putting to bed any budget progress for the day. Though it was a soft day for equities, cash credit markets outperformed on a relative basis. Corporate bonds were marked firmer to unchanged across many sectors and we saw a small 1bp tightening in the iBoxx $ domestic corporates index. The USD index hit an eight-month low yesterday, but despite this EM FX continued to weaken against the USD led by the BRL (-0.7%), MXN (-0.3%) and TRY (-0.5%).
In Europe, there was relief in Portugal after the troika described the government economic program as “broadly on track”. The government also raised its forecast for 2014 growth to 0.8% (from 0.6%) and said that 2013 growth will be -1.8% (from -2.3%). Portuguese yields closed 16bp lower at 6.484%. At the ECB, Bloomberg is reporting that Mario Draghi has asked a ECB panel to study options for new bank funding measures, including potentially another LTRO, citing two euro-region central bank officials. However, two ECB officials, Coeure and Noyer, yesterday downplayed the
benefits of additional liquidity.
Turning to the day ahead, the data calendar looks relatively light with the government shutdown delaying September’s nonfarm payrolls indefinitely. President Obama has cancelled a trip to Bali, Indonesia, to attend the APEC conference to focus on budget negotiations back at home. The data flow in Europe is light as well, with only the German and Eurozone PPI.