Overnight global markets have gone decidedly nowhere, in expectation of the long-overdue September payroll report, and seemingly oblivious of the Goldman pre-announcement all clear [24]that "Any positive number will be discounted because it came before the DC theatrics and if it’s weak it confirms that tapering should be put off longer." In other words, both the September, and accompanying July and August revisions (recall it was the revisions where the August NFP number ended the FOMC's taper talk) are meaningless because everything will be spun bullish. For those who do care - mostly headline reacting HFT algos - here is the summary: consensus is for 180k (unemployment rate unchanged at 7.3%). Note that the survey period for today’s payrolls report was prior to the shutdown which started on October 1st. As for how the amusingly named "market" will react to the news: see Goldman quote above, or better yet: just call the NYFed trading desk.
On today's docket there isn’t much else on the calendar aside from the US payroll report which is due at 8:30 am Eastern. It’s a busy day for corporate earnings as 30 S&P500 constituents report today with names like Lockheed Martin (before market). The Richmond Fed manufacturing survey and construction spending are the other data releases of note.
Overnight bulletin summary from BBG and Ran
- The September nonfarm payrolls report will be released today, eleven days later than originally scheduled, after a bipartisan agreement was reached to reopen the US government.
- Estimates range from 100k to 256k; A payrolls number of 175k or less, supported by “flabby” earnings/hours worked and August revised lower by 25k or more, would drive the biggest rally in Treasuries, FTN strategist Jim Vogel wrote in a note yesterday
- According to policy adviser, China's central bank may tighten policy slightly in response to rising inflation.
- Barclays cut Japan Q3 GDP forecast to an annual +0.3% from +2.2% citing sluggish Japan consumption and exports.
- Britain’s budget deficit narrowed more than economists forecast in September as the housing-market recovery boosted stamp duty and rising spending lifted value-added tax
- Home prices in China’s four major cities jumped the most since January 2011, heightening concerns a bubble is forming as the government refrains from introducing more property curbs that would hinder economic growth
- Bank of America Corp., sued by U.S. attorneys in August over an $850m mortgage bond, faces three additional Justice Department civil probes over MBS, according to two people with direct knowledge of the situation
- The frantic weeks before the start of Obamacare were marked by a chaotic effort in which officials failed to complete exhaustive testing of the program’s website in a push to begin signups by Oct. 1, according to people involved in the rollout
- Obama sought to reassure French President Francois Hollande about the countries’ relations after a report that the NSA eavesdropped on millions of phone calls inside France
- Sovereign yields mostly lower, EU peripheral spreads narrow. Asian equities mixed, Nikkei gains 0.1%; European markets and U.S. equity-index futures little changed. WTI crude and gold lower, copper gains
Market Re-Cap from RanSquawk
Even though stocks traded lower in Europe this morning ahead of the release of the delayed jobs report by the BLS, both EUR/CHF and USD/JPY remained bid, underpinning the view that the release is unlikely to have a meaningful impact on the market direction when released later on in the session. A similar view was also echoed by analysts at GS, who believe that any positive number will be discounted because it came before the DC theatrics and if it’s weak it confirms that tapering should be put off longer. The cautious sentiment, together with decent earnings from Novartis meant that the more defensive equity sectors outperformed, which also resulted in the SMI outperforming its EU peers. Going forward, apart from awaiting the release of the jobs report, market participants will also get to digest more corporate updates, with around 30 S&P 500 constituents reporting today.
Asian Headlines
Barclays cut Japan Q3 GDP forecast to an annual +0.3% from +2.2% citing sluggish Japan consumption and exports.
Barclays also forecast Japan's growth to rise at an annual 3.7% in Q4.
According to policy adviser, China's central bank may tighten policy slightly in response to rising inflation.
Also added that China's central bank will rely on money market liquidity adjustments to tighten policy and China's economy likely to grow 7.5% in Q4, 7.6% in 2013, China's annual inflation may be 3.1% in Q4, no sharp rises expected.
EU & UK Headlines
BoE's Bean said that the fact that UK yield curve has steepened far less recently than past recoveries would suggest, may indicate that forward guidance has some effect on short end.
Separately, BoE's Tucker said that forward guidance means BoE wont commit to stimulus exit prematurely when there is still slack in economy
UK PSNB ex interventions (Sep) M/M 11.1ln vs. Exp. 11.3bln (Prev. 13.2bln, Rev. 12.5bln)
- UK Public Finances (PSNCR) (Sep) M/M -0.6bln vs. Exp. 8.2bln (Prev. -3.0bln, Rev. -2.7bln)
- UK Public Sector Net Borrwing (Sep) M/M 9.4bln vs. Exp. 10.0bln (Prev. 11.5bln, Rev. 10.8bln)
- UK PSNB ex Royal Mail, APF (Sep) M/M 11.1bln vs. Exp. 11.5bln (Prev. 13.2bln, Rev. 12.5bln)
Bunds traded steady this morning, as market participants remained on the sidelines ahead of the release of the jobs report from the BLS. There was also distinct lack of supply, with only Spanish Treasury selling just over EUR 3.5bln in 3- and 9-Month T-Bills, while the 7y EFSF issue was set at EUR 6bln and MS+20bps area.
Separately, the DMO from the UK set the size of the upcoming 2068 Gilt tap at GBP 4.5bln and final spread at +2.5bps over 2060 Gilt.
ECB's Coene says further drop in inflation might warrant policy action, but too early now.
German government to keep their growth forecast for 2013 at 0.5%, raise forecast for 2014 to 1.7% from 1.6%, according to a source.
US Headlines
Apart from digesting the release of the delayed jobs report, market participants will also await the release of the latest Richmond Fed manufacturing survey and construction spending data.
Equities
Stocks traded steady in Europe, albeit in minor negative territory, and health care sector outperforming as market participants awaited the release of the delayed NFP report. SMI outperformed, with Novartis leading the move higher following an encouraging earnings report pre-market. Also, despite lower commodity prices, the FTSE-100 index also traded higher, with BHP Billiton among the best performing stocks after the company raised FY14 iron ore guidance to 212mln tonnes and maintained FY14 production guidance for petroleum, copper and coal.
FX
Even though USD/JPY implied vols traded heavy ahead of the major risk event (NFP report from the US), the spot rate remained bid and tested the 100DMA line at 98.41. Move above will see the pair target the 50DMA line which is located just above at 98.47.
Looking elsewhere, despite softer commodity prices, AUD/USD trended higher and traded close to its highest levels since mid-June, after BHP Billiton raised its production forecast for iron ore. Technically, major technical resistance level is seen at the 200DMA line at 0.9753.
Commodities
According to Energy Aspects, Asia have paused imports of crude, following expectations that Iraqi production is to resume following maintenance shutdowns.
In order for China to win a waiver on US sanctions regarding Tehran's nuclear programme, the nation will need to make huge cuts to its Iranian oil imports. In other news for China, the countries winter gas supply shortfall may rise to as much as 10%.
BMO revises up 2014 gold forecast from USD 1,181 to USD 1,275 and silver from USD 18 to USD 21.
BHP Billiton raised FY14 iron ore guidance to 212mln tonnes and maintained FY14 production guidance for petroleum, copper and coal.
China platinum jewellery demand is seen reaching a record this year, with demand climbing to 2.1mln oz, according to ETF Securities Director of Research Mike McGlone.
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Deutsche completes the overnight event narrative and summarizes what to expect today:
As regular readers will know we have long thought that tapering is going to be incredibly slow paced and probably now not starting until March 2014 at the earliest (fast becoming consensus). As such we continue to believe most assets will stay at elevated valuations and probably get more expensive over the coming few months on liquidity reasons alone. However even if we end up being correct there can always be much volatility around the market's perception of the timing of the taper and short-term reversals are easily possible. Days like today could swing markets back to pricing earlier tapering if the number is decent. Our base case is for a sluggish sub-200k pace of payroll gains over the next few months but one thing that keeps us vigilant on thisview is that seasonals often turn more positive from this point in the calendar. The three summer months tend to have depressed payroll numbers and its possible the soggy numbers seen this summer were just another manifestation of this. There's almost no way of proving this but it’s possible that history repeats itself and that payrolls end the year more buoyant than we expect. So notwithstanding the likely distortions coming up in future reports from the shutdown, today's number will provide some clues as to whether there has been any seasonal bias in 2013. The ADP report for September we saw nearly 3 weeks ago argues against this though as it came in at a tepid +166k. So we're not basing our view on the seasonals but will feel more comfortable with our very slow tapering view through 2014 once we see a continuation of the slow job growth post the summer.
Indeed yesterday the Fed's Charles Evans, one of the more dovish members of the FOMC, commented to the effect that the Fed will likely delay tapering for at least a few months. Evans mentioned that the hurdles for tapering included “a couple of good labor reports and evidence of increasing GDP growth” which is “probably going to take a few months to sort out". Evans also pretty much ruled out a move at this month’s FOMC which clearly isn't a surprise.
Yesterday’s US home sales data also argued against an imminent taper. Existing home sales declined 1.9% to an annual seasonally adjusted rates of 5.29M. The prior month’s print of 5.48M was revised lower to 5.39M as well. The National Association of Realtors mentioned that housing affordability has fallen to a five year low as a result of rising rates and house prices.
Risk appetite is very much in consolidation mode in overnight markets following on from yesterday where the S&P500 (+0.01%) managed to eke out the smallest of gains. Volumes are low across the board with most investors content to stay on the sidelines ahead of today’s NFP. The Hang Seng (-0.48%) and Chinese A-shares (-0.6%) are the overnight laggards in Asia after the latest Chinese home price data showed that prices increased in 69 out 70 major cities. There were 20%+ yoy price increases in a number of cities while prices rose 16% and 17% in Beijing and Shanghai respectively. The data is adding further policy risk to the Chinese real estate and construction sector. On the micro-side there has been some talk that Apple Inc is preparing a 55-inch and 65-inch ztelevision for sale from Q3 2014 (Source: Bloomberg). This comes ahead of the company’s product event today which some are expecting will be used to unveil a suite of updates and new products. Apple’s stock was up 2.5% yesterday and a number of digital display companies in Asia are outperforming overnight. Other equity indices such as the Nikkei (+0.05%) and ASX200 (+0.4%) are marginally firmer, the latter by mining giant BHP who raised their full year iron ore production target. On the fixed income side, 10yr UST yields are unchanged at 2.60% and Asian credit spreads are 1-2bp wider amid some position squaring ahead of the event risks later today.
Looking ahead to today, there isn’t much else on the data calendar aside from the US payroll report which is due at 1:30pm London time. It’s a busy day for corporate earnings as 30 S&P500 constituents report today with names like Lockheed Martin (before market) interesting from a macro perspective. The Richmond Fed manufacturing survey and construction spending are the other data releases of note.