A hungover America slowly wakes up from a day of society-mandated consumption and purchasing excess to engage in even more Fed-mandated excess in the equity markets. The only difference is that while the "90%" was engaged in the former and depleting their equity, and savings, accounts in the process, far less than 10% will be doing the latter.
Overnight attention was drawn to the rapidly escalating territorial dispute between China and Japan, now in the air, Bitcoin's brief surge above the price of an ounce of gold, and the ejection of the Holland from the AAA Eurozone club (where only Germany and Finland remain), following an S&P downgrade of the Netherlands from AAA to AA+, which however had been largely priced in long ago (and was coupled with an upgrade of Spain from negative to stable outlook, as well as an upgrade of Spain from CCC+ to B-). Europe surprised pleasantly on both the inflation (better than expected) and unemployment rate (dropped from an all time high of 12.2% to 12.1%), even if youth unemployment rose to fresh record highs.
A few quick remarks on "Black Friday" from Deutsche: welcome to Black Friday although this long standing tradition seems to be losing its relevance over time. Indeed major retailers such as Wal-Mart, Target, Best Buy, Kohl’s, JCPenney, Kmart and Toys R Us were all opened for business last night to kick-off the all-important holiday shopping season. Not to be outdone, Macy’s also ended a 155-year tradition to follow suit by opening their doors on Thanksgiving Day. ‘Grey Thursday’ is fast becoming the norm. For bargain hunters who prefer to let their fingers to do the walking, online shopping has also gained increasing popularity in recent years. Indeed the latest poll from AC Nielsen’s Holiday Spending Forecast study, which surveys over 22,000 households throughout the US, indicates that 85% of consumers plan on skipping the stores on Black Friday this year. This is up from 82% in 2012, 82% in 2011 and 80% in 2010 so a negative four-year trend is taking shape. Black Friday shopping seems to be merging with Cyber Monday as well with 51% of consumers say they will do their Black Friday shopping online this year. According to the National Retail Federation, the holiday season generally accounts for about 20% of the retail industry’s annual sales so all eyes will be on retail sales updates/snippets over the weekend.
The US event calendar is empty which means the low volume levitation can continue without fears that on this POMO-free day something may surprise the NY Fed "long only" trading desk.
Overnight bulletin summary from Bloomberg and RanSquawk
- Despite the risk-on sentiment, Bunds were supported by month-end flows and this morning’s CPI releases as market participants expected a higher number following yesterday’s inflation reading from Germany which buoyed expectations
- S&P cut Netherlands to AA+ from AAA; outlook stable, change Spain's outlook to stable from negative, maintains BBB- rating and raise Cyprus sovereign rating to B- from CCC+, outlook stable.
- As was the case yesterday volumes are expected to be light as a result of the Thanksgiving Holiday
- Treasuries head for modest weekly loss in quiet holiday trading; 5/10 and 5/30 curve spreads holding near steepest levels since 2011 on expectations Fed aims to taper asset purchases while holding short rates low indefinitely.
- Sifma recommends 2pm close for U.S. fixed-income markets; stock markets close at 1pm
- Bank of England’s Mark Carney took steps yesterday to head off a potential housing bubble by diluting a credit-boosting program, two weeks after raising growth forecasts and signaling interest rates might increase sooner than previously projected
- Euro-area inflation rose to 0.9% in Nov., more than foreacst, moving toward the ECB’s goal for the first time in four months
- The jobless rate in the EU fell to 12.1% in October from a record 12.2% the prior month
- S&P cut its rating on the Netherlands to AA+ from AAA, leaving Germany, Finland and Luxembourg as the only euro- area countries with a AAA rating at the three main ratings companies
- While the Obama administration has said the government’s troubled healthcare.gov website will function smoothly by the end of tomorrow, those paid to help enroll Americans in Obamacare remain doubtful
- Small businesses won’t be able to use the federal government’s health-insurance website until November 2014 in most U.S. states, the latest delay for Obamacare
- China sent planes over a new air defense zone off its eastern coast for a second day, asserting Communist Party leaders’ determination to enforce control over the area after challenges from the U.S., Japan and South Korea
- Sovereign yields mixed; EU peripheral spreads narrow. Asian stocks mixed, European stocks, U.S. equity-index futures gain. WTI crude, copper and gold higher
Market Re-Cap from RanSquawk
European equities are mixed across the board over the course of the European session this morning with French banks benefiting in early trade after a broker recommendation by UBS and thus providing some gains for the financial sector across Europe. Despite the risk-on sentiment, Bunds were supported by month-end flows and this morning’s CPI releases as market participants expected a higher reading following yesterday’s inflation reading from Germany which buoyed expectations. In turn, EUR/USD failed to benefit from the upward trending EUR/GBP which itself was driven by the regular month-end demand out of EU sovereign names. At the same time, a combination of profit taking related flows, together with optionality plays continues to weigh on JPY, with both USD/JPY and EUR/JPY now trading in negative territory. Looking ahead for the session, there is the release of Canadian GDP, but other than that, it is set to remain a quiet one, following yesterday’s US Thanksgiving Holiday.
Asian Headlines
China is likely to maintain 2014 economic growth at 7.5% or higher according to China's National Development and Reform Commission macroeconomic research institute deputy director Wang Yiming.
BoJ governor Kuroda said they need to keep watching impact of BoJ's JGBs buying on debt market and that JGBs may fluctuate sharply if confidence in Japan's finances erode, which would inflict severe damage to the economy.
Japanese National CPI (Oct) Y/Y 1.1% vs. Exp. 1.1% (Prev. 1.1%).
- National CPI Ex Food and Energy (Oct) Y/Y 0.3% vs. Exp. 0.2% (Prev. 0.0%)
EU & UK Headlines
S&P cut Netherlands to AA+ from AAA; outlook stable.
S&P changed Spain's outlook to stable from negative, maintains BBB- rating.
S&P raised Cyprus sovereign rating to B- from CCC+, outlook stable.
ECB's Coeure said that quantitative easing like that in Japan and the U.S. is not right for the Euro area and that current inflation is low but clearly positive and we don't see deflation threats at the moment UK Mortgage Approvals (Oct) M/M 67.7k vs Exp. 68.5k (Prev. 66.7k, Rev. 66.9k) - Highest since Feb 2008 UK October gross mortgage lending GBP 15.7bln - Highest since October 2008
Euro-Zone CPI Estimate (Nov) M/M 0.9% vs Exp. 0.8% (Prev. 0.7%)
Euro-Zone CPI Core (Nov A) M/M 1.0% vs Exp. 0.9% (Prev. 0.8%)
Euro-Zone Unemployment Rate (Oct) 12.1% vs Exp. 12.2% (Prev. 12.2%)
Barclays month-end extensions: Euro Aggr (+0.04y)
Barclays month-end extensions: Sterling Aggr (+0.06y)
US Headlines
Newsflow in the US continues to be light amid yesterday's Thanksgiving holiday.
Barclays month-end extensions: Treasuries (+0.11y) Of note, although the avg. is around 0.06y, larger than avg. increase had been expected given the 3y, 10y and 30y refunding auctions last week.
Equities
Stocks in Europe have recovered from a lower open and are now seen mixed across the board, with financials as the best performing sector after positive broker recommendations by UBS on French banking names. In terms of specific indices, the Ibex is leading the way after being supported by Santander who are up around 0.5%. In terms of other news Rio Tinto are trading with gains as the Co. have approved expansion of its annual iron ore output capacity to 360mln tons by 2017 and said that they will deliver the expansion at an estimated capital cost of more than USD 3bln below previous expectations.
FX
Despite the upward move seen in EUR/GPB, EUR/USD has failed to benefit despite today’s inflation figure from the Eurozon which did see a higher than expected reading, although some market participants were expecting an even higher reading as a result of yesterday's CPI reading from Germany. JPY is being weighed on by optionality plays which can be observed in USD/JPY and EUR/JPY.
Commodities
Heading into the North American open, WTI and Brent crude futures trade in positive territory with volumes still remaining light following yesterday's US Thanksgiving holiday. The WTI-Brent spread has been narrowing throughout the session this morning despite a recent widening of the spread with levels not seen since February amid an increase in supply from the US and supply continuing to be constricted from OPEC nations such as Libya following domestic disturbances.
Japan crude imports have fallen 2.9% in October with Iran specific imports falling 18.9% in October as the nation struggled to adhere to the US sanctions targeting Tehran.
Rio Tinto to suspend production at Gove Alumina refinery. Co. says refinery no longer viable due to low alumina prices and high exchange rate.
China's official media pointedly said that Japan is the "prime target" of Beijing's newly declared air control zone over the East China Sea, warning that China is willing to engage in "a protracted confrontation with Japan." (Yonhap). In other reports, an official from Japan's Liberal Democratic party is considering asking lawmakers to consider a ruling that would demand immediate withdrawal of China's air defense zone.
DB's Jim Reid concludes the overnight summary
Welcome to Black Friday although this long standing tradition seems to be losing its relevance over time. Indeed major retailers such as Wal-Mart, Target, Best Buy, Kohl’s, JCPenney, Kmart and Toys R Us were all opened for business last night to kick-off the all-important holiday shopping season. Not to be outdone, Macy’s also ended a 155-year tradition to follow suit by opening their doors on Thanksgiving Day. ‘Grey Thursday’ is fast becoming the norm. For bargain hunters who prefer to let their fingers to do the walking, online shopping has also gained increasing popularity in recent years. Indeed the latest poll from AC Nielsen’s Holiday Spending Forecast study, which surveys over 22,000 households throughout the US, indicates that 85% of consumers plan on skipping the stores on Black Friday this year. This is up from 82% in 2012, 82% in 2011 and 80% in 2010 so a negative four-year trend is taking shape. Black Friday shopping seems to be merging with Cyber Monday as well with 51% of consumers say they will do their Black Friday shopping online this year. According to the National Retail Federation, the holiday season generally accounts for about 20% of the retail industry’s annual sales so all eyes will be on retail sales updates/snippets over the weekend.
Back in the world of financial markets, European investors were also in a bit of a shopping mood yesterday as major bourses closed moderately higher across the region. Gains were paced by the FTSE MIB (+0.92%), the IBEX (+0.52%), and the DAX (+0.39%). Italian markets were said to be supported by Berlusconi’s removal from the Senate and a slightly stronger than expected business confidence reading (98.1 v 97.5 expected). In reality it was a relatively uneventful day for the market with the US out on holiday. Elsewhere in the region, the Eurozone economic confidence index (98.5 v 98.0 expected) also printed somewhat better than expected.
Moving on to the overnight session, Asian equities are a mixed bag and there isn’t really a clear theme to drive the market. Most are expecting another quiet session ahead as it will be a half-day session for US equities and bond markets today. The Hang Seng (+0.1%) and the Nifty (+1.3%) advanced overnight whilst the Nikkei (-1.0%) gave back some of yesterday’s gains after having reached a 6-year high. The S&P 500 futures are up +0.2% as we type. On the data front, Korea’s Industrial Production rose 1.8% mom/+3.0%yoy in October, much stronger than the 0.8%mom/0.9%mom expected by the market. Japan’s industrial production in October fell short of consensus thought, which came at +0.5% mom v +2.0%mom expected. But at least Japan’s inflation data offered some hope that Abenomics seems to be gaining an upper hand in the battle against deflation with its core CPI (ex energy and food) up 0.3% yoy, its highest reading since 1998.
Staying in the region, both Japan and South Korea have both flown planes unannounced through China’s newly declared air defence zone according to BBC News. Japanese officials did not specify when the flights happened but confirmed the surveillance activity, and expressed no intention to change such activities. South Korea and China apparently held talks on this issue yesterday but failed to reach any agreement. South Korea’s foreign minister had previously said that the air zone issue had made already tricky regional situations even more difficult to deal with. The market reaction to these developments has been fairly muted so far.
In terms today, European data will be the focus as we get retail sales data from Germany, consumer spending data and PPI from France, and unemployment rate from Italy. All in all we should be in for a relatively quiet day again ahead of the year’s final non-farm payrolls in the US next week.