If anyone was expecting a start to the week with another fresh burst of Yen weakness, they were not disappointed and starting in the overnight session following the return of the as predicted now daily BOJ jawboning of the Yen lower, the USDJPY ramped higher reaching just shy of 103, even though tonight's move barely moved the Nikkei which closed unchanged. There was speculation of further possible weakness and suggestion that the Yen may drop to 108 vs USD in the coming year as Japan’s main government pension fund invests more of the world’s largest pool of retirement savings abroad, former Ministry of Finance official Eisuke Sakakibara said. Of course, what Japan "may" do and what it will do are very different, especially considering that the EURJPY has already soared about 700 pips merely on hope that more BOJ QE may be coming. In other less than pleasant news for Japan's religionomic uber shaman, Abe’s public support dropped below 50% for the first time amid a campaign to strengthen Japan’s secrecy laws, a decline that risks eroding his political capital to enact economic reforms.
Over in China, the initial enthusiasm with which the beat in both the Official (51.4 vs 51.1 forecast) and HSBC (50.8 vs 50.5 forecast) PMis were greeted, promptly faded and the SHCOMP also closed red on concerns that more monetary tightening by the PBOC was imminent. In Europe, curiously despite the stronger than expected final PMIs (see chart below), the EUR has suddenly found itself in an airpocket and the EURUSD has slide nearly 100 pips since the European open for reasons still largely unknown.
A quick snapshot of Europe's final manufacturing print for November via Goldman: "The Euro area final manufacturing PMI printed at 51.6 in November, up 0.1pt from the Flash reading (and the Consensus expectation) and up 0.3pt relative to October reading. The French final PMI came in 0.6pt higher than the Flash; this limits the French November decline to 0.7pt. The German PMI increase was revised upwards by 0.2pt.The November PMI disappointed in Spain, but surprised to the upside in Italy."
Previewing the rest of this week’s events, we have a bumper week of US data over the next five days, in part making up for two days of blackout last week for Thanksgiving. Aside from Friday’s nonfarm payroll report, the key releases to look for are manufacturing ISM and construction spending (today), unit motor vehicle sales (tomorrow), non-manufacturing ISM (Wednesday), preliminary Q3 real GDP and initial jobless claims (Thursday), as well as personal income/consumption and consumer sentiment (Friday). Wednesday’s ADP employment report will, as usual, provide a preamble for Friday’s payrolls.
Overnight headline bulletin from Bloomberg and Ransquawk:
- Combination of profit taking related flow, as well as market participants positioning for a slew of risk events due to take place this week ensured that stocks traded lower in Europe.
- The Office for Budget Responsibility (OBR) – the Government’s independent fiscal watchdog – is likely to upgrade its projection for UK growth in 2013 to 1.4%, from a forecast of 0.6% in March.
- Looking ahead for the session there is the release of ISM Manufacturing (Nov) M/M Exp. 55 (Prev. 56.4) at 1500GMT/0900CST.
- Treasuries decline, led by 5Y and 7Y with 10Y yields near Sept. highs and curves steepening; focus on Friday’s jobs report amid expectations Fed aims to taper asset purchases while holding short rates low indefinitely.
- China’s purchasing managers index held at 51.4 in Nov., higher than the median forecast in a Bloomberg survey
- Manufacturing in the euro area expanded in Nov., with Markit Economics’s factory index rising to 51.6 from 51.3 and an estimate for 51.5
- U.K. manufacturing rose to 58.4 in Nov., highest since Feb. 2011
- JPY may drop to 108 vs USD in the coming year as Japan’s main government pension fund invests more of the world’s largest pool of retirement savings abroad, former Ministry of Finance official Eisuke Sakakibara said
- Abe’s public support dropped below 50% for the first time amid a campaign to strengthen Japan’s secrecy laws, a decline that risks eroding his political capital to enact economic reforms
- The U.S. and Japanese governments’ split over how commercial airlines should operate in China’s self-declared air-defense zone has put carriers at the center of an escalating political dispute
- While the U.S. said yesterday that its Obamacare web site repair goals were reached, the site’s stated new capacity of 50k users hasn’t been proven in the real world and officials aren’t certain the site will hold up, according to a person familiar with the repairs
- Opponents of Ukrainian President Viktor Yanukovych are trying to shut down government buildings after he refused to sign a EU trade agreement and the authorities violently dispersed a protest
- Sovereign yields higher; EU peripheral spreads narrow as bund yields rise. Asian stocks mixed, European stocks and S&P 500 index futures gain. WTI crude, copper and gold decline
Market Recap from RanSquawk
Combination of profit taking related flow, as well as market participants positioning for a slew of risk events due to take place this week ensured that stocks traded lower in Europe. Even the release of better than expected macroeconomic data from China overnight, together with broadly higher Manufacturing PMIs out of Eurozone failed to lift sentiment and the move lower was led by utilities, with ENEL down over 3% after analysts at Deutsche Bank noted that co.’s estimated earnings show no growth for 2013/14. Also, shares in ThyssenKrupp fell 7% as investors reacted to news over the weekend of the German steelmaker’s planned capital increase.
However in spite of the evident risk off sentiment, Bunds failed to gain upside traction and were dragged lower by Gilt, which fell over 70 ticks amid the reports that the Office for Budget Responsibility is to upgrade its projection for UK growth in 2013 to 1.4% from a forecast of 0.6% in March, together with the release of two and a half year high reading for UK PMI Manufacturing. In turn, despite a firmer USD, GBP/USD outperformed its peers, with EUR/GBP falling to its lowest level in over 11-months. Of note, USD/JPY touched on its highest level in 6-months, with RKO barriers noted at 103.00 and then at 103.25. Going forward, market participants will get to digest the release of the latest ISM Manufacturing report.
Global Headlines
Goldman Sachs 4th top trade for 2014: long China stocks/short copper.
Goldman Sachs 3rd Top Ten 2014 Trade is long USD/CAD; targeting 1.14.
Goldman Sachs 2nd Top Ten 2014 Trade is long 5 yr EONIA vs short 5 yr US Treasuries.
Goldman Sachs 1st Top Ten 2014 Trade is Long S&P500, short AUD/USD.
Asian Headlines
Chinese Manufacturing PMI (Nov) M/M 51.4 vs. Exp. 51.1 (Prev. 51.4); an 18-month high.
Chinese HSBC Manufacturing PMI (Nov) M/M 50.8 vs. Exp. 50.5 (Prev. 50.9).
New Orders at an 8-month high of 51.7 vs. Prev. 51.5.
Morgan Stanley leaves China's 2013 growth forecast at 7.6% and raises 2014 exp. to 7.2% from 7.1%.
BoJ governor Kuroda said he wont hesitate to make policy adjustment if needed and that he doesn't think risks from sales tax rise are so high.
EU & UK Headlines
The Office for Budget Responsibility (OBR) – the Government’s independent fiscal watchdog – is likely to upgrade its projection for UK growth in 2013 to 1.4%, from a forecast of 0.6% in March.
The German-Greek spread has tightened by around 10bps after Moody's upgraded Greece's government bond rating to Caa3 from C; Outlook stable.
BoE's Carney warned would be British home owners to consider risks of higher interest rates amid concerns that rising house prices could create a property market bubble
Eurozone PMI Manufacturing (Nov F) M/M 51.6 vs Exp. 51.5 (Prev. 51.5)
German PMI Manufacturing (Nov F) M/M 52.7 vs Exp. 52.5 (Prev. 52.5)
French PMI Manufacturing (Nov F) M/M 48.4 vs Exp. 47.8 (Prev. 47.8)
UK PMI Manufacturing (Nov) M/M 58.4 vs Exp. 56.1 (Prev. 56.0) - two and a half year high
Swiss PMI Manufacturing (Nov) M/M 56.5 vs Exp. 54.4 (Prev. 54.2)
Italian PMI Manufacturing (Nov) M/M 51.4 vs Exp. 50.8 (Prev. 50.7) - Highest since 2011
- Italian PMI Jobs Sub-Index (Nov) 50.6 vs Prev. 49.2.
Spanish Manufacturing PMI (Nov) M/M 48.6 vs Exp. 51.1 (Prev. 50.9)
US Headlines
After holdings of US debt surged to a record USD 1.89trl in 2012, lenders from Citigroup to Bank of America and Wells Fargo are culling for the first time in six years and amassing USD amid taper risk.
Dagong Global Credit Rating Co. may further downgrade US sovereign rating if the nation fails to improve its debt service capability.
Equities
The release of better than expected macroeconomic data from China, together with an encouraging set of Eurozone based PMIs this morning failed to lift sentiment, with stocks trading lower throughout the session as market participants booked profits and positioned for a slew of risk events due this week. The move lower was led by utilities, with ENEL down over 3% after analysts at Deutsche Bank noted that co.’s estimated earnings show no growth for 2013/14. Also, shares in ThyssenKrupp fell 7% as investors reacted to news over the weekend of the German steelmaker’s planned capital increase.
FX
In spite of a firmer USD, GBP/USD traded higher, supported by the release of two and a half year high reading for UK PMI Manufacturing which consequently resulted in EUR/GBP falling to 11-month low. At the same time, combination of favourable interest rate differential flows, together with options related flow ahead of touted RKOs at 103.00 and 103.25 saw USD/JPY edge higher, touching on a 6-month high in the process.
Commodities
Heading into the North American open, WTI and Brent crude futures trade relatively unchanged despite seeing some upside in the the Asian session where it was reported that Iranian president Rouhani insisted that Tehran will not dismantle its nuclear facilities.
Iran are seeking foreign capital for oil and gas development projects and are to consider increasing the share of profits that go to foreign investors. Iran and European oil executives are to meet in early 2014 to present terms of doing business in Iran again.
Libya's oil output around 224,000bpd as of Nov 30. up from 172,000 two weeks ago and the nations oil exports are around 130,000bpd, with the remainder used to feed Zawiya refinery. according to the Deputy Oil Minister.
Concluding the overnight event recap is DB's Jim Reid
In the week where we're looking to finish our 2014 outlook we have two big end week events to keep us on our toes and potentially complicate things for us. On top of that today's PMIs (and the ISM) give us the latest barometer of global manufacturing activity. China has already slightly beaten expectations in its HSBC flash PMI this morning (50.8 vs 50.5 forecast), which followed the weekend’s official manufacturing PMI that was also above consensus (51.4 vs 51.1 forecast).
Looking to the end of the week, the ECB have their monthly policy meeting on Thursday and then Friday brings all the fun and games of a US payroll number that could decide whether 2013 ends with the FOMC reducing some of the $85bn monthly bond buying. As for the ECB, it seems they are actively considering/debating what more they can do to combat low inflation but it does seem to us that there needs to be more work done before they agree on a strategy. This is the view of our economists but they acknowledge that the recent rise in eonia - which they suggest may reflect treatment of LTROs in the end-December AQR and be encouraging the accelerated 3Y LTRO repayments - may require some policy action. Overall it’s a close call for them but the most likely is no action for now.
As for payrolls the 3-month moving average is currently +202k which is the highest since April (+224k). Our economists expect +185k (+190k private), but also +50k in upward revisions thus helping maintain the 3-month average. Consensus is for +183k and +175k in the headline and private payrolls respectively. In terms of the unemployment rate, DB is calling for at least a one-tenth decline to 7.2% which is also consistent with Bloomberg median estimates. Our economists think that if their forecasts are correct then we will get a Dec-taper. I don't think the market is set up for this though.
Turning to markets, Asian equities have gotten off to a rocky start to the week despite some initial optimism around the twin-Chinese PMI beats at the start of the session. That optimism has been replaced by selling in Chinese equities, particularly small-cap Chinese stocks and A-shares after the Chinese security regulator issued a reform plan for domestic IPOs over the weekend. The market is expecting the reforms to lead to a higher number of IPOs in the coming quarters, and the fear is that this will bring a wave of new supply of stock to an already-underperforming market. Indeed, the Chinese securities regulator expects about 50 firms to complete IPOs by January 2014 – and another 763 firms have already submitted their IPO applications and are currently awaiting approval. A large number of small cap stocks listed on Hong Kong’s Growth Enterprise Market were down by more than 5% this morning, while the Shanghai Composite is down by 0.9%. The Hang Seng (+0.4%), Hang Seng China Enterprises Index (+0.8%) are performing better on a relative basis, and other China-growth assets including the AUDUSD is up 0.5%. The Nikkei (-0.1%) is also a touch weaker after Japan’s Q3 capital expenditure numbers came in well below estimates (1.5% YoY vs 3.6% forecast). Elsewhere Sterling continues to forge new multi-year highs against the USD (+0.3% overnight).
Previewing the rest of this week’s events, we have a bumper week of US data over the next five days, in part making up for two days of blackout last week for Thanksgiving. Aside from Friday’s nonfarm payroll report, the key releases to look for are manufacturing ISM and construction spending (today), unit motor vehicle sales (tomorrow), non-manufacturing ISM (Wednesday), preliminary Q3 real GDP and initial jobless claims (Thursday), as well as personal income/consumption and consumer sentiment (Friday). Wednesday’s ADP employment report will, as usual, provide a preamble for Friday’s payrolls.
Outside of the data flow, today’s Cyber Monday sales may provide some clues as to the health of US holiday season sales. Some surveys are suggesting that online sales could increase 20% over last year (ComScore). The anecdotal evidence from Black Friday sales suggest that bricks-and-mortar sales increased 2.3% on the same period last year, which was slightly below expectations and the slowest rate of growth since 2009. ShopperTrak forecasts are for an uninspiring 2.4% increase in sales for November and December as a whole. There was also a 3.9% decline in the average shopper’s spending during the Black Friday weekend according to a survey by the National Retail Federation. On a more positive note, there was strong growth in Black Friday ecommerce sales. Adobe Systems said its data showed record online sales for Black Friday and Thanksgiving at $1.93 billion and $1.062 billion, respectively. Adobe said in a statement that Friday’s sales were up 39% from the year before and rose 18% for Thursday. Wal-mart noted that they had the most successful Black Friday sale in their history.
Coming back to the week ahead, in Europe manufacturing PMI data today and service PMI data on Wednesday are the major data releases. The BoE is also scheduled to meet on the same day as the ECB but DB expects no change in policy from either central bank. Eurozone’s 3Q GDP and retail sales are released on Wednesday. It will be a relatively quieter week in Asia with no major data releases. There is talk that the US and Japan may issue a joint statement this week calling on China to retract its recently established airdefense zone (Bloomberg). This comes as US Vice President Joe Biden makes a visit to North Asia this week.