While there was a plethora of macro data (starting with some ugly numbers out of Australia which clobbered AUD pairs overnight), China HSBC Services PMI dipping slighlty from 52.6 to 52.5, Final Eurozone PMI Services (printing at 51.2 up from 50.9 and beating expectations of the same on an increase in German PMI numbers from 54.5 to 55.7 and a decline in French PMI from 48.8 to 48.0), Eurozone retail sales declining by 0.2%, on expectations of an unchanged print, and much more (see below), perhaps the most important news of the day came from Japan which many expect will be the source of much more easing in the coming months and thus serve as marginal lever to push global fungible markets higher. However, not only did various BOJ officials for the first time in a while talk down expectations of a QE boost, but the head of the Japan GPIF said that it doesn't need to sell JGBs right now as it would "rock markets" and that instead can achieve its targeted 52% weighing as bonds mature, that it may buy foreign bonds instead to raise weighting to core target (as the Fed buys Japan bonds?), and that it will be very difficult for Japan to hit the BOJ's inflation target in 2 years. Is Japan already getting cold feet on rumors of more QE and did it realize there are only so many assets it can monetize. If so, watch out below on the EURJPY which has now priced in about 700 pips of expected BOJ QE boosting in early 2014.
Looking at Europe, stocks traded broadly higher this morning, supported by the bounce back by basic materials names which underperformed yesterday and also lower trading Bunds, which were weighed on by the looming supply. At the same time, as RanSquawk reports, a combination of somewhat cautious trading update release by Standard Chartered which consequently pressured HSBC, together with the fact that a number of blue-chip stocks were trading ex-dividend meant that the FTSE-100 index has underperformed its peers. This together with reports that the EU Commission is to fine 6 banks USD 1.7bln over rate rigging manipulation meant that heading into the North American cross over, financials are among the worst performers.
European services PMIs looked as follows:
Looking elsewhere, AUD came under distinct selling pressure overnight and this morning as market participants digested the release of weaker than expected GDP data and also comments by Australian treasurer Hockey who said Australia has challenges ahead and faces a growth hole as mining investment drops, government GDP forecasts will not be achieved and that GDP growth is not strong enough to create jobs. Analysts noted that AUD/USD's ability to fall easily is a reflection of speculative positions, since bets on a lower AUD are about half the level when AUD/ USD was last down at these levels. This morning also saw the release of the latest UK Services PMI, which failed to meet consensus estimates and in turn resulted in GBP underperforming EUR. Going forward, market participants will get to digest the release of the latest ADP report, New Home Sales survey from the US and the BoC rate decision.
Finally, there is just one POMO today amounting to $2.75-$3.50 billion in the 2021-2023 maturity range.
Overnight news bulletin from Ransquawk and Bloomberg
- Stocks traded broadly higher in Europe this morning, supported by the bounce back by basic materials names which underperformed yesterday and also lower trading Bunds, which were weighed on by the looming supply.
- The EU Commission is to fine 6 banks USD 1.7bln over rate rigging manipulation, with Barclays and UBS being exempt because they were they whistle-blowers for the case.
- Going forward, market participants will get to digest the release of the latest US ADP report, New Home Sales survey, DoE Inventories, BoC rate decision and any comments from the OPEC meeting.
- Treasuries decline, with 10Y yields holding around 2.80%; 2/10 near widest since July 2011 as focus remains on Friday’s jobs report, possibility FOMC may decide to announce QE tapering at Dec. meeting.
- Deutsche Bank AG and RBS are among six companies fined a record EU1.7b by the EU for rigging rates linked to Libor
- Deutsche Bank bans multi-party chat rooms at its fixed income business, widening a measure imposed for fx in February after alleged attempts by traders to rig rates, says Michael Golden, spokesman for co
- Wall Street banks, which already shut proprietary trading units that helped fuel record profits, are girding to learn next week how much revenue the Volcker rule may cut from the $44b they say comes from market-making
- Franklin Resources Inc.’s biggest funds ramped up their bet on Ukraine by more than $1.4b in 3Q, adding to its status as the country’s largest international bondholder weeks before street protests deepened the worst rout in developing markets
- Australia’s economy expanded slower than economists forecast last quarter after households boosted savings, suggesting the central bank may need to do more to spur spending
- China offered Japan talks on the safety of aircraft in overlapping air defense zones after Biden urged Asia’s top two economies to set up channels for resolving their disputes
- After struggling for two months to fix the healthcare.gov web site at the core of his signature legislation, Obama yesterday began what aides say will be a three-week campaign to use his bully pulpit to regain momentum for his initiative
- 57% of Americans said they opposed Obamacare in a Washington Post/ABC News poll taken Nov. 14-17, and the country was evenly split 49% to 49% on whether it could even be salvaged
- Sovereign yields higher. EU peripheral spreads narrow. Asian stocks mostly lower, with Nikkei falling 2.2%, European stocks lower while U.S. equity index futures gain. WTI crude and copper rise, gold falls
US event calendar
US: ADP employment change, cons 170k (8:15)
US: ISM Non-mfg composite, cons 55.0 (10:00)
US: POMO in $2.75-$3.50 billion in the 2021-2023 maturity range (11:00)
Global Headlines
Goldman Sach's 6th top trade for 2014: long Japan, US and Europe banks.
- Goldman Sachs 5th top trade for 2014; long 7y CDX IG21 junior mezz
- 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 recommendations to go 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
Japan GPIF Head says that they don't need to sell JGBs immediately as it would rock markets and thinks can lower JGB weighting to recommended 52% without selling as bonds mature. Furthermore, the head also said it is very difficult for Japan to hit BoJ's 2% inflation target in 2 years.
Chinese HSBC Services PMI (Nov) M/M 52.5 (Prev. 52.6)
Japan national government, local governments and private sector plan a total JPY 18.6trl stimulus package to cushion the impact of the sales tax increase in April.
BoJ board member Sato does not expect sales hike to cause a severe economic downturn and said there is no need to ease pre-emptively if the economic impact of the sales tax hike is temporary.
EU & UK Headlines
EU Commission fines 6 companies for benchmark manipulation, 2 exempted
- Deutsche Bank gets biggest combined penalty of EUR 725.4mln.
- RBS agrees to pay EUR 391mln in cartels.
- SocGen fined EUR 445.9mln for Euribor manipulation.
- JPMorgan fined EUR 79.9mln in JPY LIBOR case.
- UBS and Barclays escape fines as EU whistle-blowers.
EU GDP SA (Q3 P) Q/Q 0.1% vs Exp. 0.1% (Prev. 0.1%)
- EU GDP SA (Q3 P) Y/Y -0.4% vs Exp. -0.4% (Prev. -0.4%)
Eurozone Retail Sales (Oct) M/M -0.2% vs Exp. 0.0% (Prev. -0.6%)
- Eurozone Retail Sales (Oct) Y/Y -0.1% vs Exp. 1.0% (Prev. 0.3%)
UK PMI Services (Nov) M/M 60.0 vs Exp. 62.0 (Prev. 62.5)
Eurozone PMI Services (Nov F) M/M 51.2 vs Exp. 50.9 (Prev. 50.9)
- Eurozone PMI Composite (Nov F) M/M 51.7 vs Exp. 51.5 (Prev. 51.5)
German PMI Services (Nov F) 55.7 vs Exp. 54.5 (Prev. 54.5)
- German PMI Composite (Nov F) M/M vs 55.4 Prev. 53.2
French PMI Services (Nov F) 48.0 vs Exp. 48.8 (Prev. 48.8)
Spanish PMI services (Nov) M/M 51.5 vs Exp. 49.7 (Prev. 49.6) - Strongest growth since June 2010
Italian PMI Services (Nov) 47.2 vs Exp. 50.4 (Prev. 50.5) - lowest since June
- Services PMI new business index drops to 47.0 vs. 50.7 in Oct - lowest since July.
Germany sells EUR 3.285bln in 1.00% 2018, b/c 1.6 (Prev. 2.3) and avg. yield 0.68% (Prev. 0.71%), retention 17.8% (Prev. 18.3%)
According to sources an EU document suggests watering down proposed EU commission role in single resolution mechanism with EU commission role possibly being limited to final yes or no.
US Headlines
Fed's Williams (dove, non-voter) said Fed should cap QE3, and end it over a period of months once completely confident job market is on right track, adding that he expect to end QE3 sometime next year.
Williams said he is in favour of cutting interest rate Fed pays on excess bank reserves and Fed should be more concrete about what could prompt rate hikes once unemployment falls below 6.5%.
Equities
A combination of somewhat cautious trading update release by Standard Chartered (-6.5%) which consequently pressured HSBC (-1.20%), together with the fact that a number of blue-chip stocks were trading ex-dividend meant that the FTSE-100 index has underperformed its peers this morning. Reports that the EU Commission is to fine 6 banks USD 1.7bln over rate rigging manipulation also weighed on financials, which have underperformed its peers. Nevertheless, heading into the North American cross over, major equity indices in Europe are seen broadly higher, supported by the bounce back by basic materials names which underperformed yesterday and also lower trading Bunds, which were weighed on by the looming supply.
FX
AUD underperformed its peers as market participants digested the release of weaker than expected GDP data and also comments by Australian treasurer Hockey who said Australia has challenges ahead and faces a growth hole as mining investment drops. As a result, the pair tested the key 0.9000 level (3-month low), while the 1-month vol spiked to its highest level since mid-October and tested the 100DMA line. Elsewhere, the release of weaker than expected UK Services PMI report ensured that GBP underperformed its major counter-part EUR, with EUR/GBP rising above 0.8300 in the process.
Commodities
Heading into the North American open, WTI crude futures trade in positive territory following yesterday's API data which showed a large drawdown in crude oil of 12400K, which was the first drawdown in 10 weeks. This move was further exacerbated by news that the opening of the Southern leg of the Keystone pipeline is to begin carrying crude to Texas next month which will reduce current domestic US stockpiles. Meanwhile, Brent crude futures trade with losses after recent bullish gains being curbed by comments from Iran and Iraq saying they both plan to increase output by about 1mbpd each. Perhaps one of the most notable events for the day is ongoing OPEC meeting with the press conference scheduled for 1600GMT/1000CST. In terms of commentary from the conference, so far we have seen the Iran oil minister says Iran wants to return to the oil market and will not follow any limitations once it returns to the oil market.
Furthermore, the UAE oil minister expects OPEC to keep same level of production.
Iran have said that they will pump 4mbpd even if oil falls to USD 20 per barrel.
Saudi Arabia have decided that its oil production should be based on demand from its customers and its own consumption needs, not on those of other oil producers.
OPEC Secretary General El-Badri's term may be extended as there has been no agreement on who should be his successor, according to OPEC sources. However, later reports suggested that three candidates are in the running for the position.
Libya oil minister said expects same level of OPEC production; says Libya producing 250,000 bpd and someone should cut when Libya and Iran output resumes. He added that he expects all problems to be resolved in 10 days and output will rise to 1.5mln bpd in 10 days.
The Iranian Oil Minister expects the nation's oil output at 4mln bpd at end of 2014, whilst, the Iraqi Oil Minister says there is no need for Iraq to cut production next year.
DB's Jim Reid concludes the overnight even recap
What was meant to be a relatively quiet day for markets yesterday turned out to be quite the opposite. Indeed the S&P500 (-0.32% on the day) was down 13 points and on track for its largest fall in one month at one stage yesterday, while the Stoxx600 (-1.53%) had its worst fall in more than three months. On a day with little news flow, most of the weakness in equities was attributed to the squaring of positions and profit-taking ahead of a number of risk events this week including ADP employment today, the ECB tomorrow and payrolls on Friday.
Equities have now been in consolidation mode for three straight sessions but this does come after a solid couple of months of performance. The Dow and the S&P500 have each recorded gains for eight consecutive weeks, the longest such streak for the Dow in two years and the longest consecutive weekly increase in nearly 10 years for the S&P500 (CNBC). After the stronger than expected ISM manufacturing print on Monday, yesterday’s US dataflow did little to calm Fed tapering fears. November total vehicle sales increased to an annual run rate of 16.3M vs 15.15M the prior month and 15.80M forecast. However some commentators noted that steep discounts during the month, averaging more than $2,500 per vehicle, may have boosted sales numbers higher. The average price paid for a new vehicle fell in November by about $200 from the same month a year earlier, the first such drop in nearly three years, according to car-shopping website TrueCar.com (WSJ). Other data also
surprised to the upside including the IBD/TIPP economic optimism survey which gained 2.7 points to 43.1 and beat expectations of 43.0. The ISM New York increased more than 10points to 69.5.
Despite the tapering fears, treasuries and other DM bond markets managed to recoup some of their losses from Monday. 10yr UST yields closed 1.3bp firmer at 2.782%. There was talk of short UST positioning skews, but we should also highlight that treasuries were also supported by a double Fed buy-back. The Fed bought $940m of notes due from 2024 to 2031, followed up $3bn-$4bn of notes due 2019 and 2028. The EUR continued its recent surge against the USD, and it will be interesting to see how it trades in the lead up to Thursday’s ECB meeting. Tapering fears were more evident in the EM space including across a number of FX crosses such as the USDBRL (+0.65%), ISDINR (+0.1%) and USDTRY (+0.23%). Other EM asset classes also fared poorly yesterday including equities (MSCI EM index -1.06%) and bonds (JPM Emerging Market bond index +3bp in spread)
This morning, risk assets are again trading lower led by Japanese equities where the Nikkei (-2%) and TOPIX (-1.4%) are on track for their weakest day in more than a month. Again, there is not much in terms of news flow to drive markets but Japanese equities are being weighed by the 0.4% fall in USDJPY yesterday. Chinese A-shares are outperforming today (Shanghai Composite +1.3%) and there is talk that Chinese regulators are aiming to implement free trade zone rules including interest rate liberalisation and capital account loosening within three months. S&P500 futures are up 0.05% as we type. China’s HSBC services PMI for November printed at 52.5 which was a decline
of 0.1pt on last month but the market reaction was relatively muted. In Australia, the Q3 GDP report came in below expectations (0.6%qoq vs 0.7% expected) and the AUDUSD fell about 50pips in response. In the fixed income space, the benchmark Asian and Australian iTraxx credit indices are a 1-2bp wider this morning, and the high-beta Indonesia 5yr CDS is underperforming (+5bp).
In terms of other headlines, Italy’s PM Letta has set a confidence vote for one week from now (December 11th) in an effort to solidify his power in the Senate after the country’s recent political developments. According to the FT, Letta continues to have the support of Mr Alfano’s New Centre right party, the president, the majority of the Democratic Party as well as the EU institutions, the foreign press and other EU governments. Staying in Europe, our European bank analyst Matt Spick has published his latest investment banking industry outlook where his main message is that he expects the revenue environment to still be challenging, but less so than in 2013. The headwinds from regulation and leverage are now better captured by consensus forecasts, and Matt anticipates that management teams will respond in 2014 with more cost cuts and business exits. We forecast industry revenues up 5% in 2014.
Looking at today’s calendar, the focus will be on the US ADP employment report which will be the last major jobs data release before Friday’s payrolls. For the record, DB is looking for a +190k change in the headline, which is about 20k higher than where consensus stands. Also relevant for payrolls will be today’s November non-manufacturing ISM where forecasts are expecting a print of around 55.0 or about 0.4pt lower than last month. There’s plenty of other US data on today’s docket including international trade, new home sales (for both September and October) as well as the Fed’s Beige Book. In Europe, service sector PMIs will be the main highlight.