It has been a fairly quiet few days with traders around the world returning from the Easter long weekend this morning.
As Deutsche Bank notes, the latest developments in Ukraine have perhaps been one of the major highlights over the last couple of days. Following an extended 7-hour meeting last Thursday, Russia, Ukraine, the EU and US all agreed to put an immediate end to violence in eastern Ukraine. The Geneva accord called on illegal armed groups to surrender their weapons and leave official buildings. However, three were killed in a shooting at a checkpoint manned by pro- Russian separatists near Sloviansk early on Sunday. This has prompted accusation from the Russian Foreign Minister Lavrov who blamed the interim Kiev government for violating the Geneva accord. According to the BBC, the local separatists said the attack was carried out by Right Sector militants but Kiev called it a "provocation" staged by Russian special forces. The US has warned the next few days will be pivotal and has threatened more sanctions against Russia if it fails to abide by the Geneva accord. Russia’s Lavrov said that all attempts to isolate Russia through sanctions or other tactics would fail because Russia is “a big independent power that knows what it wants”. US vice president Joe Biden is due to visits Kiev today and tomorrow and will meet government leaders. So stay tuned for more headlines.
Staying on EM, the market is expecting S&P to publish a sovereign-rating outlook update on Russia amid the Ukraine crisis on Friday so let's see if we'll get more volatility ahead of that. For the record, Russia is now rated BBB+/Neg by S&P and its Baa1 rating is on review for possible downgrade by Moody's. On that note, S&P also noted that EM ratings are showing its highest negative bias since 2010. There were 53 EM downgrades and 10 upgrades in Q1 of 2014 led by cuts for Brazil and Ukraine. It will be interesting to see how broader EM, and in particular, the Russia/CEEMEA complex performs today.
Staying on EM but moving on to Asia, Chinese regulators are seemingly backing off earlier pledges to keep local government debt risk in check by allowing local governments financing vehicles (LGFVs) to issue new bonds to help
repay maturing debt and ensure existing infrastructure projects
continues smoothly. A total of RMB100bn (US$16.5bn) of LGFV bonds are
expected to mature this year, according to the NDRC (WSJ).
Moving onto overnight markets, apart from China we are seeing broad based gains across most Asian equities. Bourses in Japan, Korea and Australia are up +0.2%, +0.2% and +0.5% respectively whereas the Hang Seng and the Shenzhen Composite indices are down -0.2% and -1.1% as we type. The gains in broader Asia Pacific followed what was another constructive session for risk assets yesterday during US trading hours. The S&P 500 (+0.38%) rose for its 5th consecutive day partly driven by better corporate earnings from the likes of GE and Morgan Stanley.
Staying on the results season, we’ve had 70 of the S&P 500 companies reporting so far and the usual trend is starting to emerge in which earnings beats are faring better than revenue beats. Indeed the beat:miss ratio for earnings has been strong at 77%:23% whereas revenue beats/misses are more balanced at 50%:50%. Looking ahead, markets should get ready for another big week of US earnings.
Just over 150 companies (33% of the S&P 500 index’s market cap) are due to report featuring some major corporate such as the likes of Apple, Boeing, Electrolux, Facebook, McDonald’s and Microsoft. On the macro front, we have existing home sales (today), new home sales (tomorrow), and Durable goods orders (Thurs) in the US to look forward too. In Europe, we have the BoE minutes of the April meeting on Wednesday but all eyes should be on the preliminary Euro-area PMI for April. In China, the flash HSBC Chinese PMI manufacturing for April is also due tomorrow.
Bulletin headline summary from Bloomberg and RanSquawk
- Treasuries steady, yields holding near weekly highs before week’s $96b note auctions begin with $32b 2Y; WI yield 0.436%, drew 0.469% in March.
- 10Y yield’s 25bp range since Jan. 24 is smallest of past decade; in only one other 12-wk period (in March 2013) has 10Y yield range been less than 30bps
- Vice President Biden expressed U.S. support for Ukraine during a solidarity visit to Kiev, as an agreement with Russia to ease tensions in nation’s east showed signs of collapse
- Obama’s trip to Asia this week brings him face-to-face with allies who have grown uncertain about his commitment to the region
- French President Hollande’s biggest hurdle in pushing through a plan to cut public spending is emerging from a small yet vocal group within his own Socialist ranks
- Sovereign yields mostly higher. Nikkei -0.9%, Shanghai +0.3%. European equity markets, U.S. stock futures gain. WTI crude and copper lower, gold little changed
US Economic Calendar
- 9:00am: FHFA House Price Index m/m, Feb., est. 0.5% (prior 0.5%)
- 10:00am: Richmond Fed Manufacturing Index, April, est. 2 (prior -7)
- 10:00am: Existing Home Sales, March, est. 4.56m (prior 4.60m); Existing Home Sales m/m, March, est. -1% (prior -0.4%) Supply
- 11:00am POMO: Fed to purchase $900m-$1.15m in 2036-2044 sector
Asian Headlines
JGBs traded lower amid early strength in the Nikkei 225 and USD/JPY. Asian stocks traded mixed with the Nikkei 225 down 0.85% flat after gapping higher at the open, bolstered by JPY weakness. The Hang Seng index traded down 0.1% weighed on by weakness in utilities. Elsewhere, the Shanghai Composite finished higher by 0.2% despite the PBoC draining CNY 100bln via 28-day repos; 19th consecutive drain. The PBoC have cut its rural RRR by 2% in a move that will not affect overall banking liquidity. (BBG) This follows on from
the reports on April 16th that China would lower the RRR for village and rural banks.
EU & UK Headlines
ECB's Coeure said the ECB has room to cut rates further whilst accommodative monetary policy is justified. Coeure also added EUR appreciation has contributed to the low levels of inflation in the Eurozone. (Le Monde)
Citi have said the ECB is likely to conduct asset purchases in H2 of 2014 and the central bank will probably cut interest rates before implementing QE. (Citi)
US Headlines
Looking ahead, US earnings take focus with Comcast, McDonald's and United Technologies due to report pre-market and AT&T and Gilead Sciences due to report after-market.
Equities
Equities have traded in the green since the get-go with healthcare names taking centre-stage following Novartis announcing major restructuring of its operations including deals with Eli Lilly and GSK and as such healthcare stocks have led the way for Europe.
FX
FX markets continue to remain relatively rangebound with some minor USD weakness stemming from JPY strength, whilst AUD outperforms after AUD/USD tripped stops overnight amid talk of cooperate name and leveraged accounts buying AUD.
Commodities
Libya's NOC says still no decision when Zueitina port might reopen, Sharara and El-Feel fields still closed. The Zueitina port was set to open with the Hariga port which resumed operations last week. (RTRS)