Not much going on tonight, except for the non-coupy martial law announcement in Thailand where the government is said to still be in charge of everything except for martial law decisions taken by the army of course, which in turn is in charge of everything else apparently including the central bank which intervened so extensively in the market, the Baht was barely changed at one point. There was also news of explosions and clashes in Benghazi but as everyone knows, what difference does Libya make at this, or any other, point. Additionally overnight there were reports that the cities of Slavyansk and Kramatorsk in east Ukraine were being shelled by the Ukraine army but that too barely registered as bullish for the USDJPY (which in now traditional fashion ramped during the US day session then sold off during Asia hours).
Since there are no major economic announcements in the US today, one day ahead of the FOMC minutes due tomorrow, markets will be focusing on headlines out of China where Putin has started his 2-day visit and is expected to announce some groundbreaking deals and alliances with China shortly. Additionally, overnight Russian Prime Minister Medvedev said that "Russia is being pulled into a new Cold War with the U.S. and its allies, who are using economic warfare reminiscent of the Soviet Union under Brezhnev, blaming Obama, for a lack of political tact."
Also keep an eye on peripheral European bonds all of which have seen another day of significant weakening even as the US 10 Year is back down to 2.53% after briefly threatening yesterday to be sold off.
But don't forget: only two things really matter today:
- there is a ~$2.5 billion POMO, and
- it's a Tuesday.
Which as every E*trade baby knows is the most bullish combination for centrally planned markets anywhere. For now the USDJPY and the spoos are slow to recall these two facts but give them time - after all one needs "confidence" that the successful manipulation of markets will continue come Polar Vortex or El Nino.
Bulletin headline summary from RanSquawk and Bloomberg
- EUR underperformed GBP as projected interest rate paths between UK and EU rates continued to diverge, though today's UK CPI (1.8% vs Exp. 1.7%) was skewed by transitory effects and failed to lift GBP/USD even higher.
- RBA minutes struck a dovish tone as the bank is to remain accommodative for the time being, which consequently sent AUD/USD below the 0.9300 level and the 50DMA line.
- Treasuries steady, 10Y yields holding near YTD lows, curve spreads little changed after 5/10 yesterday reached steepest in a month. NY Fed’s Dudley speaks on economy and monetary policy at 1pm ET today; no eco data.
- Russia is being pulled into a new Cold War with the U.S. and its allies, who are using economic warfare reminiscent of the Soviet Union under Brezhnev, Russian Prime Minister Medvedev said, blaming Obama, his one-time partner in a reset of relations, for a lack of “political tact”
- Putin starts a two-day visit to China today, seeking to complete an agreement on natural gas supplies to the world’s second-largest economy, held up for more than a decade because of a debate over the price
- Thailand’s army imposed martial law nationwide after months of political turmoil that brought down an elected leader and tipped the economy into a contraction
- JPMorgan Chase & Co., HSBC Holdings Plc and Credit Agricole SA were accused today by the EU’s antitrust arm of colluding to manipulate interbank lending rates
- From centuries-old pubs to Mayfair clubs to the halls of Parliament, London is abuzz with talk of escalating property values, foreign buyers with piles of cash and half-built garages selling for vast sums
- Sovereign yields higher. Nikkei +0.5%, Shanghai +0.2%. European equity markets decline, U.S. stock futures decline. WTI crude and gold little changed, copper higher
US Event Calendar
- No major economic reports
- TBA: Bank of Japan monetary policy statement
- 12:30pm: Fed’s Plosser speaks in Washington
- 1:00pm: Fed’s Dudley speaks in New York Supply
- 11:00am POMO: Fed to purchase $2.25b-$2.75b notes in 2021-2024 sector
EU & UK Headlines
Peripheral bond yield spreads gradually erased initial yield spread tightening to trade broadly wider, as softer stocks saw Bunds come off the worst levels of the session. In terms of macroeconomic releases, the focus was on the UK based inflation data, which as noted by the ONS was boosted by transitory effects including Easter and air fares. Looking elsewhere, the price action across EU money market rates continued to indicate that markets have now more or less priced in a small rate cut, which when combined with a lack of commitment regarding the implementation of QE or negative rates, resulted in only modest flattening of the Euribor curve.
Equities
Stocks are seen broadly lower in Europe, as less than impressive earnings report by Vodafone (-3.91%) weighed on telecommunications sector, while the ongoing price pressure on iron ore futures meant that basic materials was the second worst performing index. Of note, HSBC (-0.73%) and Credit Agricole (-0.54%) shares came under pressure this morning after the EU Commission charged the two and also JP Morgan of rate rigging.
FX
GBP/USD failed to benefit from higher than expected inflation related data and instead pared part of early gains after the ONS said the increase inflation was due to transitory effects including Easter and air fares, thus boosting the figure. Nevertheless, EUR underperformed GBP as the outlook between the monetary policy outlooks between the ECB and the BoE continued to diverge.
Of note, AUD remains broadly lower, with AUD/USD below the 50DMA line, after the RBA minutes released overnight noted that inflation forecasts are consistent with target for next two years, adding that markets expect no change to the cash rate in 2015. The outlook for the pair remains bearish, amid decline as capital inflows and weakness in iron-ore prices.
Commodities
The release of the latest World Gold Council demand report which revealed that gold demand in India and China has fallen in Q1, failed to result in a sustained pressure on gold, as report also noted that demand in India will likely recover as import restrictions are relaxed. Prices were also supported by the uncertainty surrounding looking elections in Ukraine and FOMC minutes tomorrow (Of note, London GOFO fixes showed first time all months have been positive since early April). Elsewhere, iron ore futures on the DCE touched CNY 695 (USD 110) overnight, a record low for the contract, on oversupply concerns in China.
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DB's Andy Reid concludes this overnight summary
As we look across Asia, gains in cyclical and tech stocks from the US session has carried through to overnight markets. Gains are being paced by the Nikkei (+0.8%) and Hang Seng (+0.8%). There are pockets of weakness though, for example in Thailand, where the Baht (-0.05%) and Thai equities (-0.9%) are both weaker after the Thai military declared marshall law nationwide. The Thai army chief has said that the move is not a coup but is part of an attempt to restore law and order with the political landscape still at a gridlock. Thai sovereign CDS is quoted about 6bp wider today at around 130bp.
Elsewhere in the Asia Pacific region, a drop in iron ore prices below $100/mt and continuing evidence of a rapidly cooling Chinese housing market has been shrugged off by markets with shares in Australian miners Rio Tinto and BHP largely unchanged today. Speaking of Australia, S&P’s sovereign analyst warned late yesterday that he was “looking for a narrowing of budget deficits as evidence of ongoing commitment to running finances prudently” and the importance of that to Australia retaining its AAA rating. This also has been largely shrugged off by investors – the Australian 10yr yield is up a couple of basis points today though that is largely as a result of the US moves. The RBA’s May meeting minutes contained little in the way of surprises and the central bank reiterated that policy will remain accommodative for some time to offset slower export growth, mining spend and fiscal consolidation. AUDUSD is down 0.2% today, at around 0.930.
Yesterday could be summed up by stronger equities, weaker yields and an especially weak European periphery. In Europe there was decompression between core and non-core with Spanish and Italian yields up more than 6bp, compared to Bunds which were up around 2.5bp in yield. EM sovereign cash had a stronger session with bonds 2-3bp tighter in general in both EMEA and LATAM. Indeed, EM has a had a fairly strong run this month with the MSCI index up for three weeks in almost uninterrupted fashion. During this period it has added around 4.3%. Sentiment in EM yesterday may have been helped by Russia’s Putin who reportedly ordered Russian troops near the Ukrainian border back to base, six days ahead of Ukrainian presidential elections. Putin told forces in the Rostov, Belgorod and Bryansk regions to return to their bases after completing exercises but the White House and NATO officials said they saw no immediate evidence of a withdrawal.
Ahead of next month’s ECB, Bloomberg’s monthly economist survey has indicated that 90% of respondents expect the ECB to ease policy at the June meeting. This probably doesn’t come as much of a surprise given the degree of pre-commitment offered by Draghi and various other ECB officials over the past week or so. This includes the ECB’s Mersch, one of the more hawkish members of the ECB executive board, who said yesterday that the likelihood of the governing council acting in the next meeting has grown substantially. He also said that the governing council is unanimous in its willingness to deploy conventional and unconventional measures to counter low inflation. Of the 47 economists who predicted an easing, a little less than two-third thought that the policy easing would include a cut in the repo and deposit rate. A much lower percent of respondents (8%) thought that the ECB will introduce an asset purchase program or extend its LTRO program.
Turning to the day ahead, there is not a lot on the calendar outside of a number of central bank speakers. The ECB’s Barnier and Nouy speak in Frankfurt today. The NY Fed’s Bill Dudley and Philly Fed’s Plosser will be speaking about the economy. Dudley has recently commented on the Fed’s exit strategy with regards to rate hikes and portfolio wind downs so his speech will be of interest. In terms of data, UK CPI and German PPI are the major releases today.