While overnight US equity futures have done nothing notable, what everyone's attention has been fixed on, in addition to the GBP and the read-through to all things UK-ish ahead of the Scotland independence referendum, is the sudden flare up in USDJPY trading and volatility, which exploded by some 100 pips in the past 24 hours hitting fresh post-2008 highs, on what appears to be a major capital reallocation move (it surely is not driven by any news) and/or forced squeeze. What is more perplexing is the change in correlations signals, because while until recently the USDJPY was synonymous with the E-Mini, and thus the S&P, as of late the USDJPY pair has moved tick for tick with the 10Year yield: almost as if the NY Fed's favorite HFT trading shop was instructed to change its vast array of signal inputs away from the S&P and to force a gentle levitation in the 10Y.
That said, with little material news on today's radar, and with barely any newsflow even registering when it comes to discounting prices in centrally-planned markets, perhaps it is fitting that today's biggest event is the "prop" breaking news update of the iPhone 6 release. Supposedly a clip of the phone has been leaked and can be seen below. If this is indeed the end product, there may be disappointment for some.
It has been a quiet session over in Asia tool where stocks largely fell with the ASX outperforming and the Kospi underperforming. The Nikkei is +0.3% which has been helped by the USD hitting its highest level against the Yen since 2008 after rising another +0.2% overnight. Outside of Japan Chinese equity markets are broadly flat-to-down whilst broader Asian credit is marginally tighter. MSCI Asia Pacific down 0.3% to 147.8. Nikkei 225 up 0.3%, Hang Seng closed, Kospi closed, Shanghai Composite up 0%, ASX up 0.6%, Sensex down 0.2%. 1 out of 10 sectors rise with telcos, materials outperforming and staples, industrials underperforming
European shares remain little changed with the real estate and oil & gas sectors underperforming and basic resources, telco outperforming. U.K. industrial output rises more than forecast. The FTSE MIB is the notable out-performer, the only major index in the green, supported by positive M&A news for Finmeccanica (+3.1%) and Telecom Italia (+2.9%). The FTSE 100 (-0.2%) underperforms its peers as market weariness over Scottish independence leads investors to shrug off the better-than-expected UK Industrial Production numbers, which Y/Y rose the most since February. Also of note, the UK energy giant, Shell trades in negative territory as the price of Brent continues its decline, adding further pressure to the UK benchmark index. The Spanish and Swedish markets are the worst-performing larger bourses, the Swiss the best. The euro is little changed against the dollar. Spanish 10yr bond yields rise; German yields increase. 11 out of 19 Stoxx Europe 600 sectors rise; basic resources, telco outperform, real estate, oil & gas underperform. 37.5% of Stoxx 600 members gain, 59.5% decline. Eurostoxx 50 -0.2%, FTSE 100 -0.1%, CAC 40 -0.1%, DAX -0.1%, IBEX -0.6%, FTSEMIB +0%, SMI +0.2%
Commodities little changed, with zinc, nickel underperforming and WTI crude outperforming. U.S. small business optimism, JOLTS job openings due later.
Looking to the day ahead it looks set to be relatively quiet on the data front. In Europe, BoE Governor Mark Carney will address the Trade Union Congress at 11.45 (BST) and EU Defence Ministers will begin an informal meeting in Italy. Over in the US we will get the NFIB Small Business Optimism read (expected in at 96) and the July JOLTS Job Openings read (expected in at 4.7m). This read is important as “JOLTS are showing an overall mixed picture,” which is, “one reason why Yellen was hesitant to mark up her assessment of the labor market when she gave the keynote speech last month at the KC Fed’s Jackson Hole conference.” Finally for all those Apple product devotees, get ready for another launch of products today that you don't necessarily need but find yourself irresistibly drawn towards.
Market Wrap
- S&P 500 futures up 0.1% at 2001
- Stoxx 600 little changed at 346
- US 10Yr yield up 3bps to 2.50%
- German 10Yr yield up 4bps to 1%
- MSCI Asia Pacific down 0.3% to 147.8
- Gold spot up 0.1% to $1256.6/oz
Bulletin Headline Summary
- USD-index remains on track for the best 3-month period in six years as rising US yields and M&A flow pushes USD/JPY to the highest level since 2008
- Core fixed income markets trade softer as the market makes way for a glut of supply from the US, UK and various Eurozone states
- Today’s lack of tier 1 data will keep the focus on UK break-up concerns and central bank speakers, with both BoE’s Carney and Fed’s Tarullo on the slate
- Treasuries decline before week’s auctions begin with $35b 3Y notes; WI yield 1.056%, highest since April 2011.
- EU governments abruptly put on hold for at least a “few days” new sanctions against Russia, allowing more time to assess the viability of a cease-fire in Ukraine without risking further trade retaliation by the Kremlin
- Former British Prime Minister Gordon Brown stepped back into front-line politics to offer Scotland almost full power over its domestic affairs as the U.K.’s main parties raced to arrest surging support for independence
- Positioning in currency futures suggests the pound has further to fall versus the dollar before this month’s vote on Scottish independence, even after tumbling more than 6 percent from this year’s peak in July
- China’s yuan rose to a six-month high as the central bank raised its fixing by the most in almost four years following data showing a record trade surplus
- The Fed is planning risk-based capital standards for banks that are tougher than those developed by their international counterparts, Fed Governor Daniel Tarullo will tell lawmakers today
- U.K. industrial production rose 0.5% in July, more than expected
- Obama plans to seek a UN resolution requiring governments to craft regulations and laws to thwart the flow of foreign fighters to militant groups such as the Islamic State
- Palestinian President Mahmoud Abbas will urge the UN to take over from the U.S. as the Middle East’s peace broker when he addresses the world body this month, a senior aide said
- Single Americans make up more than half of the adult population for the first time since the government began compiling such statistics in 1976
- Sovereign yields higher. Asian stocks mixed; European stocks mostly lower, U.S. equity-index futures little changed. WTI crude and gold higher, copper falls
US Event Calendar
- 7:30am: NFIB Small Business Optimism, Aug., est. 96.0 (prior 95.7)
- 10:00am: JOLTs Job Openings, July, est. 4.7m (prior 4.671m) Central Banks
- 10:00am: Fed’s Tarullo testifies to Senate Banking Committee
- 9:30pm: Bank of Japan’s Iwata speaks in Kanazawa City Supply
- 1:00pm: U.S. to sell $27b 3Y notes
FIXED INCOME
Bund futures echoed the heavy trade in T-notes at the open, as core fixed income markets were weighed on by supply from the Netherlands, Austria, Germany as well as the UK, with the equivalent of circa 40,000 Bund futures contracts coming on to the market ahead of the USD 27bln 3yr Note sale from the US later today. Ahead of tomorrow’s new Bund line to be sold from Germany, today’s I/L auction went poorly, with the Bundesbank retaining 21.7% for secondary market operations resulting in the seventh technically uncovered German auction of the year.
EQUITIES
The FTSE MIB is the notable out-performer, the only major index in the green, supported by positive M&A news for Finmeccanica (+3.1%) and Telecom Italia (+2.9%). The FTSE 100 (-0.2%) underperforms its peers as market weariness over Scottish independence leads investors to shrug off the better-than-expected UK Industrial Production numbers, which Y/Y rose the most since February. Also of note, the UK energy giant, Shell trades in negative territory as the price of Brent continues its decline, adding further pressure to the UK benchmark index.
FX
The USD extended the recent march higher, with the USD now on track for its best 3-months in six years. Primarily, the flow was driven by USD/JPY which rose to the highest level since 2008 overnight, with traders watching Rakuten’s USD 1bln all-cash buyout of US-listed Ebates, with the currency change-up seen as positive for the pair. Separately, EUR continues to soften against most others as the German finance minister warns that governments other than Germany will need to undergo reform efforts in order to drive growth (seen as a veiled reference to France).
COMMODITIES
As the USD marches upwards the energy complex has held in the red, with Brent crude below the USD 100/bbl level and WTI well below the USD 94/bbl mark, despite reports of Saudi Arabia production cuts. The USD-index strength continues to weigh on gold (up USD 0.95), which after its poor performance yesterday has remained around 3-month lows reached overnight.
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DB's Jim Reid concludes the balance of the overnight newsflow.
Scotland continues to be on investor’s minds at the moment ahead of next week's referendum. Scotland is also causing controversy in my home. My wife ran the Scottish Half Marathon on Saturday in Edinburgh and her sole aim seemed to be to beat my time for my only ever half marathon 10 years ago. However on the official timings she failed by about a minute which has distressed her deeply and amused me. The plot at this point thickens though as hundreds of runners claim the course was 13.4 miles (from their gps devises) and not 13.1 miles due to an error in laying out the course. The organisers are on my side (i.e. she didn't beat me) and are refusing to acknowledge any error or enter into any correspondence. On the other side my wife is now claiming that the 100s of disgruntled facebook posts from other runners are ample justification for my being demoted in the Reid household record books. She stopped her gps devise at 13.1 miles and the time was a minute inside mine. Alex Salmond or David Cameron may have to step in to say whether they will open an enquiry or not before I endorse either campaign.
On next Thursday's independence referendum, the YES movement has got further momentum overnight with the news that the latest TNS-BMRB poll has voting at 38%-39% (Yes-No) including 23% undecided voters. This polling company has been showing one of the largest leads for the 'NO' campaign with the previous poll at 32%-45% in favour of the 'NOs'. So more and more evidence is building suggesting Sunday's poll wasn't a one-off and that momentum is changing.
Before this second poll the shock of the YouGov weekend survey did have a noticeable impact on the obvious sensitive areas and stocks yesterday. Sterling was understandably weak down and -1.23% for its single biggest daily loss in over a year. UK bank equities were also weak and even bonds suffered. RBS and Lloyds were generally +5-10bps wider in the morning session before firming in the afternoon to close +3-5bps on day. In European equities we recovered from the morning lows but overall losses were led by the UK and peripheral euro area nations as the FTSE 100, IBEX 35 and FTSE MIB closed down -0.3%, -0.4% and -0.5% respectively. The broader Stoxx600 was down -0.4% on the day. European credit was also soft with iTraxx Main widening +0.7bps, Xover +5.3bps, Fin Sen +1.2bps and Fin Sub +2.6bps.
US markets were also slightly lower with the S&P 500 down -0.31% whilst CDX IG and HY widened +1bp and +4bps respectively. Government bonds also struggled a little in Europe and the US yesterday as 10yr US, German and UK paper edged up by +2bps, +3bps and +1bp respectively.
Overnight markets have fared slightly better with Japan leading the gains. The Nikkei is +0.47% which has been helped by the USD hitting its highest level against the Yen since 2008 after rising another +0.2% overnight. Outside of Japan Chinese equity markets are broadly flat-to-down whilst broader Asian credit is marginally tighter.
In other news, EU members have formally brought in new sanctions against Russia, including restrictions on large Russian state-owned oil companies raising capital in European financial markets, although these sanctions are said to come in, “in the next few days” and not immediately. The BBC reports that this vagueness around timing was to allow the EU members to assess how Friday’s ceasefire is holding up. On the ceasefire, yesterday the OSCE (which helped broker the deal) described it as, “shaky.” Staying with geopolitical news, Iraq’s parliament yesterday approved a new government. The US described the move as a, “major milestone” and the news comes as US Secretary of State John Kerry travels to the region to build, "the broadest possible coalition of partners around the globe to confront, degrade and ultimately defeat ISIL". (BBC).
Looking to the day ahead it looks set to be relatively quiet on the data front. In Europe, BoE Governor Mark Carney will address the Trade Union Congress at 11.45 (BST) and EU Defence Ministers will begin an informal meeting in Italy. Over in the US we will get the NFIB Small Business Optimism read (expected in at 96) and the July JOLTS Job Openings read (expected in at 4.7m). As our US economics team writes, this read is important as “JOLTS are showing an overall mixed picture,” which is, “one reason why Yellen was hesitant to mark up her assessment of the labor market when she gave the keynote speech last month at the KC Fed’s Jackson Hole conference.” Finally for all those Apple product devotees, get ready for another launch of products today that you don't necessarily need but find yourself irresistibly drawn towards. It might be best that I find somewhere to hide.
