Following Friday's sticksave, where the usual 3:30 pm ramp brigade pushed futures just barely green into the close despite a miss in the payrolls report which the spin brigade did everything in its power to make it seem that the hiring a few hundred thousand young female waitresses was bullish for the economy, overnight we have seen a listless session, dominated by more USD-profit taking as increasingly more wonder if the relentless surge higher in the Greenback is massively overdone, especially considering that stocks are screaming "worldwide recession" [34]excluding the US, if only for now, because as Goldman explained soaring USD means plunging Oil, means tumbling E&P capex, means lower GDP, means less growth, means lower corporate profits, and so on.
That said, we expect the now trivial Virtu JPY momentum-ignition algos to activate shortly, pushing the USDJPY and its derivative, the S&P500, higher in the coming minutes, and certainly before the US market opens in under 3 hours.
Over in Europe things were ugly as usual, with the economic highlights coming from Greece, where deflation reigns, as CPI dropped -1.7%, below the -0.9% expected, and down from -0.8%, while Industrial Production tumbled -5.1%, also far below the -3.8% expected. The triple dip recession is also strong in Italy where Industrial Production also plunged from 0.2% to -0.9%, below the -0.2% expected.
Despite, or rather thanks to the now traditionally weaker European data, European shares remain higher with the oil & gas, construction stocks outperforming, real estate, travel sectors underperforming. The Spanish and Dutch markets are the best-performing larger bourses, Swiss the worst as the EURCHF approaches the SNB's 1.2000 floor ever closer, and should the gold referendum pass the Swiss Bank will have a choice: buy 1500 tons of gold, or scrap the floor. The euro is stronger against the dollar.
From an Italian perspective, the MIB has been dragged lower by the troubled Italian Banking sector, with some analysts noting the political uncertainty in the country following reports that the Italian President could step down from his role before the end of his term. In Spain, participants have shrugged off the results of an informal vote on independence for Catalonia, which showed that 80% are in favour of the notion. In stock specific news, Siemens have traded lower throughout the session after a negative broker move at JP Morgan, while Serco are down a staggering 33% after issuing a profit warning and rights issue.
Meanwhile, the Bank of Russia cuts 2015 growth forecasts.
Over in Asia, JGBs traded up 18 ticks, underpinned by weak Japanese stocks and with notable curve flattening observed ahead of tomorrow’s 30yr JGB auction, with 5s/30s up 1.9bps. Asian equities started the week on a firm footing led by Chinese bourses after confirmation that the exchange link between Hong Kong (+0.8%) and Shanghai (+2.3%) will debut on Nov. 17th. Moreover, market participants chose to overlook mixed Chinese data including an upbeat Trade Balance report, which analysts attributed to ‘over-Invoicing’, while Chinese CPI came in line with expectations. The Nikkei 225 (-0.6%) fell weighed on by JPY strength after the currency gained back lost ground against the greenback. Shanghai Composite rises as China says the Shanghai-Hong Kong exchange link will debut in a week.
Commodities gain, with nickel, silver underperforming and natural gas outperforming. Looking ahead, today’s session sees a distinct lack of tier 1 data releases, although Fed’s Rosengren is due to speak at 2210GMT/1610CST.
Market Wrap
- S&P 500 futures up 0.1% to 2027.9
- Stoxx 600 up 0.2% to 336.1
- US 10Yr yield down 2bps to 2.28%
- German 10Yr yield down 1bps to 0.8%
- MSCI Asia Pacific up 0.8% to 141.3
- Gold spot down 0.5% to $1171.7/oz
Bulletin Headline Summary from RanSquawk and Bloomberg
- European equities trade largely in the green, with volumes exceedingly thin, while Gilts lead the way higher for fixed income markets ahead of an expected pessimistic QIR release from the BoE.
- The USD-index has pulled back from last week’s hefty gains, with USD/JPY retreating back towards the 114.00 level.
- Looking ahead, today’s session sees a distinct lack of tier 1 data releases, although Fed’s Rosengren is due to speak at 2210GMT/1610CST.
- Treasuries extend Friday’s post-payrolls gains before week’s quarterly refunding auctions begin with $26b 3Y notes; yield 0.94% in WI trading vs 0.975% in October.
- U.S. bond markets closed tomorrow for Veterans Day, stock markets open; auctions resume Wednesday with $24b 10Y notes
- China’s exports rose 11.6% in October, more than estimated; imports rose 4.6% vs 5.0% median estimate in a Bloomberg survey, leaving a trade surplus of $45.4b
- China and Japan broke a two-and-a-half year summit drought as the leaders of Asia’s two largest economies met in Beijing, seeking to repair ties frayed by territorial and historical disputes
- The exchange link between Hong Kong and Shanghai will debut in a week, giving foreign investors unprecedented access to China’s $4.2t equity market
- Japan PM Abe considers dissolving parliament if planned Oct. 2015 sales tax increase is postponed, Yomiuri reports, citing unnamed officials; Abe adviser Etsuro Honda says sales tax raise could harm recovery
- The Financial Stability Board said today that the biggest banks may be required to have total loss absorbing capacity equivalent to as much as 25% of risk-weighted assets, with national regulators able to impose still tougher standards
- Russia’s economy will probably stagnate next year, the central bank said in the broadest official acknowledgment of the damage wrought by sanctions over Ukraine and a slump in oil prices
- A leader of Ukraine’s pro-Russian separatists discussed the conflict with senators in Moscow as violence intensified in the territory his forces had seized
- Prime Minister Rajoy’s plan to use the Spanish constitution to stop Catalans from voting on independence failed as regional officials defied the government, the state prosecutor and the nation’s highest court to hold the ballot; more than 2m Catalans voted, with 81% backing independence
- Sovereign yields lower. Asian stocks mixed; Nikkei -0.6%, Shanghai +2.3%. European stocks, U.S. equity-index futures rise. Brent crude and copper gain, gold falls
US Event Calendar
- 10:00am: Fed Labor Mkt Conditions Index, Oct. Central Banks
- 5:10pm: Fed’s Rosengren speaks at Washington and Lee University, Lexington, Va.
- 1:00pm: U.S. to sell $26b 3Y notes
ASIA
JGBs traded up 18 ticks, underpinned by weak Japanese stocks and with notable curve flattening observed ahead of tomorrow’s 30yr JGB auction, with 5s/30s up 1.9bps. Asian equities started the week on a firm footing led by Chinese bourses after confirmation that the exchange link between Hong Kong (+0.8%) and Shanghai (+2.3%) will debut on Nov. 17th. Moreover, market participants chose to overlook mixed Chinese data including an upbeat Trade Balance report, which analysts attributed to ‘over-Invoicing’, while Chinese CPI came in line with expectations. The Nikkei 225 (-0.6%) fell weighed on by JPY strength after the currency gained back lost ground against the greenback.
FIXED INCOME & EQUITIES
Despite a relatively mixed start, European equities trade largely in the green with the exception of the FTSE MIB, with a lack of fundamental newsflow to drive price action. In volume-thinned markets, European stocks have been provided some reprieve by the modest rebound in commodity prices which has subsequently seen basic material and energy names outperform throughout the session alongside the softer USD. From an Italian perspective, the MIB has been dragged lower by the troubled Italian Banking sector, with some analysts noting the political uncertainty in the country following reports that the Italian President could step down from his role before the end of his term. In Spain, participants have shrugged off the results of an informal vote on independence for Catalonia, which showed that 80% are in favour of the notion. In stock specific news, Siemens have traded lower throughout the session after a negative broker move at JP Morgan, while Serco are down a staggering 33% after issuing a profit warning and rights issue.
Elsewhere, despite the modest strength in European equities, fixed income products trade higher amid particularly thing volumes, with Gilts leading the way higher ahead of expectations that the BoE will push out its forecast for a rate-hike after they downgrade their UK growth forecasts at this week’s QIR release.
FX
In FX markets, profit-taking in the USD-index has largely dictated price action, with USD/JPY trading in close proximity to 114.00. Elsewhere, EUR/CHF could be a key focus for markets after printing its lowest level since Sept 2012 and residing just above that 1.2000 floor. EUR/USD once again sees a heavy-flow of option expiries which could dictate price action with USD 2.2bln at 1.2500 due to roll-off at the 1500GMT NY cut. Furthermore, RUB has strengthened against the USD following comments from the Russian Central bank that they have decided to cancel its limited interventions of USD 350mln a day if the RUB rate falls below "certain" level.
COMMODITIES
In the energy complex, both WTI and Brent crude prices have been supported by news of the closure of the El Feel oil field in Southwest Libya which is the third oil facility in Libya to shut down within a week. Additionally, according to an oil official Libya’s Hariga port is still closed, although it may open Tuesday if talks with protesters succeed. Furthermore, one thing to be aware of is the ongoing situation in Eastern Ukraine, with fighting in the area said to be the worst seen in months. In metals markets, Gold is currently trading modestly lower after marking its biggest gain since June on Friday following the NFP report, while
base metals have supported by Chinese trade data.
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DB's Jim Reid concludes the weekend event recap
there's plenty to talk about this morning following the US payrolls print on Friday. But first the strong performance in HK/Chinese equities has been the main story overnight despite another soft inflation print out of China. Indeed the positive market sentiment in Chinese equities this morning was largely led by news that the much anticipated Shanghai-Hong Kong Stock Connect will launch on November 17th. The Hang Seng and the CSI have rallied +1.6% and +1.7% respectively on the back of the news which will allow foreign investors the access to tap into the Chinese equity market. Away from equities it's also worth noting that the PBOC has also raised the daily reference rate for the CNY by 0.37% to 6.1377/dollar representing the largest single day rise since June 2010.
Market sentiment aside fundamentals are a little more mixed with dis-inflationary pressure the continuing theme in the region. Indeed October’s Chinese headline CPI came in at 1.6% yoy. Whilst this is in line with consensus it was basically unchanged from the previous month and still the slowest since January 2010. PPI was lower with a -2.2% yoy fall in October which was a steeper decline than expected (-2.0% yoy). Chinese PPI yoy growth has been negative every month since 2012 and the fall in commodity prices clearly isn’t helping of late but it also shows the excess capacity that industrials are enduring at the moment. The subdued CPI/PPI print follows on from what was a stronger-than-expected Chinese trade data report (US$45.4bn surplus v US$42.0bn expected) over the weekend although Reuters noted that the strength may have been subject to data manipulation and distortion from speculative hot money. Elsewhere in Asia trading is generally mixed with bourses in Taiwan (+1.5%) and Korea (0.9%) outperforming Japan (-0.6%) and Australia (-0.4%) in Asia this morning.
Taking a step back now and reviewing Friday’s price action in the US, markets were generally unchanged at the close of play following what we would describe as a mixed payrolls print. The headline October reading showed a below expectations gain of +214k (vs. +235k expected) although we also had a +31k upward revision to the previous two months whilst private payrolls rose +209k compared to +244k previously. Our US colleagues pointed out that the breadth of job gains were solid with manufacturing (+15k), construction (+12k), trade (+49k), financial activities (+37k) and government (+5k) all up on the month. Household employment rose +683k over the period whilst the number of unemployed fell -267k representing the largest gain in household employment since November 2013 and leading to a modest decline in the unemployment rate to 5.8% (from 5.9%), and now at a post recession low. Our US team concluded if it had not been for a high seasonal hurdle, the October jobs gain would have been well over 300k suggesting that the October print could get revised meaningfully higher and/or the November reading could be noticeably stronger than October’s results.
The S&P 500 closed +0.03% on the day, perhaps reflecting the uncertainty as to how to read the data. Nevertheless this was still enough to extend the all time closing high. More interesting price action was in Treasuries though which saw yields notably lower probably on the softer earnings details within the payrolls release. The 2y closing 4bps lower whilst the 10y fell 8bps to close at 2.30% and the US $ pared back some of its recent gains as the DXY index closed 0.5% lower to 87.594. Credit indices reflected the moves in equities as the IG23 closed modestly wider (+0.75bp) and HY23 remained unchanged.
Closer to home, European markets weakened into the close following the US data with the Stoxx 600 -0.5% lower on Friday. Before this, Germany reported a fairly subdued industrial production print, +1.4% mom which was well under the 2.0% mom consensus. Our European economists noted on Friday that while industrial production fell 0.3% qoq, this was a much smaller drag than the Q2 print although the further deterioration in confidence data does suggest that the underlying economy is weak, despite the robust expansion of private consumption. As a result the team have lowered their GDP forecast (due this week) for Q3 to 0.1% (from 0.4%). Bunds were modestly stronger following the print, 1bp lower to 0.82%. Looking around the rest of the Eurozone, France (0.0% mom versus -0.2% mom expected) and Spain (1.0% versus 0.7% expected) reported firmer industrial production prints.
Staying in Europe, there was further news out over the weekend that Russia has expanded its military presence on rebel-held areas of Ukraine following the deaths of as many as 200 separatists at Donetsk airport. This comes after the Russian Ruble closed out another volatile day on Friday, down 0.2% versus the Dollar although appreciating as much as 2.3% following news that the Central Bank of Russia would take action to halt the crisis.
Before preview the week ahead, Bloomberg have reported that 81% of voters, or 1.6m people have voted for independence in the Catalan non-binding referendum with 88% of the polling stations counted for at this stage. The ballot went ahead peacefully over the weekend despite the tensions with Madrid. The election has been deemed illegal by the Constitutional Court but it will add some pressure on Prime Minister Rajoy to respond. As a minimum it does give some legitimacy and momentum to the independence movement.
Looking at the week ahead we have the usual post payrolls lull in US data with key releases mostly concentrated at the back end of the week. Indeed the global data calendar is fairly light over the first two days with just trade data and consumer confidence in Japan to look out for ahead of a US holiday on Tuesday. There’s a lot to digest on Wednesday starting with industrial production in the Eurozone. This is then followed up with a focus on the UK as we get the BoE inflation report and various employment data whilst later in the day will bring wholesale inventories out of the US. The early prints on Thursday include industrial production in Japan and China along with retail sales in the latter followed by CPI readings in France, Germany, Italy and Spain as well as the JOLTS report in the US. We round off the week with FDI data out of China as well as ever important GDP readings for France, Germany, Italy and Portugal. Finally Friday brings business inventories data out of the US along with retail sales and consumer sentiment. Whilst data looks to be on the lighter side of things, we’ve got a host of Fed speakers which could be worth keeping an eye out for. The Fed’s Rosengren will be speaking today as well as Kocherlakota and Plosser on Wednesday but possibly the highlight will be Bullard’s speech on the US economy on Friday. On the micro front this week will bring the end of peak earnings season in the US with notable reports from Wal-Mart and Cisco. Closer to home we will hear from 67 of the Stoxx 600 companies, highlighted by SABMiller and Vodafone.
