After subdued trading in the overnight session until a little after 8pm Eastern, algos went into overdrive just around the time the Fed's 2015 voting member and uberdove Charlie Evans told reporters that "raising rates would be a catastrophe", hinting that the first rate hike would likely be - as usual - pushed back from market expectations of a mid-2015 liftoff cycle into 2016 or beyond (but don't blame the US, it is the "international situation [35]'s" fault), in the process punking the latest generation of Eurodollar traders yet again. Whatever the thinking, S&P futures soared on the comments and were higher by just under 20 points at last check even as Crude has failed to pick up and the 10Y is barely changed at 2.00%.
European equities (Eurostoxx50 +1.6%) trade in positive territory after overnight gains in Asia (Nikkei +1.7%) following post-FOMC Minutes remarks from Fed’s Evans in which the market perceived as dovish. However, since the open equities have slowly drifted lower as markets remain on the back foot given the ongoing man hunt and continued troubles in France.
In stock related news, UK retailer Tesco (+6.4%) maintained its profit guidance after four consecutive profit warnings and Marks & Spencer (-3%) trading update missed expectations. Firmer equities have in turn weighed on Bunds and T-notes (-10 ticks), where both French and Spanish supply was smoothly absorbed into the market. The GE/GR 10yr spread (-11bp) is seen tighter after two polls further indicated the SYRIZA’s lead narrowed ahead of the 25th January snap election and reports that Germany are open to Greek debt talks after election, according to lawmakers, citing possible easing of Greek repayment terms. However, they are not open to a Greek debt write-off.
Heading into the US entrance the USD (+0.41%) trades near session highs as EUR/USD hit 9 year lows on the break below 1.1800. Reported hedge fund selling of EUR/GBP also weighed on the pair. Elsewhere, GBP/USD traded at its lowest levels since July 2013 after tripping stops through 1.5050 as the USD weighed on the pair.
In the energy complex, Brent and WTI have traded sideways and have held onto gains. Brent trading above $51, holding rebound after price drop yday under $50 to lowest for front-mo. since 2009. WTI gains, narrows discount to Brent to $2.16, tightest spread since Oct. Brent futures “recovered from its 1st test below the $50 level since April 2009 to settle at $51.15/b, up $0.05 from the prior close,” says Citi Futures energy futures specialist Tim Evans. “The recovery suggests that the mkt has fallen enough to reflect its weak fundamental prospects, at least for now.” Citibank analyst Fitzpatrick sees WTI bottoming nr ~$45.50. Feb. Brent +20c at $51.35, range $50.71-$51.91; yesterday fell to $49.66 intraday. February WTI +26c at $48.91, fell to $46.83 yesterday lowest since April 21, 2009.
Meanwhile, NatGas futures slid to a two year low overnight as US temperatures appear to be turning milder. Separately, Precious metals slide with Silver underperforming (-1%) alongside the USD strength. Copper saw marginal gains overnight and is on course for its first increase for 2015 amid an increased appetite for riskier assets, while China’s iron futures declined as investors declined on continued underlying weak demand.
HSBC says they are raising their average gold price forecast for 2015 to USD 1,234.00 from USD 1,175.00, leaves 2016 unchanged at USD 1,275 and say raising 2015 gold forecast based on the possibility that further USD strength could trigger safe haven demand for bullion.
In Summary: European shares rise close to intraday highs with the retail and health care sectors outperforming and tech, real estate underperforming. German factory orders fall more than expected in November, which in turn pushed the plunging EURUSD to fresh multi-year lows just above 1.176. The French and Italian markets are the best-performing larger bourses, Swedish the worst. The euro is weaker against the dollar. Irish 10yr bond yields rise; Japanese yields decline. Commodities gain, with natural gas, silver underperforming and zinc outperforming. U.S. jobless claims, consumer credit, Challenger job cuts due later.
Looking over today’s calendar we kick off this morning in Europe with November factory orders data for Germany. This is followed up later with various prints for the Euro-area including PPI, retail sales and various confidence indicators. As well as this we also have the BoE decision this morning. This afternoon in the US, we have more employment data with the Challenger job cuts reading for December as well as the initial claims numbers. November consumer credit rounds off the releases.
Market Wrap:
- S&P 500 futures up 0.7% to 2034.4
- Stoxx 600 up 1.6% to 338.7
- US 10Yr yield up 3bps to 2%
- German 10Yr yield up 1bps to 0.49%
- MSCI Asia Pacific up 1.2% to 136.4
- Gold spot down 0.5% to $1205.7/oz
- 19 out of 19 Stoxx 600 sectors rise; retail, health care outperform, tech, real estate underperform
- 91.3% of Stoxx 600 members gain, 8% decline, Eurostoxx 50 +1.8%, FTSE
100 +1.3%, CAC 40 +2%, DAX +1.4%, IBEX +1.7%, FTSEMIB +1.8%, SMI +1.8% - Asian stocks rise with the Nikkei outperforming and the Shanghai Composite underperforming. MSCI Asia Pacific up 1.2% to 136.4, Nikkei 225 up 1.7%, Hang Seng up 0.7%, Kospi up 1.1%
- Euro down 0.57% to $1.1771
- Dollar Index up 0.56% to 92.4
- Italian 10Yr yield up 1bps to 1.92%
- Spanish 10Yr yield up 2bps to 1.71%
- French 10Yr yield up 1bps to 0.8%
- S&P GSCI Index up 0.4% to 398.2
- Brent Futures up 0.5% to $51.4/bbl, WTI Futures up 0.6% to $48.9/bbl
Bulletin Headline Summary:
- European equities remain higher, although have slightly pulled off best levels, helped by dovish comments from Fed’s Evan’s
- Looking ahead sees the BoE rate decision (1200GMT/0600CST) with analysts expecting rates to be left unchanged as well as US initial jobless claims (1330GMT/0730CST)
- Treasuries decline, 10Y rises above 2.00% amid gains in stocks, stabilization in crude oil, nearly $32b investment-grade deals over last two days; Dec. nonfarm payrolls due tomorrow, est. +240k, unemployment rate to 5.7% from 5.8%.
- China isn’t planning to expand fiscal spending to stimulate growth, according to the economic planning agency, as President Xi Jinping said the country is able to maintain a “medium to high growth” rate
- Kaisa Group Holdings Ltd., the Chinese developer that defaulted on a loan last week after its chairman departed, can’t say if it plans to meet a coupon payment today as a local news website said lenders took steps to preserve assets
- German factory orders slid 2.4% in Nov., first decline in three months, after a revised increase of 2.9% in October, data from the Economy Ministry in Berlin showed
- German 10Y yields, already at the lowest on record, may drop to near zero, according to Royal Bank of Scotland Group
- Paris was in a state of turmoil as a shooting south of the city today claimed the life of a policewoman and police continued to seek two of the perpetrators of yesterday’s massacre at satirical magazine Charlie Hebdo
- The youngest suspect in the deadly attack on Charlie Hebdo has surrendered, according to the Paris prosecutor’s office, as the police named two assailants still at large
- Cherif Kouachi, one of the suspects, was arrested by French police a decade ago for his role in a jihadist recruitment cell
- Greek Prime Minister Antonis Samaras’s effort to overtake opposition Syriza party’s lead before elections in less than three weeks is running out of steam, polls show
- The majority of money gathered by Bill Gross’s new fund at Janus Capital Group Inc. came from the same Morgan Stanley brokerage where his personal financial adviser works, according to the WSJ
- Sovereign yields mostly higher. Asian stocks mostly higher; Shanghai -2.3%; European stocks, U.S. equity-index futures gain. Brent crude, WTI higher; copper gains, gold lower
US Event Calendar
- 7:30am: Challenger Job Cuts, y/y, Dec. (prior -20.7%)
- 8:30am: Initial Jobless Claims, Jan. 3, est. 290k (prior 298k)
- Continuing Claims, Dec. 27, est. 2.36m (prior 2.353m)
- 9:45am: Bloomberg Consumer Comfort, Jan. 4 (prior 42.7)
- 3:00pm: Consumer Credit, Nov., est. $15b (prior $13.226b)
Central Banks
- 7:00am: Bank of England seen keeping bank rate at 0.50%
- 12:00pm: Fed’s Rosengren speaks in Madison, Wisc.
- 8:00pm: Fed’s Kocherlakota speaks in Minneapolis
As is customary, DB's Jim Reid concludes the overnight summary
After marking the start of 2015 with 3-consecutive days of losses, markets rebounded yesterday with equities rallying across the board. As well as the release of the FOMC minutes, there was plenty for the market to focus on with softer European inflation data lifting hopes of ECB QE and stronger US employment perhaps the highlights. The S&P 500 closed +1.16%, snapping 5 sessions of consecutive losses whilst the Dow recovered +1.23%. Energy stocks (+0.34%) and US HY energy names (-10bps) rallied following a rebound in WTI (+1.50%) although that masks what was another volatile day for oil markets which we’ll touch upon later. Credit markets also firmed with CDX IG finishing around 1.5bps tighter. With a better tone in the market US Treasuries weakened, the benchmark 10y yield failed to hold a brief move back above 2% but still finished the day 2.8bps higher at 1.968% - bouncing off the recent lows in yield. One theme which continues however is the stronger Dollar. The DXY index strengthened +0.43% yesterday and supported in part by what was a strong ADP employment report. The +241k reading came in ahead of +225k consensus and improved from the upwardly revised +227k in November. The print was also the strongest since June and comes before the ever-important payrolls numbers tomorrow. Elsewhere, a narrowing of the trade deficit (-$39bn from -$43.4bn) was the other notable release. Our US colleagues noted that the print benefited from an 11.9% decline in petroleum imports and highlights the fact that falling energy prices will provide a meaningful tailwind for consumer spending.
In terms of the FOMC minutes yesterday, the release was largely seen as a non-event with nothing of great surprise in the details. The minutes confirmed that we are unlikely to see ‘lift-off’ before April this year, specifically noting that ‘most participants thought the reference to patience indicated that the committee was unlikely to begin the normalization process for at least the next couple of meetings’. With regards to inflation, the Fed made reference to concern that some members noted the risk of inflation running below the 2% target, however the minutes also mentioned that ‘it was noted that the committee might begin normalization at a time when core inflation was near current levels, although in that circumstance participants would want to be reasonably confident that inflation will move back towards 2% over time’ – signaling that the drop in inflation itself will not necessarily stop the Fed from moving. Perhaps of more interest was discussion over the difference between pricing for market-based measures of expected Fed Funds rate and the Fed’s SEP projections. The minutes noted that one possibility could be that market-based measures could be assigning greater weight to less favorable outcomes for the US economy relative to the Fed itself, and therefore suggest the Feds Funds rate would remain low for some time. In terms of the overall minutes however, there was little for the market to react to.
Coming back to oil markets yesterday, both WTI and Brent (+0.10%) closed firmer at $48.65/bbl and $51.15/bbl respectively, recovering somewhat from 4-days of consecutive losses – although both traded as much as 2-3% lower intraday before recovering post the EIA inventories report. The recovery appeared to be as a result of data showing crude inventories decreasing by 3.1m barrels in the week ending January 2nd (relative to the previous week) – although we note inventories still remain at the high end of the seasonal range. The data appeared to make for mixed reading however with the WSJ noting that US stockpiles of crude, along with refined oil and other types of petroleum rose nearly 1% to 1.149bn barrels over the week. The earlier news from Saudi could be a more interesting story longer-term. Crown Prince Salman (stepping in for the ill King) yesterday seemed to emphasise more demand side causes for the slide in oil rather than the previously emphasised supply side explanations that they have generally been holding responsible. This could matter as it may eventually give the Saudis and other GCC states an excuse to change tact on production sooner than the next OPEC meeting in June on the basis that if the facts have changed so might their policies. This is perhaps 2+2=5 but with Oil continuing its slide one has to watch OPEC's reaction carefully as they could create the basis for a snap back if they decide to alter their stance.
Turning our attention to this side of the pond, risk assets in Europe also had a strong day with the Stoxx 600 closing +0.48% and Crossover rallying 16bps. The better tone was supported by a soft Euro-area inflation print, lending support to the hopes of imminent ECB QE with inflation now running well below target. The headline reading of -0.2%yoy for December came in a touch below consensus (-0.1%yoy) but was significantly down from November’s +0.3% print. The negative reading also marked the first sub-zero print since 2009. Core inflation was, however, more encouraging with the +0.8% ahead of the +0.7% consensus – emphasizing the disinflationary effects of energy prices. 5y5y breakeven levels initially dropped to a low of 1.504%, around 6bps lower, although it closed nearly 2bps up at the end of play (1.585%). Rounding off yesterday’s data, unemployment for the Euro-area remained unchanged at 11.5% although the reading declined modestly in Germany (6.5% from 6.6%). Retail sales in the latter also improved during November rising 1%mom (vs. +0.2% expected).
Elsewhere, Greek equity markets were open again yesterday although the ASE (-1.46%) extended its recent lows. Greek bonds fared little better. 3y (+160bps) and 10y yields (+94bps) climbed to 15.65% and 10.69% respectively – the latter breaking through 10% for the first time since mid-2013. The moves come following the latest opinion polls (GPO) which showed SYRIZA maintaining its 3% lead over its nearest rivals the New Democracy party Our resident expert George Saravelos noted that the figures showed something of a collapse in support for smaller parties and that due to polling technicalities in Greece, this means a greater number of seats to the first party thus potentially favoring a SYRIZA outright win. Staying on Greece, a report from French newspaper Le Monde noted European Economic Affairs Commissioner Moscovici favoring keeping Greece in the Euro-zone, stating that ‘it’s important for monetary union’. In the same report however, when questioned over any potential negotiation of a new schedule for Greek debt with SYRIZA, Moscovici commented that ‘this question is not on the agenda any more than that of a Grexit’. Additionally, a Reuters report yesterday cited German newspaper Bild as saying that Germany has started running scenarios for the Greek elections at the end of the month in case of a SYRIZA victory. The article suggests that Germany is making contingency plans for a possible ‘Grexit’.
Quickly refreshing our screens this morning, bourses in Asia are following the lead from the US and generally trading stronger. The Nikkei (+1.76%), Hang-Seng (+0.48%) and Kospi (+1.11%) are all firmer. Chinese equities are the notable underperformer however with both the Shanghai Composite (-1.67%) and CSI 300 (-1.80%) lower – although it appears the weaker sentiment is more profit taking than anything else. Just on China, in response to the Bloomberg article regarding the reported $1tn stimulus package our DB China colleagues noted this morning that they do expect aggressive policy easing to happen in 2015, and see March as a more likely start date given their view that activity data over the first two months of this year will likely surprise to the downside.
Before we look at the day ahead please note that our European Corporate Credit Analyst team will be presenting their best trade ideas at the Annual European Leveraged Finance Research Outlook presentation here at Deutsche Bank offices in London next Friday, January 16. Registration begins at 7:30am with the presentation starting at 8am. Pre-registration is required to attend (contact laurion.burrow@db.com [36]). The team will be covering trade ideas across the European High Yield Industrials and Manufacturing (Richard Phelan); Telecom and Cable (Vivek Khanna and Neyla Velimoukhametova) and Retail and Consumer (Ronan Clarke and Jennifer Halliwell) sectors. In addition, Nick Burns will finish with a presentation covering our European High Yield Strategy Outlook.
Looking over today’s calendar we kick off this morning in Europe with November factory orders data for Germany. This is followed up later with various prints for the Euro-area including PPI, retail sales and various confidence indicators. As well as this we also have the BoE decision this morning. This afternoon in the US, we have more employment data with the Challenger job cuts reading for December as well as the initial claims numbers. November consumer credit rounds off the releases.
